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

Good morning, everyone, and welcome to the full year 2024 preliminary results. [Operator Instructions]. And with that, I'll hand over to József.

Thank you. Good morning, everyone. Thank you for coming. So, this is reporting the results of the last financial year, fiscal '24. And I hope the way you come close with that is that we delivered what we told you to deliver. So, this year was delivered in line with our expectations and our guidance to the market. If could we move, please, the slide, to the next one. Okay. So net profit, EUR 366 million. This is a turn of EUR 900 million year-over-year. And this is net profit. But if you look at operating profit, it is the same number. So, the business has turned EUR 900 million over the year. And we are delivering it in line with guidance. Capacity continue to growth despite the challenges arising from the supply chain on an ASK basis, we were up nearly 25%. And with that, we delivered a record traffic, of course, with 62 million passengers in the financial year. Previous record was, fiscal '23 with 51 million passengers. We benefited from the revenue environment. RASK went up mid-single digit, 4.6% year-on-year, most driven by improvement on ticket revenue. CASK. We think it was a very strong performance. You recall that we were explaining that last 2 years or so, we were operating business at suboptimal levels in terms of utilization and some of the operational KPIs. The financial year significantly improved on all accounts. We will deep dive into those. And as a result, you see CASK improved significantly 15%. And it is interesting to put it in perspective vis-a-vis the rest of the industry, you will see that some of our competitors actually have gone to the opposite direction with regard to CASK, but we've been able to put costs under control. And as a result, we are now the lowest cost producer in the industry, on par with the previous cost leader. And we're seeing that we are well set for building cost advantage, unit cost advantage from here on a structural basis. Operational metrics, much improved. Completion rate is back to standards, 99.4%, and we've actually got a head start in the current financial year. Wizz Air is the best-performing airline in the whole of Europe with regard to flight completion. On-time performance has improved a lot, still a way to go, but some of it is the function of the supply chain. Some of it is our own internal improvements, which we are working on. Utilization, went back to standards. Now we have reached fiscal '20 levels, pre-COVID utilization levels, and certainly be much improved versus the previous financial year. Total cash, EUR 1.6 billion. We maintained our investment-grade rating with Fitch. We have talked a lot about the threat and bit issues. So, I think you are fully aware of that. At the end of the financial year, we had 45 aircraft on the ground resulting from the GTF matters. As you also guided the company received compensation for that. So, that was kind of a bush in terms of excess cost and compensation watching each other. Now the good thing, just to put it off on is that now we start seeing a turn as we speak. We are now receiving clean engines on the one side, and we are also seeing improvements at Pratt & Whitney with regard to shop visit. Time needed to push through the engine, the shop. We received our second consecutive Board from CAPA for leadership on global sustainability. And as you are aware, we just celebrated our 20th anniversary with actually a record day for sales. We managed to sell revenue of EUR 37 million over 1 day, which is a new daily record. And during that, 20 years of operating history, we carried nearly 400 million passengers. And I remember when I was in London on the day of the first flight, that's 19th of May 2004. And I was interviewed by Richard Quest at CNN and he put it out like, "Look, I mean, you are the 57th airline just recently created. Who the hell do you think you are needed for?" And well, 400 million people decided to need Wizz Air, which, of course, makes us very proud. Could you please move the slide. So just to give you a snapshot where the business is at the end of the financial year. As you can see, capacity was growing significantly on seat terms, 18%. ASK terms that was 20%, 25%, as you recall. We are up 21% on passenger traffic. The fleet has been growing actually significantly. We haven't really seen kind of the full benefit of that due to the engine inspections. But at the end of the financial year, the fleet reached 208 aircraft. The age of the fleet continues to come down. That is important for operating unit cost purposes. The renewal rate is now over 60%, which is significant. So, I would say that probably of any airline on the planet with scale, Wizz Air is the most renewed carrier. Average seat count is now up to 224, that gives us a significant competitive advantage. Gauge comes with unit economics. So, the higher the gauge, the lower the unit economics will become. And I think that gives us a structural advantage versus the rest of the industry. And up gauging continues to forward. Going forward, as we will essentially exclusively take deliveries of all the A321neos in the future. We are operating to nearly 200 airports over 50 countries across 33 operating bases. And of course, with the growth of the business, our employee base also grew. We added 600 million shops inside the company, of course, a lot more outside the company serving the Wizz business. We remain focused on sustainability, our carbon footprint, and we further reduced that to 52 grams. I mean, you will see that with a huge advantage, we are the leading airline when it comes to our carbon footprint. Could you please move the slide. We told a lot about operations and the challenges we encountered over the years. I mean, you now see that significant turnaround has been happening across the operating metrics. Probably the most important one is fleet utilization. Fleet utilization is back to standards, actually above fiscal '20 level when we operated the airline with 12 hours of utilization. Now it's more like 12.5 hours, and it's a huge improvement versus fiscal '23. As you can imagine, given the logic of the business model we implement. This is a very significant factor and cornerstone to the cost performance of the business because we have a lot of fixed cost in terms of fleet, in terms of employees, pilots coming through, et cetera, and we have to be able to spread the fixed cost and the higher utilization we achieved, the better we can spread the cost. So, the lower the unit cost will become completion rate, as said, back to standards, big improvement versus previous year, but also above fiscal '20 levels, 99.4%. And as I said, we just had a head start in the current financial year and completion rate is 99.8%. And with that, we are the best operating airline in Europe. On-time performance keeps improving. I think we have to take note of the fact that we are in a more challenging supply chain environment still that hampers our ability to perform on time. Nevertheless, given all the investments we have put in place for enhancing the resilience of the business model and the operating model you now start seeing improvements actually happening. So, all in all, we're seeing that the fundamentals of the business are back in place. Operations have been turned around. And now financially, business is benefiting from those investments and turnarounds. So, with that, I would hand it over to Ian. Could you please move the slide.

Thank you, József. So, in terms of financial performance, very strong revenue results, 30.2% higher versus F '23. And that's based on 25% capacity growth. So, we're growing our revenue faster than that, and that's because of higher unit revenue, 4.6% higher unit revenue. At the same time, our fuel costs reduced year-on-year despite the higher capacity. And that's a combination of price. So, our fuel price on average was 18% lower year-on-year. The hedging program that we reinstated in fiscal year '24 and fuel efficiency driven by the market-leading aircraft in the A321neo. Nonfuel costs increased by 15%, which, of course, is lower than the 25% capacity growth, implying that there's a unit cost savings there, which we'll talk about in subsequent slides. In terms of EBITDA, we swung at $1.2 billion year-on-year. So, $1.2 billion is the total unit -- sorry, EBITDA for the year, which is a very healthy number and helps towards our leverage. In terms of operating profit, as Joe mentioned at the beginning, we see a $900 million swing, so similar results in terms of EBITDA, operating profit and reported profit. It's very proud moment to talk about having a $535 million loss last year and a $366 million profit this year. So, it's something that we're all proud of and we thank the team for delivering this. In terms of cash, we ended up roughly the same as last year, slightly ahead, and that's despite a $500 million bond repayment that took place in January. That payment was paid out of cash on hand. And so, no additional debt was required to service that. If I can go to the next slide, please. As mentioned, ASKs grew 25%. That's our capacity. Our revenue grew 4.6%, in line with guidance. Guidance was mid- to high single digits. In fact, all of our guidance metrics are met this year. But unfortunately, it was on the lower end of guidance. And so, there's certainly work to be done and causes for that. We provided an indication as to where revenue was under pressure this year. So, ticket RASK was a strong double-digit growth there, but the ancillary declined, and most notably in H2 F '24 due to challenges that we saw in the Middle East and in Israel, due to the latest Israel and Hamas war, and then having to redeploy high ancillary revenue capacity into other markets that were impacted by the seasonality, November and then into Q4, as well as a shorter booking window for the holiday season. So, there's a lot of opportunity there to bring that back in line. And as you'll see from our guidance later on, we expect that to come back in F '25. Load factor, we talked about. And so, I think we can go to the next slide on this one. So, in terms of unit cost, I think this is where we start to get really exciting and really punchy. And so, as you can see, basically, most lines are either flat or have reduced. Fuel, we talked about. Staff increased, 9.1% increase in staff, although I'd point out that that's a much lower growth number than our competitor who saw staff costs increase by 20%. Depreciation went up slightly, and that's a line item that continues to be under pressure in the business due to the fact that we're taking on as many aircraft as we are. They are more expensive aircraft, and we're grounding a lot of our aircraft currently. So, there's an inefficiency that comes through that. I would point out, however, that the cost impact on ex-fuel CASK is mitigated by a total CASK, which we'll look at in a subsequent slide. Overall, the cost line was supported by -- the cost base was supported by the other cost line. And in there, we've provided a hopeful breakdown, which gives you some color as to what's happening. So, you can see that there was an increase year-on-year in unit cost benefit on the sale-leaseback line. So, there's 2 elements to that. There is an aircraft element. And so, the aircraft sale-leaseback gains follow the fleet profile and the delivery profile. But what happened in F '24 and what will happen to some extent in F '25 is that we started ramping up on spare engines. And the rationale for that is strategic. So, we have the benefit of the Pratt & Whitney compensation arrangement, and that helps for parked aircraft. But we're, as I might remind everybody in the business of flying aircraft. And so, what we wanted to do is make sure that we had support for the outer years so that we can continue the growth plan, which resumes after this fiscal year. And so, we made a strategic choice to invest into engines, engines that we would otherwise need as our fleet grows, but that could -- we could benefit from now. And so, we've started securing as many engines as we could, either from sale leasebacks or from third-party lessors, or, in fact, leasing engines from Pratt as part of a strategic desire to build up our spare engine bank. That investment will pay off in F '25, '26 and '27. And there is, in fact, a payoff in F '24 because consistent with our aircraft financing strategy, we sale leaseback our engines. And if there's a benefit in F '24, so be it because at the end of the day, having more engines available to us will allow us to put more aircraft back in the sky sooner and make us less reliant on compensation, even though, of course, we continue to benefit from that and expect to in the future. There's also the supplier compensation line there. And I would caution you to assume that all of that is attributable purely to Pratt. There are other suppliers in there that move the numbers around. So, it's not going to be as easy to try and work out what our confidential arrangement is with Pratt. As you can see, disruption increased, and that is solely due to the engine challenges and the disruptions we had in the Middle East over the fiscal year. And so, you need to look at the combination of all these elements when it comes to our overall P&L, and understand that we wouldn't have compensation without groundings. I think it's also important to point out that everyone focuses on the cost increase or the cost impact from disruptions, whether it's engine related or geopolitical-related. But there's also a revenue impact, as we mentioned, in the form of the challenge we face when having to redeploy capacity. And so, there's -- one perspective would be to say if there was no disruption, you wouldn't have the benefit from the engine sale leasebacks or from the supplier compensation. But then at the same time, you'd have higher revenue. So, what we're doing is basically trying to lock in our profit margin to a level where once we start flying again, we can take that margin and expand it. So that's the background behind this call out on the other, and I'm sure that there'll be lots of questions as we move to that phase of the conversation. So, with that, could I ask we go to the next slide. This is a slide that we're very pleased to point out. What we've done is we've taken our total CASK because at the end of the day, while we challenge our divisions to focus on ex-fuel cash to make sure that we're bringing down the areas of the business that the line management can control. At the end of the day, we need to look at the overall difference between RASK and CASK when it comes to maintaining profitability, driving profitability, and delivering shareholder value. And you can see that in fiscal year '23 to '24, either unadjusted or adjusted to 1,600-kilometer stage length, either way, we saw a decline year-on-year in ex-fuel CASK, whereby Ryanair saw an increase, a dramatic increase year-on-year. And then looking at the arrows on the top, you see that compared to fiscal year '20, so pre-pandemic, both of our cost bases are growing, which is expected in an inflationary environment, ours is just growing slower. And that comes down to superior aircraft capacities to the higher gauge. It comes down to the efficiency in terms of fuel and it comes down to the many of the cost lines where we are back to where we were pre-pandemic. So, we're pretty pleased to be the lowest cost producer out there and to rebut any assertions otherwise. Next slide. In terms of cash, as mentioned, we maintained strong cash levels, roughly 30% to 35% liquidity in terms of what the ratio is versus revenue. Our net debt did increase this year, and that's driven by a combination of having more aircraft delivered total aircraft in the fleet. including those that are grounded as well as there was a working capital swing this year, and that is driven by the way that the Pratt & Whitney and other supplier credits are accounted for. When we agree on the credits, but they haven't actually been applied yet, they end up in a working capital swing, so then of driving up the overall net debt -- net debt number. But as you can see, the leverage ratio has come down, as you would expect it would, and it will continue to come down. And at this point, we're thinking that we should be down below 2 by the second half of F '26. So, that deleveraging will continue, and that's what's supporting the investment-grade rating from Fitch, and we expect now with these results out in the public that we will reengage with Moody's to recover that rating as well. Ultimately, the cash balance was driven by operating cash and to some extent, some of the smaller loan facilities, the PDP facility will be fully repaid in the next 12 months, and we will be repaying our ETFs facility in September at the same time that we surrendered those emissions credits. So overall, pretty pleased with the cash position. And based upon our forecast, we see that balance increasing assuming, of course, that there are no further unexpected events, which would be nice for a change. And with that, I'll hand it back over to you, Joe, on the ESG.

Yes. Thank you. So, carbon footprint is the result of basically 3 factors: technology, the air in operates gauge, the efficiency of the aircraft and some of the operating practices when it comes to fuel burn. As you can see, Wizz Air, anyway you look at it is the undisputed leader of carbon footprint or emission reduction in the industry. We are almost 30% lower rate than Ryanair, next best, and significantly lower than any of the other guys or the airlines in Europe. We have been recognized for this twice by CAPA, based on objective measures and selection criteria. Of course, we are very proud of our credentials with that regard. And we continue to build our track record on sustainability. So, you should be expecting us to stay in the front row when it comes to reduction of carbon emission. And as a matter of fact, if I look at all the commitments of these airlines, what they have made for 2030, they would be still over near to where we are today, and we would continue to reduce, of course, our own footprint. So, I think we are in a good spot with regard to 2 years. Could you please move to the next slide. So, I think it comes to fund, GTF. So, let's move to the next slide, please. So GTF, at the moment, we have 4 to 7 aircraft on the ground. We're seeing that we are at the peak as we speak. And we are expecting basically 2 significant changes affecting the recovery of the GTF engine situation first. Now we started receiving spare engines, clean powdered matter. So those engines are no longer subject to inspections, and we are expecting the same to happen to new aircraft deliveries as of June. So, as we speak, now the engines, we are getting cleaner powered meter. Of course, all the engines we have been receiving to date, will remain subject to operating cycles. And if you really think about this kind of the way the math works is that you operate the engine for 18 months, remove the engine and put it in a shop. And depending how quickly you can push the engines through the shop is it you will regain the engine. So, somewhere around 2 years, I would say, from now on, then we're going to be at the end of the recovery cycle. But again, the good news is that new entries coming out unaffected and not subject to inspection. So, the other thing positive development is that for the first time now, we are seeing improvements at Pratt & Whitney. We used to be taking the assumption of every shop time of 300 days. And now we are seeing some engines coming out of Pratt after 180 days. So that's good. So clearly, they have been able to improve their own procedures and their own production and supply of parts to speed up the shop visit process. So, we're seeing that a lot of it is now becoming structural and quite likely that we'll create upside for us with regard to regaining the engine after grounding. We are still making fairly conservative assumptions. So, we are assuming 50 aircraft on the ground in the first half of 25%. We may do a little better than that as a result of the improvements of Pratt & Whitney. I think we have talked a lot about is that we are protecting capacity by taking more spare engines. Ian told about it. Actually, this is a strategic investment for the company. We continue to take new aircraft deliveries, extended existing A321 CO leases, and also took a few market leases, 3 dryly aircraft and a few wet leases on a seasonal basis to make sure that we protect capacity. So, net-net, in financial year '25, we are expecting to deliver flat capacity as a result of all of that. And we also talked about the way we are compensated for that by the OEM. So, no real change with that regard. So really, the news I'm trying to break today is that probably a bit more upside. Now we are seeing versus kind of the dark picture what we have painted before. Of course, our final objective is to get out of this completely, and we are taking all measures and actions possible to make sure that we get the OEM to collaborate on that to make sure that we come out of this ditch as quickly as we can, and we can focus on flying the airline. I mean, I think we have become very good at parking gap, but our business is flying aircraft. So, we need to get back to that model. So could you please move the slide. So, margin expansion, we think we have a significant runway in front of us when it comes to margin expansion. Well, first of all, our operational performance is now solidified and we're seeing there is more upside coming out of it. So, aircraft utilization continues to rise. And this year, we are expecting 45 minutes of operational fleet utilization of the flying fleet, of course, but that includes maintenance, normal maintenance aircraft, spare aircraft everything. It's a patent-related grounded aircraft that are externalized. On-time performance continues to improve and completion rate continues to improve. So, we think that we're going to be less prone to operational disruptions. It's unavoidable, but we think the level will get lowered, and we will be less subject to EU 261 compensation at the same time. So more to come on the operating metrics. Capacity protection, as I said, we have taken a number of measures to make sure that we are protecting capacity. And that capacity remains intact as opposed to being subject volatility on a continuous basis. So, we think that capacity becomes more predictable, more schedulable, and more rosterable from a crew perspective that I think are significant factors for operational and commercial stability. It's not only operational but also commercial. I mean, you don't find to affect the customers with constant changes, rescheduling and rebooking and those sorts of issues. So, we think that the measures we put in place is not only protecting the numbers, but the measures also protect the stability of that capacity. And last but not least, everything is a double-edged sword. So obviously, the bad news is that we are unable to materialize the growth opportunities in front of us. But at least, we are taking the yield upside of that as now we ended up with scarcity of capacity, the business yields up against that. So, we're seeing that, that situation will continue to create upside on pricing and load factors. And as a result, will contribute to profitability. We expect the next financial year will be a significant growth here. So, a 20% loss growth, we are expecting again. Still, we are somewhat subject to pretty recovery. So, we will need to see how the process gets completed and how exactly we're going to be gaining the ground data. And also, there are some volatilities with regard to Airbus' capacity to deliver a new aircraft, we'll talk about it. But fiscal 2016, we think is going to be a big year when it comes to growth and our eyes are already on fiscal '26 because you can imagine, you have to procure markets, pilots, and cabin crew to ahead of time to make sure that you are able to execute against that growth plan. Would you please move to the next slide. With regard to network, we are benefiting from a lot of maturity happening on the commercial side. And also, we make sure that we protect our competing markets despite the scarcity of capacity. We are very focused on competition to make sure that there is nothing to be given up despite the capacity challenges. We have been investing significant capacity into Hungary, Albania, Italy, Poland, Romania, the U.K. These are the most contested markets, and we want to certainly protect our market positions. You can see on the next chart, middle chart, how maturity has been rising. We used to have a lot of volatilities on network and capacity coming through the adjustments for geopolitical issues, the Ukraine adjustment, Russia adjustment, as well as the Middle Eastern adjustments recently, but now you are seeing that actually, that network is significantly more mature going into the fiscal '25 period, which obviously yields profitability through maturity. And the third one to the right is really showing you the overall adjustments for profitability. So, we looked at the performance of the business, and you see that we essentially cut capacity in the underperforming quartile of the business and move that capacity into the top-performing quarter. So, you're going to get profitability through that line as well. So, I think it's a strong commercial plan. And now hopefully, you kind of put the paste together, you see operations improving significantly. And you are seeing the maturity and profitability coming through the plans on the commercial side as well. And of course, these are the major sources for profitability of the current financial year. Could you please move the slide? Yes. I mean, as to revenues, I mean, that's one of the areas we think we needed to address to make sure that we get more robustness out of ancillary revenues. Although I wouldn't think of ancillary revenues like coming totally incremental on top of ticket revenues. There's a significant cannibalization factor between the 2. Nevertheless, we want to make sure that we are robust, and we have been developing or enhancing a number of products to make sure that we increase our market appeal. If you are interested, we can get into it later, but let's move to the next slide. So, I think this is important. So, this is showing you the fleet plan. Fiscal '25 is firmed up in terms of new aircraft deliveries, in terms of extensions of existing aftermarket aircraft as well. Fiscal '26 is still somewhat in limbo because we know that Airbus will have delays affecting the contracted delivery positions. What we are showing here to you is the positions contracted as per contract today. But fiscal '26 and onwards, we remain subject to a contract amendment. So, we are expecting 30, 30-plus aircraft to be less in fiscal '26 delivered to the business. So, my expectation would be that during the course of fiscal '27, we're going to be hitting the 300 numbers. So quite likely fiscal '26 is going to end up with around 265-ish aircraft, and fiscal '27 is going to be around 300, 300 plus. So what time is approaching. And basically, we have less than 3 years now to go from 175 lines of flying essentially this summer to 300 aircraft in 2.5 years, 3 years down the line. So, this is significant. This is machine focus with regard to our operational revenues, commercial revenues to make sure that actually we are ramping our execution capacity up against the fleet program. So, this is significant coming. Well, please move to the next slide. ETS. This is just a short update to you as you know that the current ETS allowance system is going to be phased out by 2026. From our perspective, now the playing field is going to get level. We have been usually disadvantaged from the current ETS system as the system favored incumbents, and we were not an incumbent being an up-and-coming airline. So, we have been suffering significant competitive disadvantages from debt. But now this is all getting levered. And as a matter of fact, now we start benefiting from some of the reallocation of 3 carbon units. So, you can see that actually, the whole ETS credit system is now turning into our benefit finally. Next slide, please. So, outlook and guidance for the financial year. First, we are guiding net profit EUR 500 million to EUR 600 million. and this is on the basis of flat capacity. This is flat across the year. So, it's not like picking up in one period, pretty much we see flat on H1 as well as H2. Some improvement on load factors. We are seeing an upside there. Current 90% is going to go to around 92%. RASK, we are seeing high single digit. And I know that you're going to be testifying us, okay, the other guys are saying, tear that. But a few things first. We didn't overcharge the market last year. So, our base is somewhat different. You remember last year for us was a big growth year. So as a desire, this is somewhat dilutive to the revenue generation of the business. So, we have a different base. Firstly, secondly, you saw from Ian slide that we are having a very different direction on cost. Our unit cost is falling. Others are creeping. As a result, they talk more and more about revenue because that's what you do when you don't control cost that you bet on revenue, we still control cost, and we remain focused on cost. But because of scarcity of capacity, actually, we're going to be yielding of the business. But don't take the misperception that maybe the summer is a benign environment that we just make so much money in somewhere to cover ourselves for winter. Actually, we're going to -- we think we're going to be yielding up more in winter. Given the situation in winter 2023, '24, we moved a lot of capacity and reshuffled capacity as a result of the war in Israel Gaza. We also beefed capacity up against the GTF groundings to make sure that we maintain utilization. So, we think actually, second half of RASK improvement is going to be probably stronger than the first half. But as far as we can charge at the moment, we see it was the environment for our capacity and our guidance is empirically evidenced, of course, on a time gone basis. Ex-fuel cost is going to go up. Not necessarily because it's intended, but it's because of the grounding of engines. I mean, let's not forget that around 20% of our capacity will be on the ground or 20% of the fleet will be on the ground during the financial year. That grounded part of the fleet comes with a lot of capital costs, but we are unable to spread. Of course, we get some compensation for that, but we also have to carry some on productivity as a result of building up pilot capacity, having through capacity for future growth but unable to operate that capacity over the short-term. But I would say that, that kind of a spike on ex-fuel, CASK is expected to be temporary. And as we are regaining operational integrity over the GTF engines, this is going to be eliminated. Fuel cost, we expect it to be flattish. So, on that basis, we are expecting margin to expand and deliver EUR 500 million to EUR 600 million net profit. I think that concludes the presentation. Thank you. So, questions.

[Operator Instructions].

It's Harry Gowers from JPMorgan. I've got 2 questions, if I can. First, lots of noise recently, some of your peers reporting softening price, or at least maybe some more mixed messaging on the outlook. Is that something you would echo it all over the next few months? And you're seeing Ryanair dumping their fares into the marketplace, and then everyone else has a follow-up. And then second one, maybe you could just talk us through the large working capital swing in a bit more detail on the outflow there for the year just gone. How much is just a bit of a timing component on the supply credits and anything else there on the receivables side and then into '25, should we expect another outflow given the flat growth?

Maybe I'll start off with the summer question. I know that there's a lot of anxiety and excitement around this matter in light of recent announcements by some people. You have to see the differences between airlines. So as far as we are concerned, we actually have scarcity of capacity versus demand for our services. So, this is more pushing the yield up as opposed to going the other direction. And as I said, we didn't rip up the market last summer, when you rip up the market and you overcharge the market in a way. I think at some point, if you start creating a plateau, you can do that every year unlimited. And I think this is about the issues for many of the airlines, they've just gone up so much on pricing. I mean, you can track it how much prices have gone up by airline. So, there is a limit to it. As far as we are concerned, we're seeing the markets are robust. We don't really see any significant weakening of markets anywhere. So, I mean, we operate across a very wide geography now in Western Europe, in the U.K., Continental Western Europe, Central and East Europe, Middle East, et cetera, and we think the demand is very robust. So, we are not seeing a softening. But I think it is always down to airlines, how they see the pricing environment versus their own demand on their own capacity. So, we feel very confident with that regard. I would also say that -- and I would come back to the chart. I'm just asking the operator, could you go back to the chart that shows the cost performance, the comparison between Wizz Air and Ryanair. It's Slide 8. Slide 8. Okay. Perfect. So, I think this is probably your most stunning slide what is happening in the marketplace. When your cost is creeping, then you only talk about revenue because you are no longer in control of your cost. Where you are down on cost, and you are reducing your cost, you keep focusing our business on that, and you don't really worry about revenue because this is commodity and in commodities lowest cost prevails and lowest cost wins. So, we are very focused on cost, and we want to make sure that our costs are under control, despite this kind of temporary spike about what we are seeing. But we think structurally, we are incredibly well positioned to be the undisputed cost leader in the industry coming from growth, coming from further renewal of the fleet, and coming from the continuous up gauging of the aircraft. And let's not forget that we have 300 aircraft, more than 300 aircraft on order that will be delivered. The other guys may have the same 300 aircraft on order, which you never know whether that will ever get delivered and when it's going to be delivered. So, we don't have an issue with the delivery stream of aircraft coming even if there is a bit of a delay, but not the same issues that the other guys are facing. So, we're seeing that we are very well set for that. So, our business should remain focused on cost as opposed to wondering about summer and winter and fall and spring, what happens to the consumer because if you are the lowest cost producer in the industry, no matter what you're going to be winning. But in any event, even if I take the revenue side of the equation, we feel very comfortable with what we are seeing.

Yes. And just to echo that point, on the environment for the summer or for the year, right, we're providing single-digit rest because we're seeing demand and we're not going to get into the sort of spiral that what happens with one person has something to the market and then everyone else piles in because we don't see a justification for that yet. However, if you think about it, so we've got costs under control, and we've got operations under control, which we do, then if you look at what's happening in the marketplace, there's a global supply chain shortage, both in terms of Boeing and on Airbus, as we know from our engine situation. Everybody is having -- being forced to incur higher costs. Older aircraft, they cost more to rent, they cost more to crew, they cost more to fuel, they cost more to operate and cost border to maintain. So those costs are going to be hitting everybody else at the same time. Those costs have to go somewhere. They're going to be going into the revenue side because you have to recoup those costs. So, the consumer is going to have to pay for them. We feel that we're going to be better positioned because we're still flying in newer, more efficient fleet, both in terms of maintenance, operation, fuel costs. And so, we think we can control that and simply take the market pricing environment when it comes through. I think it's too early to say how this number is going to play out. We're seeing Q1 perform very nicely. We have April behind us. April performed better than expectations. May is looking to be a very strong month. June and July are still coming together. And August is actually looking really strong because people know that they can block the holidays there. So overall, we're optimistic, and that's why we feel that this guidance is appropriate. On the working capital. So yes, so there was a swing of around 600 million from year-to-year on the working capital. And so, I'll break it down to 2 main constituents. One is the deferred income, which is the unflown revenue that we collect for future ticket sales. We generated unflown revenue in the period, we just generated less than before. And that's because if you look at the capacity growth from F '23 to F '24 versus F '24 to F '25, you're seeing a dramatic difference, right, from -- plus almost 30% growth in the first period versus flat. So, we generated some working capital, but not as much as in prior year, that contributed to roughly 400 million of the swing. The other part is that when it comes to trade receivables and other receivables, as I mentioned earlier, there's a reconciliation that needs to happen between the launch of groundings. We didn't have groundings until the Q4 and then we had a massive grounding as it happened in January, as the service bulletin became effective. And what happens is that you need to then calculate how many grounding days you have. That then needs to be validated and reconciled so that we're not falsely claiming grounding for issues that aren't engine-related. That then needs to go through a process and work its way through the mechanism and the contract. The mechanism, as we discussed before, involves, first, an offset in credit, some credit notes based upon other payables that we have to Pratt & Whitney. And then ultimately, if there's a shortfall, then there's an element of cash that gets played. And so that just has to work its way through. The contract is working as designed. In fact, we're in the process of closing off our audit. And last year, at the half year when we disclosed that the contract had been signed with Pratt, the auditors were concerned that there was a risk that this wouldn't actually pan out as expected. That risk has been derisked in the latest audit because they see that the evidence of this is coming together. So, this is simply a feature of a new effect, a new impact of the business that wasn't there before, and it's causing net working capital swing.

James Hollins from BNP Paribas. Three, please. Just on the Sale and leaseback income, just trying to model that fiscal '25. If we take engine and aircraft deliveries, is it safe to see that salesperson might be maybe 1/3 less year-on-year? Or am I thinking about that too simplistically? Second one, again, if you are modeling like we are, when would you model compensation out to, which quarter would you best get it stocks coming in? And then finally, unit ancillaries. I think on a per passenger basis, we get rid of the ASK issue, you were about flat to year-on-year in Q4. I was wondering maybe assuming that is correct, you can sort of run us through the trends you might expect on either, if you wish from a per scale or per passenger basis, how ancillaries might play out this year?

Okay. I'll take maybe the first one and the second one, and maybe you or Robert can jump in on the ancillary. But so, in terms of sale-leaseback evolution, we have this conversation and this debate as to whether it's part of our business. It is part of our business. That is the strategy that we've chosen. We buy well. We buy in bulk and we buy because of our buying power, and we get a benefit in terms of the purchase price. And whether it's engines or aircraft, it's the same, the engines might be benefit from our scale. They also might benefit from the fact that we're in a compensation environment with Pratt, and the sale leaseback transactions or way to translate that benefit into the P&L. We've talked about that. The evolution of engine sale leasebacks. There were a few -- there was a few in F '23. There was a lot in F '24 and there's going to be a few more in F '25. At which point, as we've said in the presentation, we ended the year close to 40. We should be around 50 engines, and then that stream terminate. So, I would say that the aircraft sale-leaseback benefit will follow the delivery pipeline. So, you can just sort of make an assumption around that. There's nothing different that's happening on the aircraft side. And on the engines, I would expect that to taper down to your question as to whether it's 1/3 of what it was in F '24. I would say it might be a bit more than 1/3 less. So, we're closer to 50% less.

I would just add to it that I mean that kind of goes reversely with compensation because if you take a spare engine that helps to skip the act of flying, if you don't fly the aircraft then it would become subject to compensation. So, it's going to push in a way.

But I think the leverage effect of having an engine allows us to generate revenue, which courses far more beneficial to a shareholder than compensation. So, we think that the strategic direction on building of the engine bank was the right one because we're going to have these aircraft and these engines for many years, and it gives us additional protection down the road for the challenges that we might face if the advantage engine doesn't come in on time. If there's other issues that pop up having additional engines is a valuable asset to have. In terms of the compensation progression, we talked about 50 aircraft and seeing that run. I think it's fair to say that, that will continue for the next couple of years. And that's, of course, with the dramatic changes with Pratt. And of course, we'll keep everybody abreast of that when it happens. But all of our expectations, all of our modeling, and we're getting a lot better at doing so. I mean, I know the people in the past referenced F '26 as being a sort of 30%, 40% a year. That was off the back of a comment that was made before we had time to sit down and actually go through with granularity and use the benefit of the technical department and the financial department to really model what happens with regards to powder metal, forecasting in the cycle counts based upon utilization, based upon unscheduled engine removals. So, things like a bird strike or something that's unexpected and what that impact that has to the balance of the spare engines, the balance of spare aircraft that we want to maintain. And at this point, we're seeing that 50 aircraft level extend certainly into F '26, and we'll update you as soon as that comes through. But there's no improvement yet, although we're optimistic that there will be from Pratt. There's no improvement yet to report on.

Robert, do you want to take the answer. There's a mic over here.

Yes. Let me answer the question. Yes, you're correct. The unit ancillaries were basically revenue from ancillary flat Q4. So, the drop off you saw in the H2 was heavy in Q3 and then flattish in Q4. So, a trend positive. Looking forward to this year, I think we're back with our consistent EUR 1 per packs goal target of the year. We have a number of improvements, which József went through a bit earlier, especially around we have a new bundle I've introduced yet ago now full-scale bus network business to a performance we've seen performance in testing. We also have some new products on subscription that we are expanding from the tests that we saved about a year ago. You'll see more coming on that later in the summer. And then as well we have some new products coming online as well, and some other, let's say, targeted areas of improvement. And then the last one I'd call out is, as we talked about, there was a geopolitical impact of where we had cancellations that were very good ancillary revenue contributors. And those are coming back online in the network is really now to about 60% of what it was last summer, and we'll continue into the fall and share benefits.

That's great. Good morning, everyone. I'm Jarrod Castle. I might be able to do 3 on the GTF. Just looking at the accounting, I mean, you received the compensation. It seems like you put a full benefit through your peer now, that fuel cost number you reported. When you do the fix, are you actually capitalizing the fix, so the cost sides coming through is depreciation or some is actually in that fix? So, I guess, is there a timing difference between the recognition of the compensation and the associated cost? Secondly, I mean, have you got any of these engines back these GTFs. I'd be interested in your view on kind of additional performance you're getting or in terms of comparability between new GTFs you're getting, which obviously don't have this issue and old. So, what is the, I guess, efficiency out for how well you perform? And then I think you said -- I might have misheard you said January 26, all should be done. And you've got 50. So, I mean you got 50 anyway. And is that the peak on average it's going to be in? Because if it's 300 days, clearly sometime next year, early next year, you'll be done on those 50. So, I guess will persist the peak? Or is it going to be even higher than 50?

Let me start with the second and the third one. So, with regard to the GTF peaking. So, we are at on the peak as we speak. So, let's call it 50%. So, we're seeing that this is probably going to be it. Of course, there is always the home-side risk to it, but we feel kind of comfortable that the way to think about the cycle is that engines delivered to us to date other than the few spare engines remain subject to cycle limits. So, after reaching the cycle limits, those engines will have to be removed and expected. Roughly around 18 months, after 18 months of operations, you reach a cycle limit. So, kind of towards the end of '25, all those engines will have been removed, okay? Then you induct those engines and then you push them through the shop visits, which is to date, up to 300 days, but now we are seeing some improvements of 180 days. So, God knows what it's going to be, to what extent this is going to be a structural improvement of Pratt & Whitney. But we have been modeling ourselves over a period of a year, but maybe there is upside to that. So, what it means is that by end of '26, we should be done and dusted basically with the cycle. Again, this is an assumption, this is modeling. And that's how we kind of look at that. And gradually, the 50 we start reducing. So next summer, we are expecting the 50 to become around 35 on the ground, and it will keep improving until a certain point, when basically you are going to benefit from more spare engines having gone hand than engines on the ground and you will become net positive again. This is going to be sometime in '26. So, I think that's kind of the way to think about the cycle. With regard to GTF new and old, there are 2 issues here. So, the GTF engine is affected by 2 lines of issues, if you want to put it that way, one issue, which is very predictable. It's the powdered matter. That's a contaminated material that went into the production of parts that got put into the engine, and those parts must be removed after reaching a certain cycle limit and must be replaced. This is happening as we speak. I think this is what we have been focused on in our communications. Now the new engine is coming. We've already received the first pair engine and new aircraft deliveries will happen with clean engine as of next month, we'll be clean on that issue. So that is done. I mean, of course, you have to do the cycle of the incumbent tensions. The second issue is kind of GTF 2.0, when basically, when an OEM develops a new technology, and it is classified as a breakthrough technology. Obviously, that technology goes through the maturity curve, then you get kind of the childhood diseases out on the engines in the early phase of operations. The OEMs takes note of those issues, and they make engineering improvements to the engine. We are expecting the GTF 2.0 to come to market sometime in 2026. So that's going to be an improved engine. It is not just a properly manufactured engine. So, powder method means a properly manufactured engine. That engine I'm talking about 2026 is going to be an enhanced, technologically-enhanced improved engine. That's going to come in 2026.

And just on that first question, Jarrod. So just kind of clarify, I understand the question on compensation benefit and how that's treated. But you said something about the fix and how that's capitalized just to understand. What fix are you referring to?

Obviously, there's a fix associated with repairing the engine. So does that cap. Does that fix get capitalized into your balance sheet as part of the cost of the engine and then you depreciate.

No, because it's not our cost. Right? It's a past cost.

Okay. So, you don't do anything with the cost element?

We take the benefit based upon the lack of use of the aircraft. As part of the negotiated agreement that we -- the conversation agreement that we have, because it's a manufacturing defect, no design defect. Pratt has an obligation under the separate maintenance contract to provide services to us. We pay a rate based upon our flight hours and our life cycles to some extent. So yes, so the fix is not our cost. It's simply we get back actually an engine that depending on the extent of the scope could be a better-quality engine because while the instances open, they take the opportunity to address other issues. So, it's actually a benefit for us once these things come back if we can get them through the shop fast enough.