Easyjet PLC
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Easyjet PLC
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Good morning, and welcome to the easyJet Q1 Analyst Call. My name is Rosie, and I'll be your coordinator for today's conference. [Operator Instructions]I will now hand you over to Johan Lundgren to begin today's conference. Thank you.
Thank you, lads. Good morning, everyone, and thank you for joining us to discuss our Q1 2019 update. Joining me in the room is Andrew Findlay, our CFO; as well as Stuart and Michael from our IR team. You should have been sent the slides along with the statement, which are also available on our corporate website. And as usual, we will review the Q1 results and then follow up with plenty of time for any questions that you may have.So let me turn the presentation on the overview. Overall, easyJet has delivered a good performance in Q1. Our growth plans are disciplined and see easyJet building a strengthening market position in key airports and cities across Europe. A robust demand environment has seen easyJet deliver a positive underlying revenue trend with ancillary revenue continuing to perform strongly and growing by 20%.Cost control continues to be a key focus at easyJet, and we have delivered an underlying Q1 performance in line with our full year guidance. Unfortunately, in December, we experienced a GBP 16 million impact from the drone issues at Gatwick as we looked after our customers during this event. GBP 10 million of this impacted the cost line and GBP 5 million impacted revenue. This affected around 82,000 customers and led to over 400 flights being canceled. And it's always fair to say that I think that our people did a great job in dealing with the issue, something that I'm very proud of.Today, I will focus on the trading statement, but I just wanted to highlight that we continue to make good progress on the strategic initiatives announced last year, and we look forward to updating you on their progress later this year. The customer perception is also improving, particularly in the U.K. and Germany, and you will have seen the results of the recent Which? survey, which position us well ahead of British Airways and a number of other airlines. Now let me just run you through the key financial information. Passengers increased by 15.1% to 21.6 million in the quarter, driven by an increase in capacity of 18.2%. As expected, load factor decreased by 2.4 percentage points to 89.7%, and this was driven by last year's high comparables from Monarch and Ryanair late demand as well as inclusion of Tegel flying at Q1 scheduled for the first time. Revenue per seat at constant currency decreased by 4.2% for the quarter, which is in line with what we expected, and I will give you further details on this in the next slide. Cost control remained strong. Cost per seat, excluding fuel, at constant currency increased by 1%, but that includes the impact of the drone issue at London Gatwick, which represents around 1 percentage point of cost in the quarter. Headline cost per seat at constant currency, including fuel, increased by 2.2%, reflecting the higher price of fuel.Moving on to revenue. First, I'd like to emphasize that we continue to benefit from our winning market positions, a leading network and schedule and our award-winning customer service. Total revenue per seat decreased by 4.2% at constant currency, in line with expectations. Its overall outcome is built up as follows: the move to IFRS 15 negatively impacted Q1 RPS by 0.6%. This will be a bigger negative impact in Q2 but reverses in the second half of the year as booking fees are now accounted for when flown and not when the booking is made. As you would expect, our high-capacity growth in the first quarter from Berlin Tegel has been diluted and particularly as we completed the first 12 months of flying in Q1, where the schedule is still in the early stages of optimization. This has had a negative 2.9% impact on the RPS for the quarter and will improve as we go through the year, especially in the summer period.The one-off benefit experienced in 2018 from the bankruptcies of Air Berlin and Monarch as well as Ryanair winter schedule cancellations combined to have a 2.2% negative impact on RPS this year. Therefore, underlying revenue per seat increased by 1.5% due to robust underlying and solid demand as well as the continued growth in ancillary revenue per seat through better bag and allocated seating sales. Costs. Focus on cost continue to be a key strategic objective for easyJet to ensure we maintain our competitive advantage. Headline cost per seat increased by 2.2% at constant currency, while headline cost per seat, excluding fuel, at constant currency increased by 1%. This is a good performance considering the drone issue experienced at London Gatwick, which had a GBP 10 million impact on cost for the quarter. And as I mentioned earlier, adjusting for this cost would have been flat in the quarter. Our underlying cost performance was driven by the annualization of crew pay deals, better-than-expected crew retention levels, an increasing ownership cost reflecting new aircraft, some additional leasing costs resulting from late Airbus aircraft deliveries and the impact of IFRS 16 accounting.It is also worth noting that we have seen incremental cost increases due to the setting up of the Brexit compliance, corporate and operational structure and the significant amount of management time that this has involved.easyJet's cost program has continued to deliver substantial savings, particularly in volume-driven contracts with airports, maintenance [ time ] benefits and the benefits from fleet up-gauging with our average seat gauging [ 21 ] this year increasing from 170 to 173 seats per aircraft. Costs will continue to be an area of relentless focus for myself and the organization, and we will continue to invest in initiatives such as disruption to deliver improved cost performance.Brexit. easyJet is very well prepared for Brexit. We now have 130 aircraft registered in Austria, and the process of distributing our spare parts pool in EU27 and transferring crew licenses to the EU is going well and will be completed by March 29. Both the EU and the U.K. have committed to ensure that flights continue in the event of a no-deal Brexit.On ownership. easyJet has increased its ownership by qualifying EEA nationals to 49%. As a reminder, we have a number of options available to us on controlling ownership if required, principally those currently existing in Articles of Association, so we are well prepared. And as we'll come to later, demand in the second half continues to be robust.Fuel and hedging. This slide summarized our forward gas and currency hedge positions. And as you can see, we remain well hedged and have been increasing our position for the year and next year at good prices. Although increases in fuel price impact us in the short term, our strong hedge position sets us in good stead over the medium term versus a number of our competitors.Now turning to forward bookings. H1 is broadly in line with the same time last year with around 74% of the seats booked for the half, 58% of seats are booked for Q2. Looking into the second half of the year, we can see that forward bookings are slightly in front of the same time last year, highlighting the continuous, robust and solid demand we are seeing across the network, including strong demand in the U.K. post-March. On capacity. The next slide shows expected capacity growth across the European short-haul network through the winter. And as you can see, short-haul capacity on easyJet market is expected to grow by 7.1% in the half, with easyJet reaching just under 15% growth, mainly due to the impact of Tegel flying, which represents the majority of our growth in the first half. In terms of competitors on our routes, we're expecting an increase in capacity of circa 3.9%, a decrease from the previously stated 4.3%, with last year's figures reflecting the demise of Monarch and Air Berlin and the reduction of U.K. domestic routes by Ryanair.Moving on to the outlook. We plan to grow full year 2019 capacity by circa 10%, with H1 growth being around 15% at normal levels of disruption. We expect revenue per seat at constant currency to decrease by mid- to high single digits, which is a small change from previous guidance of mid-single digits. We continue to see positive underlying trading, including solid demand from the U.K. consumer. However, there is a larger-than-anticipated negative impact from both IFRS 15 and Easter in the first half, which will reverse in the second half of the year.In Berlin, we have some more aggressive competitor environment than expected as well as experiencing constraints on our ability to deliver network optimization. As a result, whilst we will make a big improvement on last year, we now expect to make a loss in Berlin market in full year 2019. The fact is we continue to believe that Berlin is a very attractive market and summer bookings and new developments look robust.Headline cost per seat, excluding fuel and at constant currency, expected to be broadly flat for the full year, which reflects the impact of the drone incident at Gatwick Airport.Our FX guidance is not changing. Taking into account market updates since our full year results announced in November, unit fuel will have a negative impact of about GBP 10 million and GBP 60 million, with a total fuel bill expected to be at circa GBP 1,460,000,000. Despite the uncertainty created by Brexit for both consumers and the broader economic environment, forward bookings and consumer demand remain strong into the second half of the year, and we are comfortably delivering a full year activity that is broadly in line with current consensus. Thank you for listening, and we will now take your questions.
[Operator Instructions] And your first question comes from the line of Savi Syth from Raymond James.
Just was wondering, is the only area of weakness you're seeing versus previous expectations is Berlin? And also, in France, if you've seen any impact related to kind of the [ drone ] process that you saw in December.
No, I think you're right. I mean, the one that we're mentioning specifically is Berlin, and that is due to the 2 factors that has to do with competitive environment in there and then also the constraint we're seeing in optimizing the schedule at the 2-way airport. So for instance, we would have wanted to get more domestic flying in the peak summer out of Berlin and do more of the beach and leisure flying, as an example. And we would also wanted to see more through the slot application process that we can get more flying in from Tegel into places like Geneva and Amsterdam. As an example, but apart from that, we feel that the underlying -- the demand for what we're doing is solid, it's robust. And France domestically continues to perform well for us. So we're very pleased about that.
And if I might just follow up real quick on the capacity growth. Could you remind me on the timing of your aircraft deliveries this year and where that growth will be focused?
Yes. So it's Andrew here. So our aircraft are delivered throughout the year, so we have a schedule that we've agreed there. But obviously, as we've mentioned in the slide, there's a number of delays. In the first half of the year, we talked about a growth of 15%. 7% of that is the Tegel. We've got about 1% in Manchester. We've got some up-gaugings around 2%. And the underlying is around 4%, and a lot of that is going into regional France as per our long-term strategy. So we'll see some growth within France. But the second half of the year is more general across the rest of the network, but the big focus in Half 1 is around France.
The next question comes from the line of Jarrod Castle from UBS London.
Three, if I may, please. Just firstly, on Tegel, obviously, you're kind of saying it's going to be loss-making, but if you could give some color or scale, are we talking tens of millions? Secondly, just coming to the holiday business, how that is progressing in terms of plans? And then obviously, Ryanair seems to have closed [ base ] down. Does that suggest anything in terms of the market opportunity? And then just lastly, on the balance sheet. Anything that you can say at this stage about IFRS 16, the scale, and how the balance sheet will progress during the year?
Thank you. I'll do the 2 first, then Andrew, you do the third one. So in terms of Tegel, we're -- as you said, we are not -- we don't believe we're going to achieve a breakeven or a profitable position there this year. We would call it a moderate loss, and it still represents a huge improvement from last year results, operational results in there. And we, in terms of the things that comes with optimizing the schedule, it's not that we can't get what we want to get, it's just that it will take slightly longer for us to do. And then the competitive environment there has been more -- tougher than anticipated. There's been a lot of pressure on the yield and aggressive pricing from Ryanair and also from Lufthansa, and that has had an effect, but we're absolutely convinced that this will deliver great value for us going forward. On the holidays, no, I don't read anything into what you just mentioned in terms of Ryanair closing down, what they've been doing in there. I feel very strongly that this is a great opportunity for us. Garry Wilson has joined the company now, and we are getting the team in place. And we are looking through a number of things in here that we believe is going to present a lot of opportunities for the company going forward. And we'll update you more on that in our H1 results in May. Andrew?
Jarrod, so we said at the full year that approximately GBP 545 million lease liabilities and GBP 510 million of assets will come off the balance sheet as a result of the new accounting standard, IFRS 16. Obviously, nothing's changed there. So from a point of view of balance sheet, there's nothing of any surprise that we're seeing coming through apart from what we've guided on. Cash is in a good place. We haven't disclosed exactly where the cash is, but it's where we want it to be in its healthy position. The only thing that's bouncing around slightly is our derivative position. As you'd expect, our jet position, as you expect, has been bouncing around from being an asset to a liability and back to an asset again. So that's the only thing that's really moving around. And relationship with the rating agencies is very good. We had recent meetings with both of them and that leveraged for [ so far ] of our current rating as it stands, so nothing really surprised.
The next question comes from the line of Neil Glynn from Crédit Suisse.
If I could ask, firstly, just a quick question on the Easter. Is it possible to elaborate to what extent the change in expectations on Easter timing was prompted by U.K. experience or estimates versus Europe? Is there any differential there? And then just a couple on Tegel. First of all, if I'm correct, I think you lost GBP 86 million in the second half of last year at Tegel. Is it fair to think, given the extent of that loss in the summer, that the second half of this year should actually be a tailwind in Berlin after a difficult winter? And then just finally, again on Tegel, given the capacity constraint at Tegel that you touched on, is it fair to think that this could actually end up being a multi-year effort now to optimize the schedule by the time you're through?
Yes. So on -- yes, you're right, it is a tailwind in the second half. So -- and you're absolutely right on the multi-year effort. We always said it would be -- take a number of years. And it's just taking slightly longer than we hoped in the first instance to get that optimization in the first period. But we have optimized. We've shifted flights from between Tegel and [ Schönefeld ] where we think we'll run it with points, but we wanted to do more and we have been able to. But it will take slightly longer. With respect to Easter, now Easter is always very difficult. As you know, we find it very difficult battling 2017 and then 2018 and battling through -- shifting around. But fundamentally, a lot of that is U.K. driven. The impacts of school holidays and the closeness to the May bank holiday, et cetera. So a lot of that is up to U.K.
Sorry, just to answer to the Tegel as well. I think that we've been doing a lot of focus to be sure that we operationally get this in a good place as well, and the brand presence that we have is increasing also month by month in there. So we think that we're setting ourselves up also to get this in a very good place. But as we said, it just takes slightly longer than we anticipated.
Understood. Just a follow-up on the Tegel second half comment. I mean, I guess, given it's summer, would it be fair to think it would be quite surprising if you actually lost money in Tegel in the second half -- in the summer?
We haven't given specific guidance on the split between Half 1 and Half 2. But I think it's fair to say that we hope we'd be in a much better position than we were last year, which we clearly expect to be. I think from our perspective, the contribution for block out, as we mentioned, as you know, is doing very well. It's just the fact that we need to consolidate fixed costs associated with depreciation of the assets associated with us building our base there. So that's the key for us. But from a contribution point, the contribution of block out is positive and growing. So that's the key focus of the network and the scheduling team to maximize that to cover that cost base.
The next question comes from the line of Stephen Furlong from Davy.
Sorry to come back on Easter and Berlin, just from the top, I'm slightly confused. So can you just talk about why is the GBP 50 million shift from winter to summer? Just kind of slightly unusual. And the fact that Easter is later, does that make a big impact from the summer perspective? Because I know last year kind of straddles -- being at the start of April to kind of straddle the winter and summer schedule. And then, just a general question on Berlin. I mean, a big, obviously, theme in the U.S. and then following in Europe is consolidation. And I believe, obviously, consolidation is going to help the stronger surviving players. Do you think, like what we're seeing out of Berlin, Air Berlin going and then Lufthansa, easyJet and Ryanair coming in, is that true? Or it's just a timing thing as the market -- somebody goes out of the market, you just have to kind of consolidate?
Okay, I'll answer these questions. At the beginning of the year, when we do our budget, we do our budget back at the tail-end of the summer because, obviously, our year starts at the beginning of October. We have to make an estimation of what we believe the impact of the shift of Easter from Half 1 into Half 2 is. And along with that, we'll overlay, that was also the IFRS impact, the accounting change where the booking fee is recognized when flown. Now as you'd expect, as our bookings increase for that Q2 and Q3 period, we get a much better sense of what that phasing impact is. And fundamentally, we've adjusted those estimates based on the bookings that we've seen. So you see the booking numbers that you've got for Q2. You've got the booking numbers for Q3. We've got a good feel on what that's looking like, and we re-estimate what those numbers are. Now IFRS 16, the adjustment that we've made there is small. Given the scale of the revenue that we've built in this business, it was relatively small movement. And that, obviously, is definitely a phasing thing that will come back in the second half of the year. And Easter is the same, and it's always the way. We had the same challenge back in 2018, when Easter shifted in the first half, we looked to estimate what that would be. And the analogy is actually 2017, there are substitutes around school holidays and the timing of that Easter weekend. So at this point, it's our best estimate and that's reflected in the revised guidance we've got for Q2.
That's fair.
Yes. And to think on consolidation fees, I mean, it's -- I don't think the consolidation is necessarily linked into certain specific countries. We've seen the trend on consolidation taking place really across Europe. So it's a European phenomenon. Just back in 2005, there were about 25 airlines that accounted for just about 80% of the overall flights in Europe. And that number in 2015 is just about, I think, it was 11 to get to the same 80%. So strong airlines and we include ourselves in there. We'll become stronger and we'll grow and then outperform. And if you are weak and you are struggling, you will disappear or there will be restructures taking place. Just in 2018, as an example, where you saw a number of airline safety and difficulties with both big and smaller ones, we delivered one of the best results we ever had. So I think that this consolidation will take place, not only in a specific market, but really across Europe. But Germany is no exception from that.
The next question comes from the line of James Hollins from Exane.
Three from me, please. Firstly, on your competitor capacity, you talked about, I think, 3.9% in this half. I know it's way too early to talk about H2 with any real certainty, no one knows what Norwegian is doing and the rest of it. I was wondering if you could just give us a flavor of how your internal systems are looking at competitor capacity for H2 or maybe just Q3. And then the second one is just running through some of the maths on your Q2 implicit RPS guidance. So if we assume it's sort of down 8% to 10% from your guidance, with Easter at GBP 50 million, I think you're implying that IFRS has cost you about GBP 42 million in Q2 alone. If that's close to 10% year-on-year impact, are we -- if we then take out Tegel as well, would it be best to assume you're guiding to around about the same as your Q1 on underlying RPS of about 1.5%? Any thoughts on both would be lovely.
I can do -- I'll do the first one in terms of the capacity. So you would have seen that if you're looking at what we believe now for H1, you would see that the competitor capacity on the routes that we're flying, and our market has actually come down from previously 4.3% to 3.9%, and whilst we get some limited visibility now for H2, from what we can see is that, that will come down even further. So we're looking at an increase on competitor capacity on our routes about around 2%. But that, like I said, that is not -- we don't have the full picture yet, but that's where we are today on that. So we are watching the competitor capacity quite closely. We're looking up close to the pricing. We're using data quite a lot to gather pricing information from our competitors to make sure that we are maximizing the yield and the revenue in the markets we're operating to focus on profit per seat, really. So that is one of the main focuses within ourselves from a competitive point of view and how we are monitoring that. Andrew?
Yes, James, on your revenue, your fundamental question, do you expect the underlying performance that we've seen in Q1 to continue to Q2? Yes. I think it's safe to say yes as a good estimation. And we've got quite a few moving parts, as you'd expect. And I think you fully captured most of those moving parts that we've got in that Q2 period. As you say, IFRS 15, you're about right, given the guidance we've given for Q1 and Q2, is that we've given a number pretty much for what that's impacted. You've still got a few underlying movements with respect to Monarch and to some of the fundamentally underlying number that we expect to see going into the second quarter is around what we see in the first quarter.
If I could just follow up on, Johan, with that 2% you're seeing. Again, without getting too much into detail, we know it can change. Are there any particular territories where you're seeing, I guess, an even better number, whether it's flat or down or something? Any more detail will be useful.
No. I mean, it's a dynamic thing. We are watching this and looking at this clearly on a route-by-route basis as well, but I wouldn't want to go into specifics around that. But we've seen, for instance, Tegel has become more competitive in terms of the aggressive price that exists there. And then we have likewise other areas where we're doing better. So it's just a constant dynamic movement out of the 152 airports that we're operating in. I don't want to go and be more specific on that. Sorry about that.
No, that's good detail -- oh, sorry, you were going to say?
So as we say, to be fair, James, that's very early OAG stats. As you know, we should [ invite you ] as well so you know how early it is in those stats.
The next question comes from the line of Andrew Lobbenberg from HSBC.
If I dare maybe change the subject. Can I ask a little bit about the Airbus delays? Because I thought that back at the full year results, you were sounding fairly confident in thinking that any delays would be manageable and not of a major consequence. And yet, we're seeing in the announcement here some impact on cost and leasing needs. So how do you see that playing out for the balance of the year? Are you going to need to keep on leasing? And indeed, are the new NEOs, as they come in, are they behaving as you hoped? And then the second thing it'd be interesting to discuss is, how are you thinking strategically about Gatwick at the moment? Because we went through the Monarch failure and you were outbid by IAG for those slots. And then the slide B slots were available and, heavens above, IAG bought those too. So are you guys not feeling like buyers of Gatwick slots at the moment? Or are you just seeing that they're so aggressive at bidding that you don't want to fight with them?
Yes. I mean, on the Gatwick slot, I mean, we're clearly following and seeing opportunities that are there. But we won't buy anything if we don't think it's worth buying it for the cost that is out there. And if somebody else wants to pay over and above what we think it's worth, then that's what's going to happen. But it's not like we've taken -- I mean, Andrew, on your point, it's not like we've taken in, [ for instance, questions ] that we're not looking to buy things if we think that they would make sense for us to do. Our strategy is to maintain and have #1 and #2 positions at the primary airports. And if those opportunities arrive, then we'll do that. But as you know, Gatwick, we're very big in at the moment. So -- but there's no principal decision and we're not looking for and exercising opportunities that we see. Yes?
Yes, on Airbus. So the NEO jets are behaving as we'd expect. And on Airbus, we [ are posting ] delays. You're absolutely right. We commented on it last Q1. We made incremental lease cost coming through in the second quarter as we prepare for into the summer. Now for us, we're working very closely with them to manage that through. And for us, we want to make sure that we can fly our schedule. So we are looking at various options and making sure that we are covered. And at the same time, we're looking at incremental standby as well. So that might -- you may see some of that come through into a lot of lease costs as well for, particularly in the Q2 period, as we're preparing for summer as parts of our focus on ensuring the summer is much better-placed from a disruption perspective. But it's fluid at this point in time, and we're working closely with them to manage that through. But at the same time, we're keeping our options open as to the lease market, just in case.
Obviously, you have a real tight relationship with Airbus. You are very important for one another. Do you get compensated for the disruptions or incremental costs?
Yes, we do. So we have an arrangement with them. And as part of the discussion, as part of the deal that we did at the end of last financial year, we enhanced that. So it's a service that we do. But clearly, we'd rather have the revenue and the contribution of flying passengers around our network than a related check from Airbus contribution towards that impact.
The next question comes from the line of James Goodall from Redburn.
Just a couple of quick ones. Firstly, following up on Mr. Hollins' question. How does a positive underlying RPS performance in both Q1 and Q2 compare to your original expectations? Am I right in saying that you were originally expecting a flat underlying yield environment for the winter? And then secondly, if you could just clarify what your expected organic capacity growth is in H2?
Okay. So the guidance and the guidance we gave, so we guided to mid-single digits for Half 1, and we now guiding to mid- to high negative single digit half year to Half 1 and that's -- we talked about those, the factors around that, which is IFRS shift, Easter shift and some softening in Tegel. So with respect to there's a number of moving parts, as you'd expect, given what happened last year, but pretty much Q1 is in line with what we expected internally. Our revenue per seat number that we've delivered on is pretty much in line with what our internal projections were for the first quarter. So from that perspective, we've got that underlying confidence that we have going through the rest of the year. With respect to organic growth into Half 2, as I've said to James earlier, really, we are looking to -- as you know, we look to IAG and that settles down as we approach Half 2. But early indications are that the growth in the second half is [ moderately ] lower than from our competitors on our network, is lower than we've seen in the first half of the year. But clearly, that could change. And as James referred to, the plans of Norwegian are changing as we speak.
No, sorry, sorry on that second question, I just wanted you to clarify what your, what easyJet's organic growth is in H2. Are you expecting out the Tegel growth? I'm thinking that's around 3.5%.
Okay. So yes, so I think we've given the guidance for full year is around 10%. We know our first half guidance is, I think -- we haven't been, as far as exactly what the Tegel number is, but effectively annualizes out over time because of the growth that we saw in Tegel last year. It's safe to say that a fair proportion of that growth, that full year growth, is Tegel-related. We can come back to on exactly what that second half is. But I think the math -- you've got enough math out there based on what we flew last year and the guidance we've given this year to work it through.
The next question comes from the line of Damian Brewer from Royal Bank of Canada.
Two questions, please. Just coming back to Tegel, could you elaborate a little bit more on what exactly is delaying the optimization? I assume you would have already taken it out, the slot coordination committees and the other issues. So can you say a little bit more on what has incrementally caused the delay there and how fixable you think that is? And then secondly, just sort of, I guess, a sort of derivative of the last question. Looking at H1, where clearly, you don't start to lap the Tegel start-up till January this year at the beginning of Q2, could you talk a little bit more about the relative route maturity within the business in H1 versus H2 this year? In particular, as growth slows down, you lapped some of the Berlin start-ups. Does the route portfolio significantly mature versus H1 or is what you're doing in regional France and the uptick in Tegel seats offsetting that?
I mean, on the Tegel and what we've been trying to do there and what the plan was, and just to give you a little bit context, is that as we go through the, eventually, the swap application process, we've been trying to do a number of things. One is to actually just coordinating of the best available program between Schönefeld and Tegel, and we've been looking for more ways to be flown from Tegel into areas like Amsterdam, Geneva and Basel and so on. And at the same time, also for the summer, I think we talked about that actually last year that we're having those with too many domestic flying in the peak schedule that was originally there for Air Berlin. I think we're supporting its long-haul operation. I'd say that this is something that we would like to shift out to do more of the leisure destinations in the summer. And we got some of that coming in, but I think that that's the result of the swap application [ process ] and we'll get back from that and how -- and we're working quite hard on. We didn't get really where we wanted it to be. So we didn't get into the efficiency of the program that we're hoping for, but that doesn't mean that we won't get there. It's just that it's a delay in what we've been doing. It's fair to say also that it's been a huge focus for us and Tegel to land it operationally. And now its full focus to continue with that, but also make sure that commercially, we get this back into regular price, which we think it will be because it had all the parameters to do that. It's the second-largest city in Europe, the largest city in Germany, and we also get very strong preference scores in that marketplace from the Berliners. So we are going to get into good growth there, but it's taken a longer time to resolve, just to be upfront about that. The other question was?
Yes. So on, [indiscernible] obviously, the -- as we optimize Tegel, that will become more mature level. You're absolutely right, our expansion into France will be a bit of an investment as we establish ourselves. Just putting context, just give you some figures. At the start of this financial year, we had about 980 routes, new routes in Q1 were about 53 and we terminated about 20 routes. So that gives you the kind of upscale of the continued churn that we operate and optimize our route portfolio. And that gives you an indication of where we are. But there is a continued expansion into France, as we've talked about. And we've got 2 extra aircraft in the bench too, but typically they will be on the routes that we've already got and we already operate.
And just to add to that as well, I mean, clearly, when we're allocating growth, we are aiming to get ourselves into that #1 and #2 position, and we get the scale and efficiencies, and there are, certainly, there are a couple of bases also where we haven't reached that yet, so that's also something that we see opportunity to come at. I think out of the 30 bases we're going to have this year, we're going to have #1 and #2 leadership positions in 24 of those at the moment. So that's where we're going to allocate growth coming forward to. And out of the 156 airports, I think, we're operating from as well, that gives us the opportunity to get more #1 or #2 positions, and that's how we're allocating the growth.
The next question comes from the line of Caius Slater from Bernstein.
Two questions, please. Firstly, how satisfied are you with the performance of your revenue management system in Q1? Is it performing well enough to support the pivotal business passengers? How are you thinking about fine-tuning it or developing the system? And then second question is, given the potential slowdown in the economy, how are you preparing for that? So what changes or measures are you putting in place? And how would you plan to react if demand grew slower than you're expecting?
Yes. I mean, on the first question, it's really interesting. I mean, we're spending a lot of time on the revenue system as well, and the whole area into focus and actually around yield. We get -- the system is very good. It works very well as a demand-driven system, but we are -- definitely need to do a lot of intervention when it comes into granularity, looking at the dynamics that exist in the marketplace where, if you compare it to the last year where demand was just picking up, now we go in -- need to go in and adjust the system also to make sure that when it gets tougher, as you would have seen from the RPS in the Q1, that, that takes more manual intervention to do. I think the other thing which we're investing quite a lot in is that we want also the systems to start taking into account competitor capacity, which it doesn't do at the moment because that is data that is available out there. And we want to be able to, through data, basically give that as an input to make sure that we're maximizing our yield and load factor as well as also competitive pricing. So the initiative that we announced last year about doing a lot more investments into data and data scientists and data analytics, I'll say that probably 1/3 of all that effort is going in to make sure that we will improve our revenue management system. The system is good, but I just think that there is an endless opportunity when it comes to what one can do within yields. In terms of how we can also start yielding ancillaries, as an example, at much more granular level than we do today is another great opportunity for us. I think the other question was about the business traveler. I'm happy to say that actually, as of last night, we won the Business Traveller Award of best business airline for the first time, so we were exceptionally pleased about that, apart from also being the best short-haul airline, and that was from the business travel communities and the TMCs. So we're doing quite a lot of work in there. Sorry, I was so excited about that, I forgot actually what the question was.
I'm sorry, the other question was around, if the economy slows down, what are you doing to kind of prepare for that? And how would you react if demand grew slower over summer than you expected?
Yes, I think it's -- I mean, we have the flexibility to make sure that we will adapt ourselves in our fleet plan going forward on the longer-term basis. And I think that's one of the good things with our fleet, not only have we exceptionally good prices on that, but we also -- it's flexibility within that fleet plan. And the other point is to say that in -- when the environment gets tough, this airline tends to outperform. That's something that's been historically true, and I think it comes back to the capacity positions that we have. We have tremendous, a lot of assets in the slots that we have, and we know that we can outperform. We have a competitive cost advantage, and we also have still a lot of revenue opportunities that haven't fully been exploited. So the good years and the good times are there to set yourself up for the tough times to come, and I think that we are going to be in a good place and continue to outperform also when it gets tougher and probably even more so. That's what we've done in the past and if we elect to, we can do in the future as well.
The next question comes from the line of Alex Paterson from Investec.
Can I just very briefly go back to Tegel and ask if you haven't managed to get the slots that you are hoping for during this period, what gives you confidence that you're going to be able to get them in the future, please?
It's basically just a matter about ongoing improvements that we're getting basically in all the markets we're operating through this processes as well. So I have no doubt in my mind that we are going to be able to get there. As you know, it's a big operation for us in there, and there was a lot of changes that needed to be done. And I think in hindsight, perhaps, we believe it's optimistic that we should have got it in place as quick as we wanted to do. But there's no doubt in my mind that we're going to be able to do that because it's not rocket science and it's not constrained in order to the level that you're going to -- you're never going to get there. So these are self-help measures that we can continue to do and get better results of. Simplify.
The next question comes from the line of Malte Schulz from Commerzbank.
Malte speaking. Two questions left from my side. First of all, maybe we haven't spoken about it, maybe you can give us on your current stand on Alitalia and your interest and if you can -- is there anything -- is there any changes to your plans and how do you think, now there were rumors that F1 scale [ level ] is drawing Delta in a bit. And the second question would be also on fares. And a little bit more, I think Ryanair is particularly aggressive at the moment in lowering fares to squeeze down also a little bit the competition. Is it also something which comes to your mind, especially if you look that Norwegian is quite weak at the moment, that you would have been on competitive route, maybe enhance pressure a little bit too and maybe force them to go out of market?
I think on the Alitalia, there's nothing else to add to what we've stated previously. We are still engaged in discussions with the commissioners around this as well, but there is no specifics around that, that I would like to comment on at this moment in time. And in terms of the pricing on some of our competitors, yes, I think that there is more aggressive pricing that is out there. But we have a relatively little overlap with Ryanair, and we have proven that we can fare well and do well in competition with any airline, partly because of the positions we have, partly because of the structure of cost advantages we have and also because of the preference we have in our branch. We are consistently being voted as the #1 when it comes to value for money across Europe in our network, and that's something that we know is going to make us successful. But to your point, I mean, the marketplace is very dynamic when it comes to the pricing. And I think it's fair to say that it has become definitely more competitive this winter compared to last winter, which was also very benign, as you know. So...
Yes, if you let me follow up. But is it something you plan also to do a little bit more in the future to maybe to force a competitor out of business? It's not just direct towards Ryanair, but also to do -- to kind of copy the strategy, I mean, to be more aggressive?
No, I mean, we are looking to maximize profit in what we do. We know that we are more efficient than almost any other airline that is out there and particularly on the routes that we are flying on. And I think that, that is enough to make competitors have a difficult time. But I think that if you take Monarch as an example, that was one of the competitors that we were competing on head to head. We had a much more efficient model in there, but we were competing and trading as we think what's the right thing to do, and when they ran into problems on that. And it isn't that...
I think, as you say, our aim is to maximize that profit and we will have those competitive battles, and we will all treat them independently and individually as we see fit as we do it at any other time over the period we've traded.
I think we'll take one more question now, if that's okay.
The final question comes from the line of Kathryn Leonard from Numis.
Just a couple, if I may, if that's okay. Just in terms of the -- come back to the Easter and the phasing and the underlying yield expectations. Sort of reiterating the point, are you able to just say what components are underlying versus your prior expectations? I mean, just thinking about, I know we've gone through it already, but the Easter contribution, I think you previously said about GBP 45 million. And the interim -- sorry, the prelim guidance on IFRS is about 2, 2.5 percentage points' contribution as well, as you guided to. So on that basis, it doesn't look like there has been a big jump in terms of the phasing impact on that. And so I just wondered, could you break out what's underlying, what process, just phasing in terms of that deterioration -- subtle deterioration from mid- to high-single-digit deterioration from mid? And then the second question, which is on levels of disruption and the cost guidance. You've clearly seen some increased disruption in Q1 already and you're -- again there's been -- some suffered deterioration in the cost per seat guidance for the full year from slight improvement, including IFRS, to flat or unchanged. Given that that's just from Q1 disruption that's had no more, I mean can you just clarify or give any more color on what you now assume is normalized disruption and how that might then trend through the year? Obviously, you've got some easy comps in Q1, but obviously, summer being a tougher period. I mean, how much inflation should we expect from that? And then thirdly, you mentioned your progress on reducing the levels of delays and cancellations in the first quarter despite the London Gatwick drone incident. Are you able to say how much improvement you're seeing there, I know that's a key target and just what plane-mates are doing on the EU261?
Let me start from -- with the last question then. I mean, we've launched a Big [ Jet ] program internally about disruption to make sure we're increasing and resilient, but it's partly in adjusting the schedule to avoid the 3-hour delays. It's partly in increasing the standby aircraft availability to cope with the congestions and the disruption that sits outside our control. And then also, it's about our own process and procedures. We're going through everything, line of detail. For instance, with first [ way ], we think that's going to have an improvement going forward on disruption. You would see that the cancelations were less in Q1. But then, of course, you have the drone incident as well that it should be big -- had a big impact from what we were doing. In terms of the disruption for the year, we anticipated to be in line with last year, excluding also the effect of the deeds from the East. But we've got a huge focus on reducing the impact of disruption both for our customers. And actually, it's a big cost-saving opportunity that we are going to -- we have to be ruthless on.
Yes. On the, Kathryn, on the phasing, by far, the majority of the revised guidance for Q2 related to the fleet, the fact that our original estimates to IFRS 15, it needs to work 100% right. So I think it's fair to say that's the majority of that and then you've got a small element of the softening within Tegel, which we've talked about, so there has been 3 main factors of that revised guidance into -- of the year, the Half 1 goings.
Right. So thank you all very much, and have a great day, and thank you for joining in on the call.
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