Wizz Air Holdings PLC

LSE:WIZZ

Earnings Call Transcript 2021-Q1

[Operator]

Hello, and welcome to the Wizz Air Q1 Results Call. [Operator Instruction]. And just to remind you, this conference call is being recorded. Today, I'm pleased to present József Váradi, CEO. Please go ahead with your meeting.

[József Váradi, CEO & Executive Director]

Good morning, everyone. Thank you for joining this call. To start with the report of Q1 fiscal '21. Let me just highlight a few key points upfront. Clearly, we have been very focused on preserving liquidity and revamping operations during this period. I mean, you can see that this quarter was pretty much dire straits quarter not only for Wizz Air but also for the whole industry. Nevertheless, we remained operational. Every day, we operated flights. But switched some of our capacity to repatriation of flights and medical cargo services. We ended up the quarter with a strong liquidity position, EUR 1.6 billion. You recall that we took advantage of the Bank of England loan facility. So that helped our short-term liquidity position. But overall, I think our cash burn has come in, in the end, better than expected. And as a result, we have been able to preserve our liquidity quite well. We're much focused on cost initiatives and liquidity initiatives. We have been basically updating all of our commercial contracts, we have been taking advantage of the situation that we are an airline that continues to take new [indiscernible] deliveries and continues to grow the business on a structural basis. And obviously, given the situation where the industry is, that gives quite a significant advantage, and we are trying to benefit from that. We're much focused on the network design of the airline, obviously, despite the fact that we think there is significant underlying demand there, and we can tap into that underlying demand quite strongly. Of course, the demand level is not the same as it was last year. And as a result, we trimmed our existing network by around 20%, 25%, and we reallocated that capacity to a new network, but we have created by opening 8 new bases and launching 200 -- more than 200 new routes. So it is not just trying to recover the existing business, but we are also building a new business. And we think that COVID-19 and the resulting recession, [ veers forth ] the winners and losers structurally in the industry, and we believe that we are a structured winner of the situation, and we want to start taking advantage of that by taking new market opportunities for the business. If you look at where we are standing today with regard to operational recovery, now we are operating more than 70% of the 2019 level capacity in July. And that compares to around 40% of the industry. So we've done much better than the industry. Nevertheless, I think whatever we are doing remains subject to the COVID-19 situation. And clearly, what we are seeing is that it is more of a roller coaster what we should be expecting. So situation may get better or worse country-by-country and may result in different restrictions or easing those restrictions. So it's going to be a bumpy road going up and down. So quite significant on predictability and uncertainty in front of us. Moving to the next slide. This is giving you an overview on our operations and what we delivered in Q1. So we [ bear ] only operating 7% of our capacity. In the quarter, April was the worst month. Only 3% of the capacity was operated. As said, we engaged with other forms of operations during the period, especially flying medical cargo between China and Hungary, we performed 130 services flights to China. And we also did quite a number of repatriation flights and we were picking European citizens in various countries, and we brought them back home to their homes. Our fleet continued to grow. We are continuing to take new aircraft deliveries. We think a new aircraft is a source of competitive advantage, structurally in the future, especially in context of the industry, pretty much deferring us of deliveries and canceling aircraft orders. So unit cost production of those airlines will creep considerably while we will benefit from new aircraft deliveries. And we want to take advantage of this situation to build a structure of competitive advantage as a result. As you can see, we actually opened quite a number of new bases and launched a lot of new routes in new countries. So even in this difficult period, we were growing the business, and we were creating a stronger, more diversified network for the future. So moving on to the next slide, you can see that March and April were very difficult in Europe, basically in each of our home markets. COVID-19 basically shut down these countries in the form of travel bans, flight bans and very severe restrictions imposed by governments on movements of people. The situation started easing in certain countries in May. And as you can see now, Europe is a fairly reasonable place for airline operations. Obviously, it's not perfect. So we are still having restrictions in place, but not as severe as like 2 months ago or 3 months ago. I would also note that, clearly, we're seeing a change with regard to the EU stepping up and trying to coordinate and orchestrate some of the actions at the beginning in March, April, especially it was all down to countries to take a view and to take measures. I mean, it's all understood that it is a country's sovereign right to deal with health care matters. But now we are seeing more coordination coming into place from the European Union's institutional system, which I think is creating a better operating environment for the airline sector. We have also observed that quite a lot of state aid has flown into the industry, which feels a bit like moving backwards 15, 20 years, that the governments are not only actors of regulating the markets, but they are actually the players of the market by having an equity interest or a strong financial interest in certain airlines. So I think unfortunately, that will lead to distorting the market. It will distort level playing field, and this is a new phenomenon in the industry, and we will have to deal with. Having said that, I also think that because of a lot of taxpayers money is flowing into the -- in the industry, that airlines will have to be more responsible, and as a result, over a airline capacity, we will consolidate and will shrink, which should give us a ground for a step changing our presence in the marketplace. And with that note, I would hand it over to Jourik to take us through the financial numbers.

[Jourik Hooghe, Executive VP & Group CFO]

Good morning to all. Just a few key financial highlights on the quarter. So on the first slide, you'll see that revenue for the quarter was down 87%, reflective of the very low capacity that we flew in April, May and to a lesser extent in June. We booked a reported loss for the quarter of EUR 180 million and an underlying loss of EUR 57 million. The difference between those two numbers is the loss, which is related to the discontinued fuel hedges. These discontinued hedges relate mostly to the month of June, but also to July and August. And you'll recall that nearly all of the discontinued hedge losses that we booked in the year-end last year were also related to April and May. So that's consistent with what we have done there. Despite the context of coronavirus pandemic, we had a very strong performance on RASK, which was up almost 14%. Our cost initiatives are driving the bottom line. And as Joe highlighted, we maintain a very strong cash position, which, together with our strong balance sheet, continues to support our investment-grade rating. And I will cover a little bit more on these points in detail later on. On the next slide, if you look at our capacity and our revenue, you will see that the revenue drop is consistent with the capacity reduction. Our load factor was down 38 points from 94% to 55.5%. However, we had smart pricing and an excellent performance on ancillary revenue that allowed to offset this impact. Moving on to the next slide. We have highlighted in June that ancillary revenue continued to develop very, very positively. You may have read in the results release that the reported ancillary revenue was EUR 86.8 per passenger. And this is one of the metrics that, unfortunately, this quarter is quite hard to look at given the low amount of passengers. So if you strip out the cargo business, the Wizz Discount Club, well -- we'll have a much cleaner number to look at, which is the EUR 47.3 per passenger here reflected. And even this number has some level of distortion. So in the end, I mean, what we really want to say, if you look into the details of this, we see continued strength on our key pillars in ancillary, baggage, priority boarding and allocated seating. We had good uptake in flexibility products, and we continue to be on track for our mid- to long-term target to deliver EUR 0.5 to EUR 1 ancillary revenue increase for this year, and that's for every single year onwards. So I guess this is the most important message you should take away from this slide. Moving on to the next slide. Looking at our costs, we reduced our cost 74% versus an 88.5% capacity decrease. We're obviously obsessed with variabilizing our cost structure. And all of the actions include the previously announced interventions for the interventions on compensation, on reducing the number of positions in the company and our renegotiation efforts with suppliers on every single line item in the P&L. The details of this reduction is reflected in the next slide. So you see the 74% headline reduction. You'll see fuel to be down 66% if you were to take out the in-effect of hedges, you would be down more than 90%. Staff costs were reduced by half, reflecting the mentioned pay and roll reductions. Maintenance was reduced quite well. We will not get this to be variable. Obviously, we need to keep our fleet airworthy despite it being grounded in some areas within some extent. This said, we will continue, obviously, to work with those suppliers to continue to improve in that area. Just a side note in the other line, maybe of interest, this also includes overhead costs. We had strong cost reductions also on the overhead line, which includes the headquarter costs, where we zero-based all the spend. We have role reductions, compensation reductions again in all levels of the organization and the headquarter. And we had a tailwind from some asset sales and compensation payments of Airbus related mostly to later increase. On the next slide, a little bit more detail on the cash position. So as Joe mentioned, it's EUR 1.5 billion to EUR 1.6 billion, increasing EUR 92 million. If you strip out the Bank of England, draw down to EUR 326 million, we burnt, on average, EUR 78 million of cash per month in the first quarter. This is consistent, actually, slightly better than what we had mentioned before, before we have [indiscernible] EUR 90 million in a case where we don't fly a single flight. And obviously, we did operate in the quarter reflective of the work that we've done on maintaining some level of operation, the work we've done on cargo. And the work we've done also on the cost side, on the payment terms and in general, online contribution positive, as mentioned. So with that, the unflown revenue was still at a modest levels. So significantly lower than what we had in March. So that was a cash outflow given the short booking window, and this gives us ground in the next couple of months, maybe not, but maybe in the next couple of quarters, as the context will normalize by, let's say, next year to have a driver of cash inflow for the future. All in all, our cash and investment-grade balance sheet is not only a key focus for us, but it's also a real strength to easily winter through COVID-19 whilst preserving, and sometimes maybe even accelerating, our strong mid and long-term strategic agenda. Jó, back to you.

[József Váradi, CEO & Executive Director]

Yes. So moving on to the next slide, we have been much focused on ramping of the business. And we modeled out that actually for us, the worst-case scenario is that we keep the fleet on the ground. We can do better when we fly. Obviously, we're much focused on cash contributing flying, but given that we are the lowest cost producer in the industry, I think we should be in best position to achieve it. We heard of anyone else we are competing with. So that's been really the focus of the business, identifying cash contributing flying and ramping up capacity around that principle and as said, we've been able to revamp more than 70% of our capacity relative to what was last year versus the industry's recovery of only 40%. We've done it by cleaning the existing network and reallocating capacity to a new network as well for the creation of new bases and launching over 200 routes. If you move on to the next slide, you can actually see how the strategy has been manifesting with regard to the geographical footprint of the airline. So we opened up quite a number of bases in both Western Europe and Central Eastern Europe, even including Russia, taking advantage of the regulatory development of the country and also the overall capacity consolidation of the industry. So we moved around 22 aircraft into new territories for establishing new bases and providing capacity for the new routes, we launched over 200 new roads. We're seeing that we have to take note of the of the pandemic and the loss in the impact of the pandemic and consumer demand will come under pressure. So clearly, we're going to be seeing less demand going forward, but by redeploying excess capacity to new markets, actually, that enables us to maintain the operational integrity and the size and scale of the business of the company. And we are now much focused on rolling over our business model into new markets and scaling the business. If you move on to the next slide, this is just a note on Abu Dhabi. I think Abu Dhabi is a major initiative for Wizz Air. We actually launched the airline commercially a couple of weeks ago. And now we have 11 routes flown to Abu Dhabi. Some of them are performed by Wizz Air Hungary, but the first 6 new routes of Wizz Air Abu Dhabi are also on the map. Now we are entering some very exciting geographies where we think we are going to tap into significant traffic flows. And we are very excited about the opportunities that Abu Dhabi brings to the airline, especially in light of the consolidation in the country and the whole GCC area. The next slide is sort of giving you some insights of a very unique program, I think, it's only down to Wizz. Despite all the issues the industry is facing, we launched a strategic initiative for the organization, and this is a program called Cabin Crew to Captain program encouraging cabin crew to develop their carriers at Wizz by moving people from one line of the business to another. And the company is stepping up with a significant financial program to aid people's training program to become pilots and to become captains over time. I mean, this is really an initiative of twofold. One is obviously sourcing the pilot requirements of the business when we are growing and scaling up the company. But it also, it takes note of diversity efforts the company is trying to make here to create opportunities for female employees in the company to diversify their career opportunities in the future. So moving on to the next slide. This is summarizing the outlook of the business. We are not giving guidance at this stage for fiscal '21 and given the significant level of uncertainties in front of us, we think it would be impractical. So we would be giving you insights and hints as we see the business. But given that we are managing the business on a day-by-day or week-by-week basis, we don't think we should be speculating at this stage of the game. But I hope you take note of the fact that if you look back to the last 4 to 5 months, how the industry has been dealing with the situation and how Wizz Air has been kind of standing out, you should be expecting that agile approach and attitude from the company going forward as well. So we should be more progressive. We should be more upbeat. Probably, we could take a bit more risk, given the liquidity position that we have and also the strong cost performance being the lowest cost producer in the industry. So we should be able to be at our competitive advantage going forward. As said, we are now at 70-plus percent of last year's capacity. We're seeing that this is a capacity level we should be able to hold on to for the balance of the financial year. But again, I think this is big time subject to the circumstances and restrictions and measures put out by governments, and we will need to see how accessible the markets are. And how that roller coaster kind of effect is going to make an impact on capacity decisions. We are very much focused on cash. We are managing this business for cash. Obviously, we are also very focused on balance sheet to make sure that we stay an investment-grade proposition to the market. And this is the basis how we are managing the business. As said, we are not flying for the sake of flying. We are flying for cash contribution. And again, being the lowest cost producer in the industry, we should be able to continue to deliver on this going forward. The revenue performance is very strong, especially the performance of ancillary revenues, clearly, we are seeing that people are prepared to buy services and products that create flexibility for their travel given the situation out there. So if they have to add to their travel plans, or they have to modify their tickets, they will not take advantage of the services and products that we are offering to them. And clearly, there is a significantly increased uptake for such products. We have actually improved our delivery schedule for next year. It's not only that we are not deferring [ out ] of derivatives, but actually, we are sourcing more aircraft into summer 2021. Partly because of the consolidation opportunities we are seeing for the business and partly because Airbus is now able to step up and deliver aircraft orders earlier, and I would say, as originally designed before given that the pressure on their production is falling away resulting from the cancellation [ by tourists ]. So I think Airbus is improving its capacity and production capabilities. And as a result, we're going to be benefiting from more new asset deliveries going into summer 2021. So just to close it off on the last slide, so we are much focused on managing the business short term, but we are also very focused on managing the business from a long-term perspective. With regard to the short-term aspects of the business, as said, we are running the company for cash. We are very liquidity focused. And also, we want to take advantage of the situation that we are an airline that has been able to revamp capacity fairly quickly, and we are looking at growth opportunities that comes with cost saving.And we can structurally set some of our cost lines as a result of that situation and we are very responsible with adding capacity back to the market. It has to contribute to cash, and that is the basis of running this business. At the same time, we are also looking at the pandemic issue as a way of sorting the winners from losers in the industry. Clearly, we seeing that we are one of the structural winners of the situation and we are going to advantage of that situation. And we are scaling ourselves in certain markets. We are entering new markets. And certainly, we want to make sure that our financial capacity goes in line with that ambition. So maintaining investment-grade balance sheet is a very important priority for the business. Given that our growth, we require a significant financing efforts of aircraft and being an investment-grade is essential to achieve the best we can with that regard. So interesting times. I think we are affected. We are not immune. The industry is in deep crisis. And we are not different from that. So certainly, we suffered a short term pain. We're seeing that we are very resilient in terms of our financial backbone, and we are able to cope with the situation probably better than many of our competitors. But at the same time, we are not only managing the business on a short-term basis, but we are looking at the business through the glass of what happens post COVID-19 and how that situation translates into sustainable competitive advantage for us. And we are looking at not only recapturing our existing markets, but also taking new market opportunities on board. So that concludes our presentation. So I guess that opens up the quorum for questions.

[Operator]

[Operator Instruction]. Our first question comes from the line of Neil Glynn from Crédit Suisse.

[Neil Glynn]

If I can ask 3 quick ones, please. The first one, Joe, you talked about obviously the aircraft plans for next summer. And obviously, your plan to grow and negotiate with suppliers. But just interested, how important are the next few months as you negotiate with airports? And when do you expect to have as best clarity as possible in terms of what the post pandemic ex-fuel unit cost base actually looks like, for example, in FY '22? And then two more, the -- first of all, on advanced aircraft payments through FY '21, is it possible to provide some level of guidance what that line in the cash flow statement might look like at this point in the context of the new aircraft plans and then finally, the other gain of EUR 10.7 million in the first quarter, you referenced that some of that was compensation for delivery delays. Some of it was asset sales. Is it possible to provide some color as to how big each of those components were within the EUR 10.7 million gain?

[József Váradi, CEO & Executive Director]

So maybe I would start with the first question. So when you look at our growth profile going forward, so by the end of fiscal '22, so let's say, next 2 years, we are going to add a total of 39 incremental aircraft to the fleet. So quite a significant step-up from the 121 we closed the fiscal year bid. So of course, we are looking at market opportunities and airport opportunities with regard to delivering growth. And we are topping it up with reallocation of excess capacity from the existing network. So we're going to be deploying quite a lot of new capacity, new aircraft across a number of new markets. I mean, as I can see right now, I mean, almost every airport in Europe is now in discussions with us. They are seeing us as 1 of the very few airlines that actually is capable of not only recovering capacity but also bringing new capacity to the market. And as a result, they are able -- and they want to discount their capacity to make their proposition attractive to us. So I think that's the exercise we are going through right now, we are assessing each of these market opportunities. We look at the cost of operations coming through possibly these arrangements. And we are kind of ranking up these opportunities and take the best available to us. I think we have more opportunities than what we will be able to do or we want to do. I mean, we want to control growth. We want to control the situation. We don't want to explode on growth here. So it's going to be a very well-managed process. I don't want to speculate which markets we are going enter. But overall, I think we're going to be able to take advantage of the situation, and we can actually get some savings out of the system. Now you also have to take note of the fact that we are building an increased level of diversifications through the network design. And I think we are learning clearly given the current times, how important it is. I mean, some markets, which did -- which did very well for us a couple of months ago, now are problematic because of the pending situation and vice versa. Markets which were shut down 2 months ago, now are the rising stars. So things are moving, and I think it will be for some time. And diversification, I think it's just a very important strategy. So we try to be at diversification through this period. So we are focused on Central and Eastern Europe. We are looking at opportunities further east, and we are also looking at opportunities in Western Europe. So certain cost lines may go one direction or so, but other cost lines may go to another direction. But overall, I'm quite confident that we're going to be able to be at a structural cost advantage versus our competitors going forward.

[Jourik Hooghe, Executive VP & Group CFO]

Neil, on your second and third question. So on the pre-delivery payments, we will see a cash outflow mainly in Q3 and a little bit more and also a little bit in Q4. It will be far less pronounced than it was last year. So we've been working on that actively. On the gain that you mentioned in the other field. So basically, it's a swing of around EUR 30 million from one year to the other. A little bit more than 1/3, so it's really trading behind cost reduction. So as mentioned, we [indiscernible] headquarter costs going line by line, the reductions and headcount reductions in payroll have delivered that. And then the other 2/3 are splits between the adverse payment and the gains on [indiscernible].

[Operator]

And the next question comes from the line of Mark Simpson from Goodbody.

[Mark A. Simpson, Analyst]

Just want to pick up first off on the aircraft fleet plan. I mean, clearly, the big shift is fewer A-320 NEOs more A-321 NEOs coming in, quite a significant shift for the next fiscal year. That obviously, as you said, probably reflects the production line for Airbus. But also does that reflect, say, confidence in allocating additional A-321 NEOs to Abu Dhabi. Are there certain markets where those larger aircraft are going to be specifically allocated. So I wonder, if you could give us a bit more around that change, the thinking behind the change of the fleet mix over the next year and a bit. And then longer term, you have growth in your previous forecast of fleet for the next 3 years. But actually, you go out to the end of your order book, so 26, 27 you have 20 fewer aircraft on the current schedule. I'm just wondering if you could comment on that?And then on the route network development, obviously, you're opening a whole lot of new bases, new routes, normally, they take some years to mature and contribute. But I'm wondering if you're choosing these opportunities because they actually offer profits in the shorter-term because it's obviously an ambitious program that you're laying out over the next couple of years. So fleet and then route network developments or thinking behind those.

[József Váradi, CEO & Executive Director]

Okay. Mark, with regard to the A-321 NEO, we think this is the right aircraft for Wizz over the long run. And I think we should be taking decisions on the base of long-term view on the business despite the short-term issues we are dealing with the A-321 is an unbeatable aircraft with regard to delivering the economics to the business, delivering the lowest cost production in the industry, but also delivering the lowest environmental footprint of any single line aircraft. So we think it is a strategic asset on hand we have, and we should be exploiting it to the maximum we can. So you're going to be seeing us increasingly transitioning from A-320 operation to A-321, especially the NEO technology. And this is a totally strategic derived from the long-term view of the business. And well with regard to the long-term fleet and I think it is just a contemplation of assumptions with regard to the delivery of existing aircraft. I mean, we have not changed the order book. There is a little bit of kind of ironing out the order book, given the improvements of Airbus under delivery schedule. So some minor adjustments are flowing through it. But we have retained the same number of aircraft as before in the plan, so we didn't change it at all. But we are making different assumptions for delivering existing aircraft. But I would also note that very likely during the period of this [indiscernible] order book, we're going to be contemplating new aircraft orders. So in due course, we would be going back to the manufacturers to look at the market. So I think that will change. So when you look at the next few years, I think the next few years, give you a better picture of what actually is going to happen than the years, 7, 8 years out. With regard to the new route developments and new base development, again, I think we are making long-term decisions here. Some of these opportunities have been surfaced before, but we just couldn't accommodate them from a commercial standpoint, as when the circumstances have changed and commercial terms have changed and those opportunities became more attractive and palatable to us this time around. But each of these decisions has been made on the base of a long-term view, but obviously, we try to maximize the short-term benefits of those as well. Better or not, we're going to be delivering profit short term. I don't know. I think we might be lucky and we may do it in certain places. But really the objective here is to structurally take advantage of the pandemic situation and be it long-term competitive advantages through the network development of the airline.

[Mark A. Simpson, Analyst]

So I mean bottom line, you're taking a very aggressive view about the opportunities that the crisis represents, willing to, in a sense, take maybe some dilution to open new markets. I mean, I presume that reflects the confidence in your ability to manage cash through the crisis and still have a very strong cash position as you go into the end of this fiscal year.

[József Váradi, CEO & Executive Director]

Yes, Mark, I mean, I -- look, I mean, I would say that -- I mean, being that this is ironic here, but we have been waiting for this moment for 10 years. I mean, last time around when there was the economic crisis hitting the industry in 2008, 2009, I mean, simply, which was -- we didn't have the capacity. We didn't have the scale to fully benefit from those circumstances. But here we are now, we are the lowest cost producer in the industry with a significant balance sheet with a very significant pile of cash available to be added to the business. I mean, this is our time. I mean, this is the time that sorts winners and losers, and we need to maximize our advantage coming out of this situation. And yes, some of it is investing into the future and taking some risks with markets but in a cumulative for so long as [ few loss ] was produced, you should do fine. And we're seeing that we have the resources to deal with the situation appropriately. And I don't think we are running uncalculated risks with any of these investments. And I said, we are seeing a much more attractive commercial propositions coming across given the times the industry is in than what we would have seen even a few months ago. So I think we are very confident that we can make this work and we will structurally benefit from this movement.

[Operator]

And the next question comes from the line of Jarrod Castle from UBS.

[Jarrod Castle, MD, Head of the Travel & Leisure Sector and Co]

If you could just give an update, where are you in terms of staff rationalization across the network? In terms of numbers? Secondly, you've done incredibly well on cash burn. Just some color in terms of how we should be thinking about winter cash burn going forward? And also around the winter, how we should be thinking about capacity that's still roughly 80%. And then lastly, any color in terms of how you're seeing load factors develop as things progress.

[Jourik Hooghe, Executive VP & Group CFO]

Okay. So on the staff, we're on track to -- we actually have reduced the staff that we have set out to reduce, which was the 19% role. So that is fully reflected in our numbers, the average of the quarter was just below 4,000 FTEs. So that's well on track. And obviously, also the compensation reductions have come in since the end of March. On the cash burn, I mean, maybe 2 parts of that question. So first, on the current quarter and quarter 2, we're targeting to be cash neutral for the quarter. But there's still a big color around that because obviously, there's still uncertainty on both of the months of August and September. So you need to bear with us. And that's also kind of the storyline for winter. So previously, whereas we have said fourth quarter 2, we would be around 50% capacity. And today, we're probably doing a little bit better than that. For half 2, probably it's more realistic for the time being to be more in line with the 70% of quarter 2 capacity usage versus the 80% that we have previously guided. But again, it is really hard to tell what will happen in a couple of months from now because we barely know what restrictions may be out there in a couple of weeks from now. From a load factor point of view, I mean, last week's load factor was 65%. So we're somewhere between 60% and 70% for the quarter. And obviously, this is key to our business model so we keep managing that quite actively.

[Operator]

And the next question comes from the line of Jaime Rowbotham from Deutsche Bank.

[Jaime Bann Rowbotham, Research Analyst]

Two from me, please. Just following on from the comments there, Jourik, about being cash neutral in 2Q, but lots of uncertainties. One of those uncertainties' must be pricing. The current fares environment given the extent to which people are booking last minute as well. So could we get a comment on how fares and pricing is developing in 2Q? And then secondly, it's always interesting to hear a bit about the extent to which you might be benefiting from competitors struggling in Eastern Europe. I think Blue Air in Romania have run into some difficulties now. József, you gave us some good anecdotes, I think, at the full year. I just wondered whether there were any updates you might like to provide on where you're seeing opportunities to benefit such as perhaps that one?

[József Váradi, CEO & Executive Director]

Yes. I mean, if you look at the fare environment, I mean, it is somewhat volatile because the fare environment is not driven by underlying demand. I think it's big time affected by COVID-19 measures imposed by governments, creating significant uncertainties. But as a result, we are seeing as the revenues outperforming versus expectations. And that's much driven by the fact that people want to have more flexibility, and they are prepared to pay for the services and products, giving them flexibility. We are seeing some improvement of the booking curve. I mean, 2 months ago, basically, we got 50% of the revenue in the last 7 days. Now it is more like 2 to 3 weeks. So I think it is getting back towards an over flat from being normalized, but at least directionally, we are getting back to that. But certainly, there are uncertainties around the pricing environment, but mainly because of changing restrictions or changing regulatory conditions to operate the airline. But I think we are fairly confident based on what we have seen and what we put in the book that we're going to be able to control, the cash performance of the business to expectations. And to be in line with guidance, we were just giving you that this should be at least a cash-neutral period this summer. When it comes to competition, especially in the context of Central and Eastern Europe, I think you are seeing basically 2 kinds of developments, one is, which is not dissimilar to what's happening in Western Europe that national carriers are getting saved by governments one way or another. Nevertheless, we are seeing a significant capacity contraction by those carriers. So even if these airlines are bailed out by their governments, we will certainly benefit from the much reduced capacity of those airlines. And you have a few airlines that are struggling, you mentioned Blue Air, there are a few others. But they are fairly small little airlines. In a way, I mean, if you look at Blue Air, that airline used to operate many aircrafts one day. I assume, today, they have 5 aircrafts. So they've already diminished themselves. So the upside is fairly limited, and we are not really focused on those upsides. But overall, I would be expecting a quite significantly lower level of capacity provided by our competitors in Central and Eastern Europe. This is more organic than radically changing airline bankruptcy driven market conditions. So -- but in any event, we're seeing that we will be facing a better market with regard to our capacity discipline, not only in Central and Eastern Europe, but also in Western Europe. And that is the underlying reason why we are getting [ reverted ] by some of the Western European capacity opportunities. And we have acted on a few of them. We just put capacity into Milan. We put capacity in Dortmund by opening a new base. And I think these are exciting investments, exciting market opportunities. But we will stay very balanced with that regards because at the same time, we also opened up bases in Tirana or St. Petersburg and we continue to look for capacity opportunities in our core markets in Central-Eastern Europe. So you should be expecting us to deliver a balanced portfolio, quite a diversified market approach with that regard.

[Operator]

And the next question comes from the line of James Hollins from Exane.

[James Edward Brazier Hollins, Senior Transport Analyst]

Just a couple from me. Unless I missed it, you've talked a little about where you're growing, but not necessarily much detail on where you've trimmed back capacity. I think you're talking about moving 22 aircrafts, maybe provide us with a bit of detail. If there's anywhere, in particular, where you've trimmed back or closed bases? And secondly, probably just for my amusement, I was just wondering whether you think have any success in challenging the Buzz brand?

[József Váradi, CEO & Executive Director]

Okay. I will start with the first question. I'm not sure I fully understood your second question. But with regard to your first question, I think, we have been fairly consistent with regard to trimming. We are trimming around 20%, 25% of our existing network capacity across the board. I mean, not different approaches by country. We haven't closed a single base. We are maintaining our natural footprint, certainly from a base perspective. But also, I would say that we are maintaining most of the route network footprint as well. So as opposed to cutting bases or cutting routes, we have been trimming frequencies on the existing network pretty much consistently across the board. But I didn't get your second question. Sorry.

[James Edward Brazier Hollins, Senior Transport Analyst]

Yes. So I just read somewhere that Wizz were undertaking a legal challenge against Ryanair's introduction of the Buzz brand. I was wondering if you thought that would actually be successful in challenging the brand. Maybe I'm wrong but...

[József Váradi, CEO & Executive Director]

I mean, the court will tell us. We just want to make sure that there is no misperception created in the minds of consumers. So it is a legal proceeding. We will see what the Board has to say.

[Operator]

And the next question comes from the line of Michael Kuhn from Societe Generale.

[Michael Kuhn, Equity analyst]

One follow-up again on unit costs and cost savings. Looking at the staff cost savings and supplier renegotiations, can you quantify what savings you have achieved so far? And let's say, looking 1 to 2 years into the future, do you have an idea whether you can sustainably reduce your unit cost versus the precrisis levels, that would very helpful.

[József Váradi, CEO & Executive Director]

Maybe I would just start with the staff cost and hand it over to Jourik then on suppliers. I think on staff, what we are trying to do is to adjust our staff cost to any extent possible to the capacity of the airline that actually is flown by the airlines. So we have a staff cost spend kind of half of it is by reducing headcount, half of it is by reducing pay, roughly speaking. I don't think you should look at these measures as long-term sustainable measures as we are ramping operations back up. And we are growing the business. We will have to go back on headcount. And also, we will have to go back on salary level mostly. And obviously, we are assessing the market -- the labor market and if we are seeing structural moves on the labor market, obviously, we will reflect on those. But I don't think that staff cost is necessarily a source of long-term structural cost saving.There is some upside of debt to the company. But we are already very efficient because staff cost is not only the matter of pay, but it is mostly a matter of productivity from our standpoint, and our staff cost is sub-10% of our total cost, I think, we are doing significantly better than any other airlines. So I don't think it represents a huge saving opportunity, but obviously, we have to go with the market and if the market changes, whichever direction, we have to reflect on that. If you look at the past few years, we've been under pressure, especially on the pilot side of the staff, to go with the market and the market really inflated pilot salaries. Now obviously, some of it is now going to be taken back and we will reflect on that. But we had already a very refined business with regard to productivity. And I don't think that much more can be delivered on that side.

[Jourik Hooghe, Executive VP & Group CFO]

Yes. Similar to the staff side. So the reductions that we're looking for with suppliers were [ similar to components ] to that one. It was also in certain areas in inflationary environments. So that clearly has turned now, as we look for that [ superb ] kind of 20% reduction on certain suppliers spends. Now we have not always been successful. It depends on the buckets. So some of it will stick and some of it we didn't manage to get through, but on average, I think, we made very good progress. The other component, which is there to stay for us is the payment term extensions. I think the industry in general are just with their have had continued opportunities on payment terms comparing to some of the other industries, and we're just making sure that we're becoming best-in-class from our side. So this will be a gift that we'll keep giving, I think, for the future.

[Michael Kuhn, Equity analyst]

Right. And on, let's say, longer term, CASK outlook. I understand staff is not a source, but let's say, on the supplier side, it sounds like you can achieve some efficiency improvements.

[József Váradi, CEO & Executive Director]

I think for modeling purposes, I mean, if you really look at the history of our cost evolution, I mean, our cost has been fairly stable for pretty much like 10 years and maybe on a slight decline recently, benefiting from the NEO aircraft deliveries, especially the conversion from A-320 to A321 asking that we continue to take place in the coming years. But I don't think you should be expecting a revolutionary change on cost performance because, yes, I mean, as we are seeing opportunities for the business to benefit from certain cost initiatives, we are also seeing inflationary pressure. I mean, with all due respect to the current situation on labor, but we know that labor cost is more directional and also, we might be able to negotiate better airport deals given the times, but we also know that on a structural basis, much of the aviation infrastructure in Europe is monopolized and state controlled. So it's also one directional, of course, it only go one way. So I would beg caution to overreact on cost opportunities. I think we're going to take whatever we can from the current situation. But if you look at it longer term, structurally, I think our cost performance is fairly stable on a unit-cost basis. Because you have upsides, but you also have downsides you need to deal with. I mean, certainly, I think the A-321 NEO conversion is a game changer in a way. And I think that gives us the ability to do better, of course, than most of the industry.

[Michael Kuhn, Equity analyst]

Understood. And sorry, one more maybe on the network side. You spoke about a balanced approach on aircraft allocation. Still, I would say, that was a relatively high number going into Western Europe as of late. So is it fair to assume that a modestly higher share of aircraft will be based in Western Europe going forward compared with the past?

[József Váradi, CEO & Executive Director]

Yes. Compared with the past years, I mean, I would say that we will have a higher share in Western Europe, but I mean it's going to be contained. I mean, it's not going to be more than 20%, 25% of the total fleet. And I think that is fine with regard to the approached -- approach of a balanced portfolio for purposes of diversification and resilience of the business. And if you look at Western Europe, the cost of Western Europe, I mean, you have certain issues that, I mean, obviously Western Europe is a higher labor cost environment. It might be higher airport cost environment. But at the same time, it might be a lower cost environment in terms of buying certain products like fuel, like a fuel premium tends to be lower cost because it's a more competitive market. So it's not all one directional. But we are very measured on this. And clearly, we control our cost performance. And we don't get tempted by the consumer opportunity. I mean, the consumer opportunity must come hand-in-hand with the cost opportunity and our ability to control the cost base. So we are not going to put this business through, but you have experience with some other airlines, even our most important competitor that -- [indiscernible] has been increasing 20%, 30% in the last few years. We are not going to do that. I think we are firmly controlling our own destiny with regard to cost. So we don't go overboard on the consumer opportunity to [ demand ] opportunity. It needs to come with cost control. Otherwise, we won't simply just don't do it.

[Operator]

The next question comes from the line of Ross Harvey from Davy.

[Ross Harvey, Transport, Distribution and Logistics Analyst]

3 questions for me, please. First one is on flexibility. If the COVID issues and flight restrictions continue into the new year, I'm wondering, do you have any flexibility on those aircraft deliveries or on lease returns? On the cost side, the D&A line was down EUR 30 million year-on-year. Can I just check, is this just down to the lower utilization? Or does it also include lease deferrals with the lessors? And would those costs flow through later in the year? And finally, in terms of the asset sales and the Airbus compensation payments, can you comment on what proportion of those might recur over Q2 to Q4? And what's included in the base from FY '20?

[Jourik Hooghe, Executive VP & Group CFO]

On the second -- you may need to repeat the first question on the flexibility. But on the second and the third one, so the depreciation line, basically the driver of this is depreciation is in part dependent on the flight cycles and the flight hours. And a portion of the capacity that we're not flying in the out quarters, you could assume a similar level of variability to that part. On the asset sales, we will have some more in the next quarters. So yes, you should assume a certain level of asset sales this quarter -- for the quarters to come.

[József Váradi, CEO & Executive Director]

I think on the fleet flexibilities, I mean the single biggest flexibility we have short-term is that we have a bunch of aircraft due for return to lessors. I mean, we have around 15 aircraft in the coming year or so. Which we are supposed to be returning to lessors. And some of it we have contemplated for renewal. But if it's a tougher situation, obviously, we can add on the deliveries and reduce our fleet accordingly, or looking at it from the perspective of the upside, if we are seeing a significant market opportunities, especially with regard to new markets, actually, we can extend more aircraft, which are supposed to be delivered at this point in time and take advantage of their capacity planning that way. So I think we have quite significant flexibilities in the coming period, depending on how the situation unfolds and how we are seeing issues affecting the business or opportunities arising for us.

[Operator]

And the next question comes from the line of Carolina Dores from Morgan Stanley.

[Carolina Botacini das Dores, Equity Analyst]

I have 3 questions, if I may. One, if you could comment on seed outlook. I think last quarter, you were guiding to 9% increase for this year. But now you're getting 6 more aircraft. So is it fair to assume a 15% increase year-on-year? Second question is, has all the leasing arrangements have been agreed to the new aircraft that you are receiving? And if you can give us some color on how cost and conditions have been changing? And my final question is on the Airbus negotiations, I guess, if you get more A-321 sooner, that -- then you have the annual cap on deliveries? Has there been any other modifications to the agreement in terms of costs and PDPs that you can shed some light on?

[Jourik Hooghe, Executive VP & Group CFO]

Carolina, this is Jourik. So on the feed capacity, I mean, the physical infrastructure capacity. So last time, we said we were increasing 9% and because most of the advancements come at the tail end of the fiscal year, that actually only increases to 10%. So it doesn't really have a big impact to the current year. The agreements with Airbus have been concluded. I think you were also potentially referring to the agreement with investors. So we -- as Jo mentioned, we have the redeliveries. We have solid agreements to redeliver. I think we will have a lot of excitement, if you would want to extend the flexibility that we'll have. And then on the 321's sooner, again this is a part of a bigger agreement, as you said, which includes the order book not only for the current year, but also for the out years. It's taking into account what was, I think, winning situation, not only for us but also for them. We've included some of the discussions on the pre-delivery payments and some other commercial discussions. So it's the whole package discussion that we had with .

[Operator]

And the next question comes from the line of Andrew Lobbenberg from HSBC.

[Andrew Lobbenberg, Head of the European Transport Team]

Can I ask a little bit about what happened in Italy? Where I think the government is playing around with some rules that look to potentially help Alitalia about putting in some minimum costs for cabin crew. And then equally, in Italy, how are you coping with the rules they're putting in about trying to ban the use of overhead bins? And prevent people charging for checked bags, how does that play out? On the airport deals that you're finding now, you spoke about trying to build a long term network. How long are these airport deals that you're signing? And are the airport charges flat? Or does they sort of taper up over time? And then just the final one, as you're talking about that the fleet with Airbus and potentially looking for more orders. Is there a world where you would look to perhaps grab more of the existing Indigo order from some of your sibling carriers? Or would it make more sense to go for a straight, clean, fresh order given the balance of power with OEMs at the moment?

[József Váradi, CEO & Executive Director]

All right. Maybe starting with Italy. I think we are complying with the effective laws and regulations of the country, whatever they are. And certainly, when it comes to pay with regard to capitol [ silencing ] that is a substantive issue here. With regard to various other approaches of the country on products and services and how those are provided to customers in Italy. I think, Italy has a bit of a history on legal disputes that certain organizations are taking initiatives, but they are not necessarily right. And I think [ they have a legal ] system, it has been going back and forth on some of the matters. So I think this is one of them. And that might be -- there might be bottoming. Clearly, the government and government-associated agencies are very supportive of Alitalia, whatever Alitalia means at a given day. And I think they are trying to take an orchestrated approach against competition to protect Alitalia to an extent possible. But much of it ends up in the legal system, and we shall see how that's going to go. Now with regard to Western Europe and airport deals and the longevity of those deals. And obviously, we are moving on these initiatives on the basis of long-term sustainable cost arrangements and competitive advantage, we believe we can build in the market. So while the current situation might be giving us the momentum to act, but we are doing it on a long-term consideration. And that certainly concerns airport arrangements and airport deals. But with regards to the aircraft order, I don't want to create a perception that Wizz Air is heavily negotiating on an aircraft order with Indigo because this is not true. And with regard to the Indigo order, I think each of these airlines is taking a view on life. I mean, with that regard, I mean, we are not related to each other. That order stream has the flexibility of moving the aircraft around within the system, within the Indigo portfolio system. But each of the airlines is an independent party to the contract with Airbus, and they need to determine what they are going to have. We don't have an orchestrated approach as we speak. Again, what we are looking at is managing our own supply of capacity based on the existing orders we've with Airbus and the redelivery program we have with lessors. And we're seeing that we are in good position to source the capacity we need for the business, but also to have sufficient flexibility in that stream. And if you have to adjust the actual fleet up or down, we can do it. So we are not relying on third parties and some other coordinated matters.

[Operator]

The next question comes from the line of David Lee from [indiscernible] Investors.

[Unknown Analyst]

Maybe just a couple of questions for me. Can you maybe talk a little bit about your thoughts on sort of the long-term, maybe not this year but next couple of years in terms of traffic and industry capacity because you touched on the sort of acceleration, consolidation, given the environment, right? Just talk a little bit about that, how is this different from the prior cycle. And then second, on how you guys are competing differently versus Ryanair now? Or do you guys feel like what are the things that you guys need to put in place so that this environment will enable you to really kind of jump-start and leap ahead against them very significantly?

[Jourik Hooghe, Executive VP & Group CFO]

Okay. With regards to the long-term view of the industry, I think the industry's recovery is one issue and reserves recovery is another if you look at it, the whole situation from an industry perspective, I think the single biggest issue, what we are seeing is the -- on the one hand, the unpredictability of the regulatory system, i.e. restrictions on flights, restrictions on travel, restrictions on movements of people. I think that makes quite an impact on demand. The other issue, obviously, is the resulting economic recession, which, obviously, will put people under pressure with regard to disposable income and discretionary spending. So you have this overall demand issue facing the industry. And I think depending on the business model you are into in the industry, your ability to recover will be very different. If you look at it from a Wizz Air standpoint, we are a point-to-point short-haul carrier. I think that's the traffic role which we resume first relative to other traffic uncertainty relative to intercontinental travel. And point-to-point travel is going to come back much earlier than connecting travel. So I think by design, we are better positioned for a quicker recovery than some of our competitors. Then when you look at the consumer profiles of various airlines, we are flying the youngest passenger in the industry. Our passengers average age is 30-some years, which is far younger than any of the other airlines in Europe. I mean, we know it for the fact that the younger generations will come back to the franchise earlier than -- certainly than the elderly generation simply because they are less affected by the pandemic. They are more adventurous, and they are more risk takers, and they want to take benefit of the economic situation, especially that you can travel much cheaper. You can get accommodated much cheaper than before. Secondly, we are more relying on migration driven travel, people traveling for work, traveling for studies. I mean, we are seeing those traffic flows resuming quite strongly. And I think business traffic is the one which is struggling and, I think, corporate travel will be under pressure for quite some time, but our business is hardly exposed to that traffic flow. So if you look at the business model and if you look at the consumer profile of airlines, I think we are probably best placed to recover in the industry. So with that regard, it is not surprising that we have recovered already more than 70% of our capacity versus last year, and the whole industry has just been able to get up to 40% level. I think this is structural. I don't think this is just driven to the ambition of management, I think, it is coming from the business model, and it's coming from the consumer profile of the business. And that, combined with our financial ability and our financial capacity from a liquidity perspective and from a cost perspective, we think we are in poor position to take advantage of this situation. So what I would be expecting longer term, and this is probably 2, 3 years down the line, is that you're going to be seeing less players in the marketplace. We're going to be growing this business by around 40%, 50% in the next 3 years. And if you take the assumption that the industry overall, will resume it's 2019 capacity, 3 years down the line, basically, we have a free run to gain a 50% bigger scale against the same industry what we competed with in 2019. So I mean this is a structural movement from our perspective. We're going to be much more formidable and much more important and much more impactful in the industry. And we are taking advantage of kind of the slowdown of the industry and the recovery of the industry and we are creating our scale and our franchise during this period. So that's why I'm saying that I believe that we are coming out of business structure [indiscernible] in the industry. How we are competing differently from others. I think we are very focused on cost. And new aircraft deliveries are not only important for growing the business, but I think new aircraft deliveries are extremely important for building a cost-competitive advantage in the market. If you stop taking new aircraft deliveries, what you're going to be ending up with is an aging fleet, and we know that when a fleet is aging, your maintenance cost and operating cost will go through the roof. So our unit cost is going to shoot up significantly. And we are going to benefit at the same time from the significantly better economics of the new aircraft deliveries. It's not only that we are creating a scale benefit for the business, but we are also building a unit cost advantage arising from new technologies. So this is strategically important to us. And I think that makes us quite different from many of the other airlines. And the other difference, I would say, is the way we are moving to network design. We are not just focused on the existing network. Most of the airlines are focused on right now. But we are looking at ways of creating a new network and capturing new markets, new consumers, building the franchise to make the business more diversified, a bigger scale and more resilient in the end. And I think those 2 factors are making us quite different from the rest of the industry.

[Operator]

[Operator Instruction]. Next question comes from the line of Alex Patterson from Peel Hunt.

[Unknown Analyst]

Just one question for me. Please, could you -- you were talking earlier about a PDP payment and cash outflows in Q2 to 4 from that. So could you repeat what you said there? And if you didn't quantify what that is? Would you be able to, please?

[József Váradi, CEO & Executive Director]

Yes. So I think that the initial question has been, what do you expect in terms of PDP outflows for the year? The answer was that we should see some of the outflows coming in Q3, mainly and to a lesser extent, some of it in Q4. But in totality, they will be less pronounced, far less pronounced than what we have as PDP outflows last year.

[Operator]

And the last question comes from the line of Najet El Kassir from Bank of America.

[Najet El Kassir, Research Analyst]

Just a quick one for me in terms of how much of ticket refunds were done in the quarter? And what is the balance of sold tickets, please, at the end of the quarter?

[József Váradi, CEO & Executive Director]

Yes. So year-to-date, fiscal year-to-date, we have refunded EUR 80 million worth of refunds. Around EUR 50 million of that were done in Q1, around EUR 30 million were done year-to-date July up until yesterday, then we have around EUR 15 million to go. The refunds will continue to be a reality for us because we continue to, obviously, adjust our network depending on the restrictions. So the EUR 15 million actually was the same amount that was outstanding last quarter, if you recall, so I hope that helps.

[Najet El Kassir, Research Analyst]

And just a second one in terms of the AGM vote of -- against the Director pay, if you can touch on that and how we should think about it going forward?

[József Váradi, CEO & Executive Director]

Well, I think, first of all, I think it's unfortunate. I don't think that the market fully understood our remuneration committee -- our remuneration policy and that's a learning for us that we need to do a better job with regard to communicating it. I mean, the remuneration policy we reported relates back to the previous financial year. We delivered a very strong set of results. And you can see the standing of Wizz Air today, I mean, we have bid a very significant financial resilience to take us through even the most difficult times without government bailout, so taking new equity measures and those sort of issues. So I think we'll have to go back to our shareholders with the policy, possibly amend some elements of the policy and make sure that they buy into it and they fully understand -- what we are doing. And this is what we will be doing for the next financial year. And our remuneration policy is due to be renewed in any event.

[Operator]

[Operator Instruction]. And the last question comes from the line of Peter Wacko from PKO.

[Unknown Analyst]

Congratulate on very nice results given the environment. Just one quick question. Could you provide some small update on the potential updates in CO2 trading scheme? It seems that this issue is again appearing on the agenda. What can we expect and when?

[Jourik Hooghe, Executive VP & Group CFO]

Sorry, what was an update with regards to which scheme, please?

[Unknown Analyst]

CO2, trading scheme. Any updates, something can change in near future?

[József Váradi, CEO & Executive Director]

But I think in principle, the significant driver of our CO2 footprint is the new aircraft deliveries [indiscernible]. And as a matter of fact, we are enhancing the delivery program. The business will benefit from an ERG standpoint, for sure. I mean, we're going to be excellent versus the industry, when you look at the relative footprint of this to the industry, and, I mean, we are already the greenest airline of all in Europe. And I think we are just going to grow that advantage. I think the issue with CO2 is going to be not only airline, specific airline related, but also industry related. So what are we going to do with that whole issue when it comes to the overall performance of the industry. Within the industry, I think we're going to be doing very well, better than our competitors because of the continuous commitment to a new technology and innovation. But still, I think the industry as a whole will have to address it then. And I think that's fear to be seen, to what extent this is going to be technology-driven coming from the OEMs, to what extent this is going to be fuel driven possibly hampering the use of fuel, and to what extent this is going to be the replacement of existing order by some of the airlines. I think that's something we will need to see. And really what's on it to see, how the regulatory environment is going to react to that issue. But as far as what we can do as a business, as an airline, I think, we are doing much better than our competitors, and we'll continue to do it that way going forward.

[Unknown Analyst]

Okay. But any idea when some regulatory changes can be implemented to the current solutions?

[József Váradi, CEO & Executive Director]

No. I don't think we can give you much of the guidance at the moment.

[Operator]

As there are no further questions, I'll hand it back to the speakers.

[József Váradi, CEO & Executive Director]

Okay. Well, ladies and gentlemen, thank you for your interest. I hope you took some comfort from us that the business is solid. We are managing the business for cash, which we think is the most important issue given the times we are in. So far, so good. Nevertheless, we are up against a lot of uncertainties and very unpredictable circumstances of the business. But we have been agile and we will stay agile, and we will read the situation as much and as good as we can. I think you can count on that when it comes to this. And we will see what it really means. I think we are very confident in our ability to win structurally over the long run, but short-term is challenging and we are much focused on this business to get everything pretty much micro managed on a day-by-day basis to make sure that we get the best out of this given the changing circumstances on a constant basis. Thank you for your interest, thank you for your attention. Bye-bye.

[Operator]

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