Wizz Air Holdings PLC

LSE:WIZZ

Earnings Call Transcript 2022-Q1

[József Váradi, CEO & Executive Director]

Good morning, everyone. Thank you for joining this earnings call. So I'm actually pleased to present that we are reporting a fairly strong quarter relative to circumstances. We have been progressively recovering capacity during this quarter and beyond, in the current quarter as well. And it's been based on a very agile movement in the marketplace. And I think we have been displaying that level of agility since the breakout of COVID-19, whether it is ramping up capacity or winding down capacity depending on the circumstances. I mean clearly, we are seeing a better marketplace with regard to the regulatory framework going into peak summer, and we are trying to take advantage of that through the progressive ramp-up.With regard to liquidity, this is the first quarter that ended up cash flow positive. That's a major milestone to hit. I think that kind of differentiates us from most of the industry in that regard. We closed the quarter with EUR 1.7 billion of cash. So it was a strong cash performance. I mean the business is very focused on cash. We have been very focused on our liquidity since we got into COVID-19 mode.We maintained investment-grade credit with Fitch and Moody's. This is important because we continue to tap into the capital markets for financing aircraft, and our credit rating is an important input to that process.As said, we have been progressively recovering capacity. While it was only 33% of our 2019 capacity that we operated in the quarter reported, it is now 90% in July, ramping up to 100% in August. And with that, we will be the first major European airline that will be fully recovered from COVID-19 in that regard.We are somewhat cautious about what we can expect and how to guide or not to guide when it comes to the second half of the financial year given all the outstanding issues on new variants and simply just don't know how governments will react to it and what measures will prevail and will be put in place post summer. I mean we went through last year -- it was a fairly open market last year, which was closed completely after that. So hopefully, this is not going to be that bad this time around. If at all, we'll be negative. But given the level of uncertainty, I think we are somewhat cautious with our predictions when it comes to the second half of the financial year.Nevertheless, we are very confident in our ability to take advantage of the COVID-19 reset. I mean the great news yesterday at the AGM was that now all stars are aligned. I think it's very clear that shareholders, the Board of Directors, management, employees all want to accelerate the growth of the company, and we are looking at 20% annual growth in the next 5 years. So -- and we are setting ourselves up against a 500 aircraft airline before the end of the decade. And I think that vision is now fully aligned with all interested parties, and we are putting the plans in place to make sure that actually we are delivering on that mission.And I think COVID-19 has given us a significant source of competitive advantages through the fleet renewal program. We have been growing our fleet. We have been innovating our fleet. Our fleet is getting younger. And I think this is a huge competitive advantage coming out of COVID-19, operating a younger, up-gauged fleet versus an aging fleet of competitors. And also, as we have been saying for quite some time, we have diversified our markets. We have created a much expanded network footprint during the COVID period. And that enables us not only to recover faster than the rest of the industry but also to grow from that base much more robustly, again, giving us a significant competitive advantage. So we are very confident in our ability to emerge as structured from COVID-19 and mature that position over the next 5 years when it comes to growing the business and actually accelerating the growth of the business. So moving on to the next slide, Page 3. You can see the key business metrics on this slide. I mean this is really more of an update. We carried 3 million passengers, 3x more than last year, in the quarter we reported. So clearly, 2021 is a better place than 2020 was. We have continued to grow our fleet with 141 aircraft. That's 27 more than what we had a year ago. So there's a significant growth. And you can see that we continue to invest into fleet. And while we have not been able to operate all these aircraft, we think that this is, as I said, a major structural source of competitive advantage in the future.We continue to open new airports, 3 more during the year. And of course, we had a lot of new operating bases during this period, in line with the market diversification strategy. So we have been very active during this period. So yes, it may be seen as a short-term [Technical Difficulty] as we are putting more financial burden short term on the company, but clearly, this is for the long-term gain as we are building new markets and we are building a much more competitive operating and business platform than ever before. So I -- fair to say that Wizz Air today is a more formidable airline than what we were 2 years ago prior to COVID-19.And with that, let me just turn it over to Jourik.

[Jourik Hooghe, Executive VP & Group CFO]

All right. Thank you, Joe. On Page 4, on the financial performance for the quarter, revenue was short just of EUR 200 million, which as said was based only on operating around 1/3 of our capacity. Given the low levels of capacity utilized, we recorded a net loss of EUR 114 million. The underlying loss was quite similar at EUR 118 million as the impact of discontinued hedges was minimal. As Joe mentioned, the cash position for the quarter evolved positively versus last quarter, up almost EUR 50 million versus last quarter to reach EUR 1,663 billion. We'll give some more color on this later. On Slide 5, some further perspective about our cost performance. And we've added here on the slide the F '20 Q1 cost just for reference. And obviously, you will not be surprised that on quite a number of lines like crew, maintenance and depreciation. The low utilization of [ our ] crew keeps us away from the cost levels that we used to have pre pandemic. Now on the other hand, we are very confident that we go back to those cost structures of before as we go back to normal levels of operation. And it will allow us to be more competitive versus pre COVID-19, given the focus on our network, the closure of long-term airport deals and the fleet renewal which will come across every single P&L line in this sheet.On Slide 6, a little bit deeper -- a little bit more perspective on cash. As said, we delivered a good performance on cash despite flying only 1/3 of our capacity. We continue to operate in line with the principle to only operate cash-positive flights, and that led to the cash accretion which you could see here in the slide. And obviously, the strong liquidity in combination with our business model, in combination with our ability to ramp up in an agile and fast way, continues to support our investment-grade credit rating.On Slide 7, as we continue to peel the onion of the cash performance, you can see that the operation before working capital burns around EUR 140 million for the quarter. Recall, if we would not have operated a single flight, that burn rate would have been closer to EUR 210 million for the quarter. So the operation of only 1/3 of our capacity in difficult circumstances, given that all of the restrictions are still around and there's constant changes in those restrictions, delivered a very significant amount of positive contribution. Unflown revenue helped capital as we collected revenue for July bookings mainly. And then currency effects was a small hurt in the quarter.Continuing on to Page 8 on ancillary revenue. You can basically see that we continue the usual strong performance on ancillary. Obviously, a large part of that is still driven behind the COVID-19-related context, which is the context of higher pricing given lower capacity decline and the context of certain products that have a higher uptake than maybe in a normal operating environment. So we expect that ancillary revenue will normalize starting also next quarter when we fly higher capacity. And over time, it will align again with our long-term target of EUR 1 per passenger per year increase.And with that, József, back to you.

[József Váradi, CEO & Executive Director]

Thank you, Jourik. So next slide, Page 19, is sort of setting all the key focus areas of business. So first and foremost, we are restoring the fundamentals of our ultra-low cost model. I mean just a few highlights. I mean obviously, aircraft utilization is one of the key issues of the model. Now we are reaching 10 hours versus our historical performance of 12-plus hours. So we still have a gap, but we have made up quite a significant gap so far. And we continue to push for getting back to normalized level of fleet utilization. In the meantime, as you know, we are up-gauging the fleet. I'll give you some perspective here. So today, the average seat count is 207. And in about 18 months, this is going to close to 229. So it's a significant up-gauging. As you know, we are taking 239-seat A321neo aircraft, and that pushes this line. I mean this is a significant source of efficiency and cost reduction for the business.Our load factor performance at the moment is 80-plus percent. I think it's underway to get ramped up. This is still far away from the 95%, 96% load factor levels in 2019, but certainly it's significantly better than what we saw before, 60%, low 70%. So there is a positive movement there as well. Obviously, we are restoring productivity of our workforce in the company. I think we have ramped that up quite quickly going into summer. So we are operating at full steam now. I'm sure that you will have a question about the hiccups in the last few days. This is all behind us. I think we fixed our operational issues. I mean we ended up having a much greater level of disruptions coming from the underperformance of the supply chain, especially airports and ground handling companies, basically putting our schedule and roster upside down. As a result, we were running out of resources, but now this is all stabilized. And I think we are back to normal, and we don't have to cancel any more flights any longer, other than [ ASIC flights ] and those sort of events. But I think this is a challenging issue to the industry.We have a stronger and more diverse network than before. Now we are maturing and consolidating that network. I mean clearly, our network strategy remains kind of on 3 pillars, core being Central/Eastern Europe. We continue to invest in Central/Eastern Europe. That's our bread and butter, our core market. But on a selective basis, we have made significant investments in expanding our presence in Western Europe as well in the United Kingdom, in Italy and Austria. And we'll continue follow those investments and grow our presence in these markets. And as said before, we started with Abu Dhabi. And as the market becomes less restricted, that will give us significant growth opportunities for the airline.We are driving our leadership in sustainability. We think that Wizz Air is the best positioned airline. We are already the greenest operator of any airline in Europe, and that will be even more the case going forward. Our fleet age is going to come down. Again, today, we have a bit more than 5 years average age of aircraft. This is going to come down to below 4 years in the next 3 years. So we are investing a lot into technology, into innovation. We are going to certainly benefit from that not only from an economic standpoint but also from a sustainability standpoint.And we have continued to make investments into our digital platforms. So obviously, the 2 key focus areas are how we interact with the consumer, how to make sure that we are excellent in transactions and also personalized in terms of approaching our customer base. And at the same time, we are trying to create more efficiencies through investing into digital platforms when it comes to the operation of the entity, when it comes to the operating platform of the airline.Next page. This is just showing how we have been ramping up the business. So you can see that load factors have been improving throughout the last few months, now coming up to 80-plus percent level. And we are expecting to see some further improvements going into peak summer. And also, we've been able to ramp up capacity along these lines now above 90% level. And as said, we are looking at 100% capacity to be recovered in August, being the first airline -- major airline in Europe that will be fully recovered versus 2019 operating level.Moving on to the next slide, Page 11, which is showing you the updated fleet chart. Maybe some important notes here. We advanced 10 aircraft deliveries in summer of 2022. So as you can see, we are actually quite bullish in our view how the market is going to play out for us going into next summer. So it seems that the current financial year may still be regarded as a transition year to the next financial year. But certainly, we are getting absolutely ready for next summer to fully exploit our opportunities coming from the various markets as I just portrayed to you. So we are accelerating growth to make sure that we are capturing these new market opportunities. And this is a bit of a moving target. I mean we keep reviewing our fleet trends. It has been quite organic in a way, so numbers are moving. And as I said, yesterday was an important day because all stars are now aligned. And it is very clear what's expected from this business to deliver, and we are looking at enhancing our fleet delivery program to meet the 20% annual growth target in the next 5 years.Moving on to the next slide. This is giving you some insights on market restrictions. This business continues to operate under restrictions across our network. You can see that basically, totally unrestricted markets are fairly minimal, 10% -- sub 10% going into summer. So basically, 90% of our markets are restricted in one way and another, some severely, some less so. If you look at it from the perspective of vaccinated -- fully vaccinated people, roughly around 70% of our markets are free to travel for fully vaccinated people. If you look at the country breakdown, you see that Central/Eastern Europe is sort of leading the way of recovery coming out of this situation, the U.K. being fully restricted. Having said that, given the announcement just made yesterday, we are expecting the U.K. to also step up and to become a better market for travelers, especially if you are fully vaccinated.Page 13, the next slide, is showing the market share development. I would say that we are not obsessed for market shares, and that's not really driving our business. Having said that, I think our agile decision-making certainly translates into market share gains. You can see that as the market gradually started opening up in May and through the summer months, we are gaining significant market share as a result of our faster ramp-up than the rest of the industry. But really, they are driven by financial performance, and we are making network decisions and capacity allocation decisions on the basis of expected financial performance.So with that, let me just hand it over to Jourik.

[Jourik Hooghe, Executive VP & Group CFO]

Yes. Just 2 slides on sustainability. A lot of players in the industry are talking about sustainability obviously, including ourselves. But we thought it was a good idea to just steer the discussion back to some of the key facts. And the first set of facts here is published by TPI. They published past emissions and targeted emissions in the future in gram per revenue tonne kilometers, and we prefer to express the intensity in revenue passenger kilometers. The message is essentially the same. I mean clearly, it is clear that Wizz Air is leading the industry with the lowest emission intensity not only today but also in terms of commitment for the future. And by the way, this is now baked into the incentive plans for the CEO and the other executives.You will recall that we have an emission target of 43 gram per RTK for F '30 while, for example, Ryanair has 50 gram per RTK as a target. And then pretty much all the other players, they talk a lot, they commit very little and they deliver even less. So it's been really interesting to juxtapose those results and those commitments, which course from rating agencies like Sustainalytics. And whereas Sustainalytics in general does a great job to sort through all the stories airlines are selling, it is clear that -- as you know, that 70% of the weighting of Sustainalytics course -- they go against the environment. It's clear that Lufthansa should not be leading that rank. So I think we all have a responsibility here. And investors have a responsibility to look through the marketing and lobbying that airlines are doing, and they should invest and rally behind those companies that are really trying to make a difference. So let's focus on the facts and let's focus on what matters.On the next slide, I think it's another example of that. When we talk about Fit for 55, it is clear that EU has kind of lost its way when it comes to what needs to happen to tackle emissions. As a company, we cannot support policies that exclude emissions for cargo clients or exclude emissions for extra-EEA flights, which, in combination, cause more than 65% of pollution in the aviation industry. So how can companies, on the one hand, target to lead Sustainalytics and other ranking; and on the other hand, lobby to exempt more than 50% of their emissions from environmental policy? So Fit for 55 is nothing short of market distortion. It's encouraging wasteful consumption by flying the most inefficient [ laid-back ] carriers in the industry. And clearly, we are abdicating for a clear level playing field on kerosene taxation for a clear avoidance of double taxation between kerosene tax and airport tax. And hopefully, we're not the only one raising our voice and can command support from others, other stakeholders, other investors and policymakers to kind of stop this madness.So with that, I'll turn it back to Joe for closing remarks.

[József Váradi, CEO & Executive Director]

Thank you, Jourik. That is true, an anomalous sustainability initiative. So let me just summarize this presentation. So importantly, we closed a cash-positive quarter. We maintained investment-grade balance sheet. These are very important liquidity measures, critical given the current circumstances. We are becoming fully recovered this summer versus 2019 capacity levels and will be the first major European airline to achieve that. Vaccination is an important issue because it seems that vaccinated passengers will be more free to travel, will be permitted to travel so they will play a very important role in our full recovery or partial recovery during the second half of the financial year.We believe we've got strongly improved competitive position during the pandemic resulting from our extended market footprint as well as our continued fleet renewal. Simply, we are a better airline today relative to the rest of the industry in terms of strategic levers on hand but -- when it comes from the market or it comes from the cost performance of the business. And we're seeing that being the lowest cost producer is critically important in our commodity. The lowest cost prevails and lowest cost wins.By this year, fiscal '22 may be seen as a transition year. We believe that we are well on track to return to our proven ULCC model in the next financial year, not only including the operating metrics of the business such as fleet utilization, workforce productivity or load factor performance, but also with regard to delivering our profit targets and financial KPIs, including our growth ambitions. And just to say that again. All stars are aligned to deliver 20% annual growth in the next 5 years, and we are going to align our plans actually to make sure we are on track to deliver these following the AGM yesterday.And with that, I would like to close the presentation and turn it over to questions, please.

[Operator]

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

[Mark A. Simpson, Airline Analyst]

A couple of questions. First one really on kind of capacity and staffing levels. I believe it's right that you've got some wet leases sort of within the current scheduling, which kind of suggests you've got the aircraft that suggests that you're short on staff. So I wonder if you could sort of address that and also why you are confident that as you add 10 A321neos to next summer's schedule, that you'll be appropriately staffed for that acceleration. On top of that, those aircraft that you've now targeted to bring in, can you give us an idea about allocation geographically, where those aircraft will go?Another question just on the longer-term targets that you just laid out there, 500 aircraft by the end of the decade. Essentially, it suggests you make your order in the next 3 years and kind of schedule thereafter to the end of the decade. Otherwise, you'll be taking in 70, 80 aircraft a year for the last 3 years. I'm just wondering your thinking on a further revision to the schedule you have currently, 268 aircraft by the end of March '27. But it looks as though you're going to have to change that profile as well.And then finally, just a quick one, carbon cost. You've put up your hedging on jet fuel, but can you give us an idea of what you're thinking about hedging on your carbon exposure?

[József Váradi, CEO & Executive Director]

All right. Thank you. Let me start with capacity. You must have read the rubbish coming out of Ryanair. You seem to be [ gravitating ] on that. What happened was that we run into some operational hiccups starting from the underperformance of the supply chain, especially a number of airports and number of ground handling companies, really deteriorating our on-time performance as a result. We started shifting on the rosters. And in order to be able to meet the legal requirements, i.e. 100 hours performed due time per crew, indeed, we ran out of roster -- of crew for 3 to 4 days.Now this is all stabilized. We have created buffer for the system. And I think we also put some pressure on the supply chain to improve. So I think these issues are behind us. And [ all of things ] our competitors were talking about were really rubbish, and most of it were just simple lies. And I don't want to comment on that. But most importantly, structurally, maybe the way to look at this is that we are in the process of hiring, training and onboarding around 600 people, and that's very short term. And basically, every day, there are new recruits coming online. So that is going to give us a very comfortable margin for the next few months.But if you really think about this, we are heavily ramping up operations to deliver the 20% growth. So the recruitment has become an ongoing activity that we've already started and will continue to do going forward. I mean we are talking about thousands of people to be hired in a fairly short space of time. So we need to make sure that every week, there is recruitment going on, training going on, onboarding going on. And this is going to become ongoing from here.I mean let's not forget that in the last period of time, we were more -- restricted more to kind of mirror the restriction there and our inability to fully ramp up and operate our capacity. But now I think the tide has changed. And we just want to make sure that again, we are coming ahead of the curve. So rest assured that this issue was temporary largely because of the operation and the underperformance of the supply chain. We've reacted to it. And yes, we have a few wet leases active at the moment. But within a month or so, these will be phased out, and our entire operation will be returned to our own aircraft. So I think I'm pretty confident with regard to being able to staff what we need.I mean let's not forget that Wizz Air remains probably the most attractive airline certainly to offer career opportunities and advancement opportunities for its employees. And we have been making that very valuable employee proposition historically, and I think we are going to make it also going forward better than anyone else. And I think that will make us a very attractive target for pilots coming through and talented managers.With regard to allocating aircraft, I mean, we are allocating aircraft as the market opportunities arise. I mean clearly, what you see is that by diversifying our networks throughout the pandemic period, we have captured a number of new markets. I mean Italy is certainly a strategic market. It's an investable market, and we will be bringing more aircraft, more operating bases, more routes to the party. And that will be ongoing. So you should be certainly expecting a lot more activities coming out of Wizz Air when it comes to Italy.We're also seeing that the U.K. is an investable market, and we will have to see how restrictions evolve. I think it's great news that it seems next week, the market is opening up and will become accessible for travelers who are fully vaccinated. That should be a booster to demand. And we shall see how this history is going to evolve in the U.K. I think again, it's very disappointing or maybe I would even say that this is a continuous defraud of public interest, what's happening in the U.K. when it comes to protecting these few particular [ airlines ] at Gatwick and not allowing other airlines, like Wizz Air, to come into the market. I mean we are fully recovered. I mean we could move. I mean that's not our problem that others have not been able to recover because of their big liquidity position and that there is no demand for their products by consumers. But we are there and we are ready to go. And still, this history keeps going on with [ sorts ] in the country. So we shall see how that evolves and what opportunities there is. But as said, the U.K. is an investable market. Central/Eastern Europe, no doubt, I mean that's our core. That's our bread and butter, and we'll continue investing into these markets pretty much across the board. And then we have, as said, Abu Dhabi, which is yet to be ramped up. It is, yes, a restricted market, but once restrictions are removed, there is [ opportunity to come in ] with more capacity. Clearly, what we are seeing now is that for those [ 3 ] corridors that we are operating, we are seeing a significantly improved performance there. So we are very encouraged with the short-term progress we have made in Abu Dhabi.With regard to the aircraft order, indeed, 500 aircraft will require a new aircraft order or new aircraft orders, but let me not comment on that. I mean as we are there, we will certainly let you know. And there is a rule here that you buy aircraft when the time is right for buying aircraft, not when you think you need the aircraft. So we shall see how this is going to play out. And indeed, as you said, as we are accelerating growth, we are reviewing the existing delivery schedule with a view of accelerating it. So quite likely, what we are seeing today remains a moving target, and the delivery schedule will become more aggressive, as suggested.

[Jourik Hooghe, Executive VP & Group CFO]

And then on the last question, Mark, what we commented last time, indeed, on carbon, we have 1/3 of the network that is not exposed to carbon credits, 1/3 which is covered by free credits and then 1/3 which is covered to market -- which is exposed to market pricing. And indeed, we're not hedging for that last 1/3.

[Mark A. Simpson, Airline Analyst]

Okay. And Joe, just to reference, the comment about the wet leasing was a Romanian media outlet and with their spokesman, [ Andres Rada ]. So I wasn't quoting Ryanair there.

[József Váradi, CEO & Executive Director]

But -- I got you, Mark. But a few years ago, O'Leary couldn't even spare a word to Wizz. So I'm glad that he's spending half of his presentation on us, so that's a good problem.

[Operator]

Our next question is from Muneeba Kayani of Bank of America.

[Muneeba Kayani, Director & Head of European Transport]

Two questions from me, please. Firstly, just in terms of bookings, where are they currently now compared with 2019 at these levels? And how should we be thinking about overall loads and pricing for the second quarter? And then just on the cost side of things, you mentioned that costs would normalize as capacity kind of goes back to normal levels. Could you just help quantify that? Do you expect unit costs ex fuel to be lower than pre-crisis levels and by how much? And should we expect that in fiscal year '23, please?

[József Váradi, CEO & Executive Director]

Maybe I'll start with the demand side. So bookings are quite in line with 2019 levels. I mean I said we are looking at fully recovering capacity versus 2019. We are not going to get the same load factors. I mean at that time, we operated 95-plus percent load factors. I think we're probably going to have a 10 percentage point deficit in August. But clearly, we are heading in the right direction with that regard. It's overcapacity in the market so that will drag down the yield and it is dragging down the yield of the market. I mean Europe is a seasonal market. Every airline is flying [ extensively ] during the peak summer. So obviously, everyone is back in the party with as much capacity as they can operate to try to get some liquidity out of the market to survive winter. So it is clearly creating overcapacity versus demand, and it's a lower yielding business than what you would expect usually from the market this time of the year.But from our standpoint, looking at the long-term strategic positions are far more important than looking at the short-term matters. We'll have a reasonable quarter in the current quarter. I'm not trying to speculate in terms of profitability, but we'll have, I think, a reasonable quarter with that regard. But clearly, I think that we are structured in a much better position. We are more formidable, more competitive. We have lower cost relative to the rest of the industry. So we are happy to compete for future market position.

[Jourik Hooghe, Executive VP & Group CFO]

On the cost side, indeed, I mean, as utilization of our assets normalize, we believe that the costs will go back to, let's say, pre-pandemic levels. Will they be better? It could be. I mean if you look at all of the benefits that we'll get through the fleet, in theory, we would be -- let's say, have the right sort of basis to see lower costs. I mean much will depend on how much inflation there will be in that period as well as some of the other lines. So we need to see -- but clearly, I mean, we're well set up from a cost point of view to go back to pre-pandemic levels as soon as we hit normal utilization levels of the assets.

[Operator]

Our next question is from James Hollins of Exane BNP Paribas.

[James Edward Brazier Hollins, Senior Transport Analyst]

A few from me, please. First one is on ancillaries. You talked about them sort of returning to normal. I was wondering what sort of you expect the steady-state [ ancillaries ] per pax to be. Obviously, it was about EUR 30 pre COVID, over EUR 40 in full year '21, EUR 38 in the quarter just gone. So wondering where you'd see those and whether you expect that sort of steady state for Q2 for the summer. I think you've guided to that.Secondly, 100% capacity in August. You talked about only flying cash-generative flying. We've also talked about building kind of a full schedule, taking market share, et cetera. Would August still be only cash-generative flying? Or is it about building the schedule back in?The final one, you're clearly focused on growth in U.K., Italy, in terms of that Western European growth. I was wondering if there's anywhere else you would be thinking [Technical Difficulty]. I see you've got 11 new bases in the past year. And what your view is on Gatwick expansion, given it looks like the U.K. will go to a 50-50 slot rule for this winter. Sorry there's a few in there, but would love your thoughts.

[Jourik Hooghe, Executive VP & Group CFO]

Maybe I'd start on the ancillary and the principle that we use for flying. So on ancillary, I mean, you're right, I mean, it will normalize as we go to, let's say, normalization again of assets. If F '20 was around 31, F '22 should be around 33, maybe a little bit higher because there's kind of some restrictive orders in there like the one we just closed. And as long as there's a lot of restrictions around, we see a slightly higher ancillary revenue than our projection of EUR 1 increase per year per passenger. So I hope that helps to answer the question.On the principle for flying, I mean, we've kind of started to pivot [ operation ] to, again, margin-accretive flying. For summer quarter, definitely, we want to be looking at higher thresholds to operate as we're ramping up a higher portion of the fleet. So cash-positive flying is something that obviously is a minimum, but we're looking really at profitable operations. And that kind of becomes the new norm again. And hopefully, if we continue to see a straight line of recovery, which may not be fully out there, we can continue to kind of go back to a normal operating model.

[József Váradi, CEO & Executive Director]

But I can certainly confirm that every market we are flying at this point in time is cash positive. With regard to Western European growth, indeed, these are the key markets, obviously, Italy and the U.K. And these markets are kind of coming out of COVID-19 slightly differently. We are very positive about our strategic position we have been able to be during the pandemic times in Italy. I think we are very well set to be in the country. As said, we have 6 operating bases. And clearly, we are seeing great maturity we are growing to when it comes to our financial performance, so we are very positive.If you look at the U.K., that's on the other end of the spectrum. I would say that. I mean long term, we remain very positive on the U.K. and seeing that maybe this is an investable market. But short term, this market is more muddled due to government restrictions. The U.K. has been more restrictive than Continental Europe and also due to the slot issues in the [ continent ]. As I said before, I think we are very disappointed with the way this whole matter is going in the U.K. And seeing the lobbying power of a few airlines, it's just overwhelming and overweighing the public interest, and that's really bad. And I think it would require some higher-level intervention to stop this and let the market sort this out. And if you are an airline who is incapable of ramping up, then you should give way to airlines that actually are capable of ramping up, are capable of bringing capacity and network to the market, stimulating the economic activity and stimulating employment as a result. Now Gatwick is not in a good place at this point in time, and I'm sorry for the airport. And I think you just heard the CEO that he also expressed his disappointment with what is happening in the U.K.

[James Edward Brazier Hollins, Senior Transport Analyst]

If I may, I'm just reminded actually, our friends -- our Irish friends on -- I think it was Monday, were talking about market consolidation, 20% lower intra-European capacity in 2022 versus 2019. You talked about the summer, actually, capacity being very high certainly relative to demand. I was wondering if you had a view on 2022 intra-Europe capacity versus 2019 as you see it and as is in your planning.

[József Váradi, CEO & Executive Director]

Well, I mean, I don't have a crystal ball. He may have it. But if you look around the world, if you look at Chinese domestic, U.S. domestic, those markets recovered incredibly quickly and actually both are performing above 100% levels versus 2019. And Europe -- intra-Europe is not the same as U.S. domestic or Chinese domestic for sure because you see some constraints and restrictions applied for international travel. So I don't think it's a straight comparison. But what I'm seeing is that once the restrictions are lifted, the market recovers very quickly. So travelers are back in the market pretty much overnight. So I think it all depends on the market conditions for next summer. If it's largely a non-constrained market, I mean, I think intra-Europe would go significantly better than 80%. If it's a somewhat constrained market, then maybe 80%. But I don't have a number in my mind. Obviously, we need to look at the situation and how that evolves, and we need to adjust our plans and capacities accordingly. But I have all the confidence in the consumer. The consumer will [ book ] flights. But I have less confidence in the government in the way how they are shaping the regulatory framework. Hopefully by summer next year, this is all going to be behind us. But kind of going through the winter, I think this is still a question mark. But this is for the industry. As far as Wizz Air is concerned, I think we are disproportionately advantaged by the reset of COVID-19. I mean clearly, we are looking at operating significantly ahead of 2019 levels going into next summer. I mean we are already at 2019 levels. We continue to grow the fleet of the airline. So we would be expecting a significant growth to be delivered by us going into next summer. But the industry will lag behind us for sure. I just don't know to what extent.

[Operator]

Our next question is from John Glynn of Crédit Suisse.

[Neil Glynn]

Neil Glynn from Crédit Suisse. Close. I'll just ask 2 questions, please, sort of more short term. Just trying to understand the trajectory of your profitability recovery, I guess, as we progress through the summer. You're operating a far higher proportion of A321s this summer than you were 2 years ago, and it's obviously a big plane to fill if you're having to discount. Just interested, are you seeing -- I appreciate you won't give me specifics, but are you seeing a difference in the profitability per seat outlook for the 321 versus the 320 as you build your schedule through this summer? And then the second question, more longer term, again, back to the subjective carbon and jet fuel taxes. Per your comments earlier, about 2/3 of your exposure today will ultimately be exposed. And just interested, with higher costs -- effective fuel costs making it more difficult to stimulate demand, over time, does your network have to evolve as those costs rise to focus perhaps more on share from wealthier catchment areas rather than stimulating demand as this decade progresses?

[József Váradi, CEO & Executive Director]

With regard [ to profitability ], actually, we would be somewhat reluctant to give you a strong guidance, but I think you should be expecting a fairly reasonable quarter to be delivered. With regard to summer, as I said, we would not be able to guide for the second half given the unpredictable nature of the regulatory framework. I think you need to understand first how governments -- understand government, whatever comes before we can really sort out our plans accordingly.A321, actually, the way to look at A321 is that it's almost like -- you are getting good incremental fees or fee relative to the A320 -- over the A320. It is such an efficient aircraft that you don't really suffer. The A321 is a more profitable aircraft than the A320 from an airline standpoint. And that principle pretty much applies no matter which time you look at it. I think it is even applicable in times of COVID. So we are very comfortable with the A321. This is the right aircraft for Wizz short term, medium to long term. And this is what we are converting our fleet for. I will pass the carbon question to Jourik. But let me just give a commentary on the higher fuel cost and whether that would translate into structurally increased fares. In case of Wizz, I don't think so. I mean if you look at Wizz, we are trying to create quite a number of levers to get costs down, actually, unit costs down. I mean one of them is fleet innovation, young -- operating younger fleet of aircraft. It is the technology, the A321neo versus the A320ceo. It is the gauging -- we are up-gauging. I mean that's a significant source of unit cost reduction. You can imagine that we've been able to take advantage of airport deals, contracting some of these long-term investments in -- especially in new markets. I mean that's another source of cost advantage. And yes, we will have some headwinds. Fuel -- it could be carbon. It could be government-imposed taxes or charges to recoup [ debt in the ] industry could be another source of headwind. But we have a lot of initiatives to also create tailwinds in the business. So our objective would be to try to offset the headwinds coming with all the tailwinds what we can control and what we can leverage. And we actually have quite some initiatives on hand with that regard. So I don't think that higher fuel costs will necessarily translate into higher fares and our inability with regard to market stimulation. So I think we are still in the market stimulation game. We are well positioned to implement the model that we have. And we have a lot of tailwinds coming, especially through the fleet program and some of the commercial deals we have been able to put in place.

[Jourik Hooghe, Executive VP & Group CFO]

Yes. I mean very little to add here. I mean technology clearly is the best hedge against something that is coming in that respect. And yes, there could be changes in underlying demand in the network. You used to take your holidays -- as a Polish person, you may take it in whatever, in Turkey because it's not part of the EEA zone and you also will have a cheaper flight. So yes, there will be some movements if these policies really get passed.

[Operator]

Our final question is from Carolina Dores of Morgan Stanley.

[Carolina Botacini das Dores, Equity Analyst]

Three, if I may. One, when you think about ramping up the fleet to 500, how do you think about financing the fleet? Are you guys still 100% leased? Do you need to strengthen your [ debt work ] here at some point in the medium term, your thoughts on that?The second thing is how should we think about medium- and long-term margins? If there has been any change to the 13% to 15% target. And my last question is, if you think about 2023 as the recovery year, could we see margins in line with what we saw in -- by 2019 already?

[József Váradi, CEO & Executive Director]

All right. Thank you for the questions. So with regard to the fleet 500 or Wizz 500 as we call it, yes, I think we're going to go with the market, to be honest. I mean I know that many airlines kind of over strategize kind of financing structure of fleet. I mean we have been taking advantage of the market moves. I mean clearly, there are a few levers in our favor. I mean one is that we are a very, very [ honest ] credit for the market given our investment grade. Two, we are flying the most wanted assets in the industry, the A321neo. And I think the combination of these 2, being the best credit, flying the best asset, gives us very significant financial advantages. And we are trying to tap into pools of capital that best meet our requirements. So we have our single objective here to finance an aircraft at the lowest cost. And sometimes, it is sale and leaseback, sometimes it is some structured financing. And we will just simply see what's out there in the market. So I don't think that we have a specific target here. We will just go with the market and the market opportunities. So far, so good. And we will see how that changes. And if there are significant changes that one line will be significantly better, obviously, we would be tailoring our approach accordingly. But we don't have a predetermined view on how exactly to structure the financing of this 500 aircraft.With regards to the margin performance, we used to say that we had a 15%, 15% model, delivering 15% CAGR on growth at 15% margin -- or roughly around 15% margin, 13% to 15% margin. And if we would become more profitable, then that money will get reinvested in the growth of the business. I think that kind of principle will continue to hold going forward. But now with the enhancement of growth, we are looking at 20% growth, but we are looking at 13% to 15% margin to be delivered. And it isn't a trade-off against the margin. I think it is a trade-off based on the competitive advantages that I think COVID is going to result for Wizz through the fleet renewal, through the lack of debt and debt servicing in the business, through the commercial arrangements and through the market diversification that we have been building up. And that gives us that incremental kind of capacity growth opportunities going forward.And with regard to restoring the margin performance, I think, lastly, we will be looking at the next financial year as a full year in terms of delivering proper operational KPIs as well as financial KPIs. But again, we shall see in what shape it will be in terms of operating restrictions.