Wizz Air Holdings PLC
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Wizz Air Holdings PLC
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Hello, and welcome to the Wizz Air 2019 3rd Quarter Results. [Operator Instructions] Please note that this call is being recorded. So today, I am pleased to present József Váradi, CEO; and Iain Wetherall, CFO. Gentlemen, please begin.
Okay, thank you very much. Well, good morning, everyone. Thank you for joining this call. So we are reporting the October-December 2018 period. And let me just take you through the highlights, and then we will start deep diving into some of the matters.In the period, we delivered 15% passenger growth and 6% higher unit revenue, and that helped us offset some of the cost waves in the business, mostly fuel. So the 15% passenger growth came with 21% revenue growth and increased load factor, the increased load factor of 2 points in this period. As said, the revenue performance was very strong. Revenue per ASK went up 6%. If you measure it on a revenue per seat basis, it went up 8%. I mean, clearly, with that, we outperformed the marketplace.In this period, we successfully introduced the new cabin bag policy. You recall that we were reporting to the market that we were unhappy with the performance of the previous cabin bag policy. And we changed it, and it works out very well, even I would say, probably, beyond expectations. We continue to develop our network and system. We opened up 53 new routes in the period. And importantly, we opened up a base in Krakow in Poland -- [ we expanded ] the base in Krakow in Poland.Also, very important from a U.K. perspective that we received a U.K. route license from the government in April, Wizz Air UK, to operate as a British airline under any circumstances of Brexit. And with that, I think we clearly secured our access to market from a U.K. standpoint, and this is irrelevant when it comes to flying from the U.K. to third countries. The good thing is to develop the business, and we announced further 2 aircraft to join the Wizz UK network. And by summer 2019, we will have 11 aircraft in operation here. And also importantly, with that capacity, Wizz Air will become the largest airline in Luton Airport, and you know whose homeland Luton Airport is.We remain disciplined on managing cost and managing profitability during the period. Clearly, we had a number of cost issues to encounter. If you look at the fuel, it went up over 40%. If you look at labor cost, it went up over 40%. I mean, I think fuel, you all understand, we are subject to the market with regard to labor cost, it was twofold. One is that salary inflated in the period. You can imagine the Ryanair increases pay to their pilots and workforce by 20%, 25%. We don't remain immune to that, and we had to follow through the market forces. And secondly, we had a number of events requiring us to invest into labor in the form of out-of-base flying or incremental training capacity. And that was related to the Wizz UK setup and also some reshuffled capacity in the network. These are one-offs. So these cost lines will disappear going forward.And also, we reacted to the cost by taking capacity down. I think we have been very vocal about this, and we've always said that we would be managing this business for profitability. And we started constraining supply of capacity in order to make sure that demand reacts to it, and as a result, you see the revenue performance of the business.But on the cost side, obviously, utilization came down and unit cost increased. Again, this was a matter for the period of the center and we expect that, that is sure to move away going forward and utilization to go back to normal in the next financial year. So with that regard, this is a one-off item as well. And with that, we are confident in delivering the previously announced net profit guidance, which is the range of EUR 270 million to EUR 300 million.I'm sure you will ask where in that range exactly we're going to be landing. I don't know. I think that is vast significant uncertainty, and this is how Brexit is going to play out and how it will affect consumer confidence and the booking profile of the market. We are certain that we will be landing inside the range. But depending how Brexit plays out, we see which part of the range we will actually be at.Going to the next slide. This is giving an overview of the business. We carried 8.1 million passengers in the period. As we speak, we have 106 aircraft flying. Actually, that fleet is going to build up to 112 aircraft by the end of the financial year and 122 aircraft by the end of fiscal '20. We operate from 144 airports from 25 bases; Krakow being the latest announcement in the fitment. And obviously, with the growth of the business, we continue to grow our organization as well. 4,400 people as we speak. As said, we launched a number of new routes, 53 precisely. And we make sure that we continue to develop our business across the border, across our base markets and destination markets.Moving on, we became very focused on improving the operational metrics. You recall that in the previous quarter, the European operating environment collapsed pretty much affecting airlines' operating performance. We took actions on that, and we made sure that we have a more robust, more resilient operating model to benefit the traveling public with that. And you can see that we canceled much less flights than in the previous years, much less than in the previous quarters, and on-time performance also improved. So I think all these adjustments to the operating models are now bearing fruits and we are seeing clear improvements. And it is not only because of the lower utilization, but it is because of the structural changes we made to the operating model.Looking at the next slide, it's showing the growth of the network going into summer 2019. It will be a very busy period. We are launching 104 new routes, 85 of them in markets outside the United Kingdom, and we continue to develop the U.K. business despite the Brexit issues, and we are launching 19 new routes in the U.K. And as you can see that almost 90% of the growth capacity is put in place for increasing frequencies of existing services or joining existing airports. But we continue to pioneer new markets, new airports and fair percentage of capacity we allocated for that purposes.Next slide is showing some of the other achievements what we have delivered in the business. Very importantly, we opened up our new training center for our pilots and cabin crew in Budapest. This is the state-of-the-art facility. It's an investment of around EUR 30 million. And that will enable us to efficiently and effectively train our crews to make sure that we adhere to standards and also to execute at lower cost than previously when we had to buy training capacity in different places.For the first time, Wizz Air got rated with 7 stars by AirlineRatings. I think this is a recognition of our safety culture, our safety standards in the company. So we are very pleased with that one. As already said, in the period, we received a U.K. route license from the U.K. government, enabling us to continue to have access to markets under any circumstances of Brexit, and that's an important development step for the business. And also as said that we introduced a new bag policy, which seems to be a very effective way of managing ancillary revenues. And as a result, ancillary revenues are nicely back on track already, and we are expecting further upside to manifest going forward.So with this, I will just hand over to Iain, who will take us through the numbers.
Morning, everybody. So yes, let's dive a little bit more into some of the details. Q3, so this is a 3 months for the year, for the calendar year ended 31st December, so October, November and December.We delivered record revenues. So revenues were up 21.2%. Unit revenues were up, József highlighted, up 6%. And I can't think of any other airline in Europe that delivered such superior growth and also revenue performance. But as we've highlighted, we don't grow this business for the sake of growth. If we want to look at Q3 in maybe the context of the previous year, in Q3 fiscal '18, fuel-CASK was up 1%, which enabled us to grow 23% ASKs. Fuel-CASK was up 22% in the third quarter, which means that the level of growth which we can put to the market couldn't be 23%. But I think a 15% growth in ASKs and passenger growth was a very healthy performance.One of the compromises of slowing that growth down is an impact on CASK, that whilst we're very pleased with the performance on the revenue -- unit revenues, we slightly underperformed on the CASK. And as József highlighted, that came in the form of 2 things. One, the year-low utilization; simply by flying less, those fixed costs, it takes a while for you to get out of the system. But going forward, with our adjusted growth rate going into the fourth quarter and also into fiscal '20, those fixed costs, we'll be able to remove, and we'll be able to get our ex-fuel CASK back to normal and our utilization levels back to normal.Moving on to page 8. And I can just highlight, I think, the strong performance that we've been able to deliver on our revenue. What's pleasing -- particularly pleasing is the strong performance on ancillary. We're very happy for the ancillary, which seemed to get higher and higher as the base fare can get lower and lower. So ancillary is now, again, represents 43% of the overall revenue environment. And as you can see, the ticket prices were strong. That's a function of the disciplined capacity that we put forward in the third quarter. But also the recovery, I think, on the 7th of November, we reintroduced our paid-for cabin bag policy in a slightly different form, and we saw a strong recovery from that. And again, that was from the 7th of November, so you won't have seen the full impact of just the recovery of the ancillaries. We'll come onto a slide later that shows that we are looking in Q4 to be tracking around about plus EUR 4 per pax on the ancillary which is a very strong performance. And we should have that tailwind going into November next year. So again, another positive sign for a strong fiscal '20.Moving on to Slide 9 in terms of the cost. And again, if we reflect on what actually happened, fuel-CASK was up 22%. So drilling into the numbers, total CASK was up EUR 0.30, EUR 0.21 of that -- EUR 0.21, so over 75% of that is actually coming from the fuel. The rest of it, EUR 0.06 of it, the majority is coming from the crew cost. And as Joe highlighted, half of that comes from the fact that we raised the average salaries of our pilots from the 1st of April by around about 14% across the network. The other half of it was a combination of 2 things: one, the utilization; and the investments that József highlighted in places like Luton. The year-on-year effect of the salary pay rise from the 1st of April will disappear as we enter fiscal '20. And the one-off investments, as we're looking today, there aren't any of those such large investments going into fiscal '20. So as we look into fiscal '20, crew CASK certainly should be starting to see the negative number that we expect from this business, A321s themselves, you only need an extra cabin crew. We should be seeing a 17% lower unit cost from the crew cost, so we should start seeing that benefiting certainly in fiscal '20. So I would expect to see a dramatic recovery of the crew cost performance for next financial year.When we look at down on the other line items, utilization tends to be the bigger driver. Aircraft rentals, the aircraft -- all of our aircraft the least, so when you drop utilization to 6% and 6.5%, your aircraft rentals will be up, accordingly. I think one thing to flag before the questions start coming, the ex-fuel CASK in Q1, Q2, Q3, all slightly positive. We are maintaining a minus 1% on our ex-fuel CASK for the full year, which means that we need to deliver a very strong performance in that fourth quarter. We know what we need to do. We have the list of items that we will be delivering.To give you a flavor, we always tend to do very well at the end of fourth quarter in terms of airport costs. That's when a lot of our contracts get renegotiated. So we're expecting a strong performance on our airports in CASK. When you're looking at the staff cost, this summer has been particularly challenging for our crew, a lot of disruptions, lot of out-of-base flying. So vacation for the summer has been very challenging. Lowering the utilization in Q3 and Q4 enables us to manage that better so a cabin crew and a more relaxed roster for them enables them to get off and take their vacation. That will get rid of a couple of million.Maintenance, again, while you lower your utilization, certain maintenance events that we were planning in February, March will be ending up in April. So some of the maintenance events and the heavy maintenance events will be pushed forward into fiscal '20. And again, I think that's generally a flavor of how we're going to be delivering on the performance for the fourth quarter. It's not a scenario of going to the church and praying. We know exactly what we need to do on every item. And we are committed to executing all of those in the fourth quarter.So moving on to page 10. Again, a slide that's very close to my heart. I think it's very important as a ULCC business, we are completely committed to the lowest cost in the industry. If you take your eyes off the cost base, then the business model is compromised. We've done a very good job. Q3, you can see, we always tend to -- utilization always comes down in the third quarter because of the seasonality, that's when you tend to do more of the maintenance. So you always expect to see a slightly higher CASK performance in the third quarter, but that number needs to be coming down, so we'll be delivering on the minus 1% for the full year.What you can see is there has been quite a sharp jump on the fuel, so from EUR 0.0094 to EUR 0.0115.Moving on to next slide, I think we've been talking up the A321neos for a couple of years now. There are 4 things to highlight here. It's a bigger aircraft. The price that we've secured on this aircraft is industry leading. We were part of the $50 billion deal 18 months or so ago. The engine is the most fuel-efficient engine on the market and has the potential to deliver even better fuel performance than other engines on the market. And we have an investment-grade financing. So all these 4 things, we're going to start seeing the benefit from this quarter. So it's very pleasing that we can finally say that the neos are going to be entering the fleet in the fourth quarter. Going into next year, so this calendar year, we'll be taking 10. Those are already very well advanced on the financing side. We can talk about ownership costs and financing maybe in Q&A. But this is a very exciting aircraft. Next year, we'll be giving back 3 A320ceos. The difference between an A320ceo and an A321neo is a 20% lower unit cost aircraft. I mean, it's unbeatable on the market for narrow-bodies and short haul in Europe.Jumping on to page 12. Just to give you a trend set on the ancillaries. As highlighted, in Q3, we were up EUR 1.70 per pax. The cabin bag policy change took place on the 7th of November, so we saw a very strong performance from then. Q4 will be the first quarter where you'll see the full impact of that. And we're seeing a very strong performance, József highlighted probably slightly higher than we anticipated. I wouldn't get you carried away, there tends to be cannibalization. So whilst we are seeing a very strong performance in the fourth quarter on ancillaries, it just means that we can lower our fares that little bit more and stimulate even more traffic. So I think the ancillaries, certainly for the next 9 months, is looking very, very promising.What I would also flag, when you drill into where that performance is coming from, the product mix is changing slightly, but we are seeing more than EUR 1 per pax coming from the WIZZ Go, so the bundle packages. We are seeing more than EUR 1 coming from the priority boarding. Again, there is a baggage-related element to that. But we're also seeing strong performance in the allocated seating, the onboard sales, new commissions as our route mix changes with a little bit more ledger, you're seeing us benefiting from that. So again, I think a very strong performance from ancillary. And hopefully for the next 3 quarters or so, we'll be reporting a very similar story.Page 13. We're nearly coming to the anniversary when we got our investment grade. This put us in a very good stead for when we're financing aircraft. We have a very strong balance sheet. We have nearly EUR 1.3 billion of cash, and the cash generation is looking very strong and very robust. As I mentioned, the aircraft financing for the calendar '19 is pretty much done and dusted. Coming April, we'll be starting to look at calendar '20. And again, we're very excited on the opportunities and what we're seeing in the market. I mean, the depth and the breadth of the aircraft financing market today is probably one of the best that we've seen. So we're very encouraged going into calendar '20 for those.Maybe onto the last slide, highlighting some of the small tweaks. So again, as we highlighted in November, fuel CASK, we were pointing to around about plus 22%. So we have seen a nice pullback in fuel prices, which we'll certainly benefit from going into the first half. But on the fourth quarter, we are starting to see some of the benefits coming through. So that's why we're able to drop that down to 19%. But there's inevitably a fuel pass-through effect, and the nervousness that we have around Brexit on the yields or the caution, I should say, gives us a little bit of caution in terms of the RASK, that's also dropped accordingly. But as we've always said, fuel prices always tend to flow through to the revenue environment. We've talked about the ex-fuel CASK and how we're going to be delivering that, and that really summarizes up to the unchanged guidance of between EUR 270 million and EUR 300 million for the full year ended 31st March.And with that, maybe we'll open up for Q&A.
[Operator Instructions] And our first question is over the line of Jarrod Castle at UBS.
If you could, can you just give a bit of color in terms of some of your main markets in terms of performance and any early indications of how the summer bookings are looking?
Okay, maybe, I should do that. So I think first of all, we need to differentiate between Central and Eastern Europe and Western Europe. Central and Eastern Europe is still high GDP growth, I mean, some of the countries reported 4%, 5% GDP growth and expectations of similarly high rates going forward into 2019. Obviously, that GDP performance creates significant underlining consumer demand in the marketplace for discretionary spending like travel. So we are, I think, enjoying the benefits of very robust consumer markets in Central and Eastern Europe. Secondly, we are seeing capacity, airline capacity growth moderating in Central and Eastern Europe compared to previous years. In previous years, we saw airline capacity rising double digit certainly and now we are more into mid-single-digit territory what we are seeing at the moment. Now I would caution you to not jump into big conclusions on that because airlines may just be launching further capacity in the region. But clearly, I think there is a trend of more capacity discipline playing into the markets now. Across the board, I think that's the same for Central and Eastern Europe and Western Europe, too. But clearly, we would be benefiting from more benign competitive environment in Central and Eastern Europe with that regard. Also let's not forget that Easter this time around falls into the new financial year. It will be at the end of April. So Easter is always a booster of demand for flying. The one uncertainty we are seeing is around Brexit. I mean, simply we don't -- we can't predict at the moment how consumers will behave, how they will come in. There has been a lot of buzz in the media whether the airlines will be able to fly or not. And you know how Brexit is going to play out, soft or hard, much or not much or ever or never. So all these uncertainties, I think, are affecting the behaviors of customers. But once certainty is created, whatever it is, but it becomes certain, I think people will start measuring themselves against the new terms and will start acting. The good news is that people's memory tends to be pretty short. So issues can be recovered very quickly. And that's why we are a little hesitant on the guidance where exactly to guide the market with regard to where we would be landing because of this uncertainty. But other than that, we are seeing the markets are robust. We are upbeat about your question. Just as you can see, we'll continue to grow the business. We are planning on 15% capacity growth in fiscal '20, and we are certainly seeing a number of factors positively affecting the cost performance of the business, and we're seeing that the demand side of the business is robust too. And when I look at forward bookings, obviously, we have very limited visibility yet, but so far so good.
We are now over to Mark Simpson at Goodbody.
Just want to ask about the utilization rate. So obviously, there was a 6.6% decline seen in the Q3. I'm just wondering how do you think that will work through in Q4. And following on from that, if that's not going to improve substantially, how are you going to actually deliver that 11% ex-fuel unit cost decline, which is implied by your FY '19 guidance?
Mark, I would think it's fair to say that the utilization is going to be a similar level going into fourth quarter. And again, if you think about, airlines tend to lose money in November, first two weeks of December, January and February tend to be loss-making. So again, in a higher fuel price environment, it makes no sense to just grow faster. What we tend to see is that if you make a lot of money in the third quarter, you can invest that in the fourth quarter. So the traditional pattern tends to be profit Q3, loss Q4. What you're seeing now is breakeven-ish in Q3, and again, that's the sort of level we're going to be looking for into Q4. So the utilization, to your question, will be of the similar sort of magnitude. Getting it back up, I think is fairly straightforward. We have adjusted the capacity schedule, Easter. Clearly, we're going to be looking to be flying as much as we possibly can in April. And because that schedule is more normalized, and again, if you think back to this time last year, we were saying we're going to take 17 aircraft in 17 weeks. That's a lot of pressure on the business and also that can impact on the utilization. So having a more normalized schedule of a couple of months means that you're not putting that pressure. So we're absolutely convinced that we'd be able to get our utilization back up to the normal levels, certainly from April onwards. But the Q4, it will be the same thing. On to your question, I can just repeat what we were talking about earlier. I mean, yes, there is a lot of things we need to do. We have a strong track record of delivering a strong ex-fuel CASK performance. A number of initiatives that were being planned for the third quarter will now materialize in the fourth quarter. So there does tend to always a fairly heavy back-loaded effort. These are initiatives that we've been doing throughout the entire year. They do tend to happen in the fourth quarter. So as I have highlighted, that's the business as usual. These are all pretty much business as usual, whether it's improving on the crew side of the equation, the airports, I mean, these are contractually linked and recently we announced a deal to Skopje, so there was some support for that. So you can see that there's a lot in the pipeline, and we're convinced that we're certainly going to be able to deliver definitely a negative performance. But the challenge is a minus 1%, and that's where we're setting ourselves up to do.
And just following on from that, can you give us the phasing of the A321neo deliveries in FY '20?
So we're taking 2 in March, and then there will be -- there's 10 for the full year -- exactly, yeah. So there's 10 for the full year. In terms of the phasing, you're seeing, I think, it's 3 the beginning of summer and then a couple at the back end.
Well, I mean, there's the other thing, which has changed significantly versus fiscal '19, that fiscal '19 we were loading all the new capacity and aircraft delivery program prior to summer. So we had this scheme of 17 aircraft over 17 weeks. We won't have that going into fiscal '20. It's going to be a more spread over the aircraft induction, which obviously will ease the labor side of the equation, and we're going to be able to train in the system substantially compared to what we had to go through in fiscal '19. But you know the program is now saturated with Airbus. You recall that this is a renegotiated delivery platform recognizing the end-of-year issues of OEMs including Airbus, and we believe that because Airbus is beginning to gain sufficiently that they will better deliver. Or if they fail to deliver, it will come with a significant financial penalty on them. So I think from our perspective, we're going to be covered, but obviously we have an interest to get the aircraft and deploy the capacity as opposed to get the money. But financially speaking, I think we are pretty well covered with this in fiscal '20.
I mean, in terms of specific numbers, Q4, we're taking 6 units. So we got 106, and we're going to maybe ending up to 112, so another 6 units in Q4 of which 2 are neos. And in Q1, we're taking 5 additional units. But to József's point, I think, we've allowed ourselves a lot more capacity to be able to take those aircraft. So certainly -- and I think the key thing there in terms of the crew and the recruitment process as well, we used to be training and recruiting with about a 3 to 4 month lead time. But when you're taking so many aircraft that's been pushed up to 8 months. So one of the reasons why we've seen inflation on the crew which will not happen going into fiscal '20 is that we have a much more normalized delivery schedule.
Okay. So we are now to Societe Generale and Michael Kuhn.
One question also keeping in mind that the neos are now more and more coming, you mentioned you are encouraged by the current state of the aircraft financing market. What is your latest view on buying versus leasing? And what do you have in mind for fiscal '20 in that context?
Michael, I think it's important to reflect that IFRS 16 treats them both the same. So whether you lease or whether you buy, essentially, you're treating them the same on your balance sheet. So it's sort of a little bit of an academic question. The question that is which -- who's charging you more, a bank or the capital markets or the lessor. So when we look at financing, it's essentially now we can look at an apples-and-apples and say, right, which financier is charging us the lowest possible rate? As we look today, when you -- and also the benefit when you look at leasing is that you're essentially locking your leases in for between 9 and 11 years. So with a sort of a risk management hat on, the ability to lock in 11-year money at rates that are historical lows and pretty close to what you could issue for 5-year bond money, the leasing market is incredibly compelling. And so if you were to ask me a year ago when we got investment grade and we say, right, where is the last piece of the jigsaw where we really need to lower our unit cost, its ownership. So if you were to ask me year ago, I would have said the bond market would have been a fairly compelling proposition. But when you compare that to a lot of money that's still available in the leasing market, it's incredibly compelling. I think what's also very important is when you look out for our delivery schedule, there will be a couple of years where one should take into account the lease returns, we're going to be taking 25, 30 units per year. So I think it's very important to maintain -- for us, we want to maintain, and we will maintain the investment-grade balance sheet. So if we're seeing today really compelling pricing from the leasing market, then that's what we're going to be continuing to do. But that said, we'll have to decide. When we come to the decision, so we're now pretty much financed for this calendar year. Going into next calendar year, we'll look at all the options, and we'll make the decision pretty much on the day to finance.
Okay, great. And just one quick follow-up, just as a reminder. What did you guide last year on the profit contribution of Easter?
It depends where -- there's always a couple of days. So we had a couple of Easters, the orthodox and the sort of the normal Easter. And there could be a couple of days on that. $15 million tends to be around about full Easter.
We are now over to Damian Brewer of RBC Capital Markets.
Could I follow or return back to a previous theme? I'm still just a little bit mystified by your ex-fuel CASK guidance. I mean, particularly, if one kept the staff, marketing lease, D&A costs flat quarter-on-quarter, the maintenance costs fell to a level about 2 years ago. That implies the airport and route charge costs have to fall something like 26% year-on-year in Q4. So clearly, there's something in there I'm still missing. So could you maybe elaborate a little bit more on what some of the moving parts are more, please?
We have a number of transactions falling into Q4 with regard to aircraft and entering transactions, and the business will benefit from those transactions, and they happen to happen in Q4. It is chose by accident, I mean, it's simply so because of the delivery program what we have. But this is normal course of business. So we've had that before, and we'll have it in the future as well. But this time around, it seems that it's just concentrating in one quarter.
Okay. So how sizeable are those, I mean, we're 1/3 the way through Q4 so I assume we've got relatively good visibility on that?
We're not guiding today. I mean, there are a number of -- I mean, the focus should be on the business. The focus is all about -- the airport CASK is going to be a very strong performance. En route charges, we can certainly say that the EUROCONTROL charges are down significantly from January. So I would see a significant reduction on the en route charge and navigation charges. That's on top of, as I highlighted, the airport charge. But in terms of the -- just to give you a flavor, with the ceo technology, we have -- we sold 1 or 2 engines in previous years. So you will have seen that last year. You all have seen it the year before. They tend to happen round about July. And this time they're gonna be happening around about in Q4. So if you want to go back and have a look at sort of maybe on the cash flow statement for the second quarter, that's something you might want to look at. But I think on the whole, this is just business as usual.
So we're now over to Numis Securities and Kathryn Leonard.
Just following up on the financing point on the aircraft, just wondered if you were able to put bit more guidance on what you expect the CASK on aircraft rentals to do given that favorable leasing terms that you're getting? And then following on to that same question, what are you gonna to do with the cash that you've accrued given that previously you were looking at ownership, that's now not the case. And what might you do with that?
Well, I think let's start with the last question. I mean, it's not a good use of shareholders' funds to use all of our cash to buy aircraft. So if we buy aircraft, yes, we would put probably 20%, 25% of the company's cash and the shareholders' cash into it and the rest of it would be on balance sheet debt, whether it's a bilateral debt or whether it's capital market debt. So I think the important thing is that we need to maintain a very strong balance sheet in order to maintain that investment grade. And the investment grade itself essentially drives significant cost savings, not only through the aircraft financing but through other line items. When you go and speak to a supplier with an investment-grade rating, you can considerably improve your terms, financial terms with also maybe some restricted terms, I mean, hold back terms. You don't have those collateral terms. You don't have those. So I think maintaining an investment-grade balance sheet is absolutely critical. And again, I think, let's reflect on it. In 2 years from now, you can see our -- the fleet delivery schedule in 2022, and we're gonna be delivering quite a number of aircraft back to lessors. We're going to be taking an incremental unit of 33 units. So we need to make sure that we maintain a very strong balance sheet to be able to finance those. And therefore, when you go to a financier with investment-grade balance sheet that you can essentially get the best possible pricing. So today, the leasing markets only helps from that perspective. In terms of -- we're not guiding on the CASK performance for fiscal '20 on the aircraft, and that's something we'll keep until May.
Okay. So we're now over to HSBC and Andrew Lobbenberg.
Can I ask -- in the past, you've said that you don't want to go buy any airlines but you'd be interested perhaps in buying assets, I think, that might come available as the industry restructures. So how do you see opportunities lying there at the moment? And then slightly related to that, Indigo are in talks to invest into Wow. Do you see opportunities to collaborate with those guys? Is there any relevance as Indigo considers having a second broadly defined European low-cost business?
Let me start with Wow. But I mean Indigo is a private equity investment firm with their own objectives and own strategies. They happen to be an investor in Wizz Air, but we are not related through discussions between Indigo and Wow, and I don't think actually that transaction has been confirmed yet. But this is a business of Indigo. This is not a business of Wizz. We are not involved. We are not looking at it. With regard to consolidation, I continue to believe that the European market will have to consolidate and will continue to consolidate, and we're gonna be kind of open-minded to look at the opportunities rising from that consolidation process. Nevertheless, our core strategy is to continue to grow the business organically. You know we have become the lowest producer in the industry. We operate from markets in Central and Eastern Europe, and Central and Eastern Europe gives us the growth opportunities we need organically. I mean, clearly, we are seeing that we can deploy 15%, even 20%, at certain times, capacity to continue to stimulate the markets in Central and Eastern Europe. So we remain on that strategy. As we have said previously, we are not interested in buying businesses. We are not necessarily interested in getting inboarding to M&A activities, but we are certainly interested in capturing market opportunities arising from Constellation Airlines failures like we did in the U.K. When Monarch went down, we acquired some assets from Monarch, and we translated those assets on our operating platform and we operated it under the Wizz operations and Wizz brand. But you know these matters tend to be opportunistic. We are not planning on it. But if they happen, we will look at them and we will form a view whether or not we want to do anything there. But please don't expect us to start chasing M&A opportunities. Going forward, we remain a very focused business, focused on organic growth, focused on further expanding our operating platform and the Wizz franchise.
So now we go to Davy and Ross Harvey.
Just wondering about ex-fuel CASK for FY '20. I mean, clearly, you won't go into guidance. But when we look at a couple of the drivers, there's a lot of encouragement from higher utilization, strong capacity growth, the A320 mix of the fleet, even the comps are benefited from the Wizz UK start-up cost, salaries, disruptions, et cetera. Is there anything for us to consider from the perspective of major maintenance events? Or anything else to flag that we should consider when we're beginning to look at that FY '20 figure?
I think you've pretty much nailed it on the head. And I mean, in looking at ex-fuel CASK going into next year, I think we should be able to deliver a pretty good performance. There's 3 aircraft going back to lessors. When you get an aircraft back into condition, you can be talking to the tune of $750,000 or $1 million to get the aircraft back into condition. So that's something that you'll start to see creeping through. But in the grand scheme of things, the A321neo has an extra 9 seats. So you should be seeing an improvement coming through on that. So we're not giving guidance, but there's nothing out there that I think we should be signaling now that I can think of. I mean, one thing that is worth flagging, and this is, I think, to the whole community is IFRS 16 will have a significant change to our balance sheet and P&L. And what we'll need to do is once we pretty much buttoned up fiscal '19, we'll come out to the investment community and sort of go walk you through the impacts of that. But in terms of the CASK performance per se, there's nothing that I can think of maybe just where in the P&L those line items fall. So the leases disappear. As an example, 100% of our aircraft are leased. So by definition, you will see a different depreciation number, and interest will come on the face of P&L. So that's something that I'll need to come out. So we'll have some teach-ins with you guys further down the line.
But if you look at the Page 10 of the presentation, I think it sort of gives you a pretty strong suggestion what you could -- or should expect from this business to deliver with regard to cost of fuel. So as you look at the fiscal '13, fiscal '18 period, essentially CASK ex-fuel was contained within the range of EUR 2.25 to EUR 2.30, let's say. And I think this is the range you should expect to happen going forward. And A321 rollout and the neo induction will certain help us create a tailwind with that regard, but we need the tailwind to offset some of the headwinds like inflationary pressure here or there like labor, maybe infrastructure cost, but you should expect this business to remain on track with this regard, and it's been consistent over the last 6, 7 years.
Okay. We now go to the line of Jakub Caithaml at Wood & Company.
Could you please help me understand what options are on the table for the U.K. shareholders if the U.K. eventually exits the EU in face of the EU ownership rules? And also, could you update us on how many shares are held currently by non-EU shareholders and how many shares are held by U.K. shareholders, please?
So in terms of the shareholders, 53% of our ordinary shares are owned by Europeans. And of that 53%, 28% of our issued share capital are U.K. In terms of the Brexit question, I think what we've been saying all along is that we have a contingency plan. It's in place. It's been robust. And actually, it's a plan that we've had in place since IPO. Our articles allow us to disenfranchise our U.K. shareholders. But in terms of how it's going to play out, I think we have to -- we'll just have to see what happens.
Yes, I mean, I think we have to be careful here because I'm not sure who in this country is in a position to say how Brexit is going to play out exactly. It looks like it's changing with the wind every day. So we are not trying to predict the outcome of Brexit. But what's important from our perspective is that to have the contingencies in place, to be activated if needed to make sure that we continue to fly the passengers between the EU and the U.K. and also third countries and the U.K. and make sure that we remain compliant with whatever requirements on ownership and control may come into play. And I think we've got those plans on hand, but we don't know what to activate at this point in time because we just don't know how Brexit is going to play out. So once we learn how Brexit is going to play out, we can provide certainty of our actions, how we are going to address that. But I think there is a sequence of actions here. So first, the U.K. has to make up its mind of what to do, align it with EU or not and then we act on that.
I think one thing you could be rest assured is that we are fully engaged with all the relevant authorities, whether it's the U.K. CAA, whether it's the Hungarian CAA, CAAs of the counties that we fly and also the European Commission. So I think to József's point, we have a contingency plan, but that is in very, very daily -- almost daily dialogue with the relevant authorities, so will be able to confirm when Brexit is confirmed.
So before taking a follow-up question from Damian Brewer at RBC Capital Markets, [Operator Instructions].
And just wanted to follow up on actually the same last question about Brexit. Given you don't have any visibility and it appears no one in the U.K. does, could you talk a little bit more about, in particular, U.K. operations, how quickly you can cancel, combine or reject the U.K. services of Wizz outside the Wizz Air UK operation in the event of maybe a hard Brexit and a consumer slowdown? Or indeed if there was some kind of bounce in demand how quickly you can go back in and layer back in capacity?
Okay, well, first of all, I think we are legally settled for being able to operate within the U.K. and other markets post-Brexit under any Brexit scenario by having a Wizz UK license with a U.K. airline and also Wizz UK having obtained the route license from the U.K. government. So operationally speaking, I think we are prepared to live with Brexit in any event. Now if we have to correct capacity for whatever reasons, it only takes probably 5 seconds to deregister an aircraft in the U.K. and it probably takes 2 days to reregister the same aircraft for Wizz Air Hungary. So ultimately, the beauty of the airline industry is that you fly aircraft and actually aircraft can depart from one place and land another place. So actually you can move capacity very quickly. And it is always a capacity discipline what we tend to play here. We look at demand. We look at expected profitability of the marketplace, and we adjust capacity accordingly. Do we expect a major shock at this point in time? No, we don't. We actually think that operation of the airline will remain smooth post-Brexit. And personally, I wouldn't expect a huge market correction on the demand side of the equation following Brexit. I mean, U.K. has been a very resilient market Wizz Air through 15 years. Even if you just look at our recent history in the U.K., post the Brexit poll, we are the only airline that has been growing the business 25% to 30% just over the last 2 years. So -- and obviously, we do it because the market opportunities give us the profitability what the business requires. So we remain very positive, and we remain very upbeat. But of course, we are a rational player, and we're going to be making assessments on the market. But it doesn't take long, to be honest, to adjust capacity. And we went through this exercise in Ukraine when geopolitics affected our business there. Within days, we removed 4 aircraft from the market and reallocated that capacity across the balance of the market. So I think that's something what we have done, we can do. But personally, I don't expect that to happen here.
Okay. Can I just check what's your legal advice that you're receiving in terms of, if there is a demand shock and you had to cancel flights, would you still be on the hook for EU 261 if it was done with less than 2 weeks notice? Or is your legal advice that EU 261 wouldn't apply if the U.K. is not in the EU? Do you have any comments that you can add on that?
I don't think we can. I mean, to be honest, at the moment it's EU 261 that replies. I mean, I have no idea whether EU 261 would remain in force post-Brexit. I mean, we'll deal with the situation as legislation requires us to deal with it, but I can't make any further comment on this at this stage.
We are now over to Charles Cartledge at Sloane Robinson.
Perhaps everyone knows it already but I'll ask it. Could you give some guidance on your tax rate, Iain, going forward?
Certainly, I think the tax rate we're guiding is 3% for this year. The normal run rate is around about 6%. One thing I would flag is that as our U.K. business gets bigger, the tax rate in the U.K. is more around the 18%. So in terms of guiding, what I would be looking to do is probably add 1% per year as the Wizz UK grows.
And where about that sort of level off, do you think? I mean, because again, as you suggest, it depends on your capacity in the U.K. The U.K. is not going to be growing to 100% of capacity. So it will level off before it gets to 18%?
Well, if you think about it, we'll have, by the end of the year, we'll have 11 aircraft based in Wizz UK on a fleet of 122. So that's essentially 10%. So if the business grows at the same pace, if we grow the Wizz UK business faster, it suggests that we're making more money in the U.K. But I would grow the U.K. I think we've now got sort of the right sort of level. I mean there is no more capacity in Luton, which is one of the reasons why we've been so aggressive in the growth there. So in terms of the U.K., I would assume that the U.K. grows at the same pace as Wizz Air Hungary.
So just very roughly, it sounds like you might level off at 6%. If about 8%, 9% of your capacity is at 18% and that's all sort of incremental, if you like, then that might add sort of tend to add 2 points, 3 points to your...
So 6% is now the run rate, and I think I highlighted it the last results also. So I would add 1% as you go up, and that will -- you can model the growth rate on what your assumption is on the U.K. But it may -- well, by definition, it won't get up to 18%.
Exactly. So there might be, I'm just guessing, 8% or 9% because U.K. might add 2 points, 3 points.
I think that's a fair assumption. We'll have to see how the U.K. performs.
Okay. So we now go back to Jarrod Castle at UBS.
I'm just looking a little bit at the fuel hedge going into 2020. It's, obviously, gone up from 35% to 53%. So just want to get any views in terms of any changes to the hedging policy and how you're thinking about fuel cost for 2020?
No change to policy. I mean, I think it's proven to be a fairly robust policy. I mean, it works, and it's an insurance policy. So there's no change to that. I think we are, I would say, looking today at fuel prices of $600 per metric ton, fairly well positioned compared to competitors that may have hedged at slightly higher rates, but fuel prices can move quite quickly. So it's -- we don't want to throw stones. So I think we're fairly well positioned as we're looking into the first half of next year. I think one thing I would flag is carbon, is a very unpredictable commodity. When the carbon -- the EU ETS scheme was introduced in 2013, we were paying around about EUR 1.5 million on that scheme. Today, it's a bit closer to EUR 25 million. So that's pure inflation coming through from the carbon scheme. And the carbon scheme is a bit up in the air, little bit of the Brexit question as well, the U.K. came out with the white paper saying that the U.K. airlines, post-Brexit, the price would be fixed at GBP 16, the European Union came out and said that they won't be issuing any credits to U.K. airlines from January as a temporary measure, so risk managing carbon, which is unpredictable at the best of times is a bit challenging. So in terms of fuel, I think that's something that we'll need to keep a close eye on. And if we have any change to policy, we'll certainly communicate it to you all.
Okay. We now go back to Mark Simpson at Goodbody.
Couple of things. Just wanted to have your thoughts on obviously the 2 big expansion bases, Vienna and Luton, in terms of how the market's responding to your increased footprints and how you feel the summer marketing campaign is going. And then just on routes, I think you mentioned so 55, 60 routes were closed in the Q3. It looks on the data as though you're closer to about 90 routes plus in the Q4, again, I'm just wondering if you could comment around that fact?
Okay. So with regard to the performance of Vienna and Luton, let me start with Luton. I think Luton is a slightly different story from Vienna. So in Luton, we have been building this U.K. on the basis of the strength of Wizz Air Hungary that has been built up over the decade or more than a decade. If you look at our Luton operation, Wizz UK provides flown to around 25% to 30% of the total capacity, and the balance is flown by Wizz Air Hungary. So Wizz UK comes as part of a lot cheaper addition to the Wizz Air Hungary capacity in Luton. It seems to me that Luton is getting maxed out in terms of infrastructure. So it's been very important for us to try to grab all opportunities we can have from an infrastructure perspective and ramp up the business very quickly. Obviously, that required us to make investments, But I think those investments work out very well so we are very pleased with what we've experienced in Luton. So we are spot on totally in line with expectations. And should we have further opportunities to continue the growth of the business in Luton, I think we would contemplate them for sure, but it looks like the airport is becoming congested. I think Vienna is a slightly different story. Vienna became very popular, basically, for every single airline in Europe. Vienna used to be a closed market. The airport was protecting the Lufthansa Airlines monopoly, but they were unable to grow the business in line with European peers. As a design, they changed their commercial strategy and started accommodating new-generation airlines like OSS and other low-cost carriers. As a result, the market became overheated. But already, we are seeing some of the dust to settle down. I mean, we are seeing some routes pooled, capacity caught by other carriers, and I can ensure that further consolidation of capacity will take place throughout the year in 2019. And probably towards the end of the year, we're going to see a more rational capacity again being played in Vienna than what it is today. Now with regard to our position in Vienna, I would make 2 points. One is Vienna comes as a natural extension of our market reach in Central and Eastern Europe. The halo effect is certainly benefiting our business in Vienna, I mean for many of the Czech, Slovakian and Hungarian people, actually, Vienna is the more logical market than their capital cities. So I think we have a starting brand strength going into Vienna which we try to build on and further exploit. Secondly, with the A321 operation in Vienna, we are the lowest-cost producer in the market base. And clearly, the market opening in Vienna is commoditizing the industry in the market similarly to what has been happening in other places in the whole of Europe. And in commodities, lowest cost will prevail and lowest cost will always win. And we are lowest-cost producer, so we are seeing that we are best at strategically to be in the marketplace. But yes, at the moment, I think it's an overheated market. It's a bit of a blood bath. But given that we are the lowest-cost producer and we benefit from the neighboring markets, I think we're very well-positioned to reemerge as the structure leader in Vienna, and that's what we are sticking to.
And any comment in terms of what looks to be an accelerated program of route cuts in the Q4 versus Q3?
I think this is totally business as usual. But you know, we look at profitability on the basis of actual profitability. So unlike other airlines who tend to slip out everything, and they look at things on the base of cost per flight, we think life is dynamic and you need to measure yourself against the light what it is at that point in time. And clearly the change in cost environment has affected our views on the route profitability. So obviously, where you have higher fuel costs to deal with and higher labor cost to deal with, the threshold is moving up, and as a result we have become maybe a bit more critical around in some of the routes how they perform and what expectations we could have. But I don't think there is a trend change or anything like that, but I think this is business as usual. We just manage the business against different standards in a higher cost environment.
Mark, I mean one thing I would always flag, maybe on the Page 5. It gives you a flavor of the summer. Increasing frequencies really fuels that, the demand that we see. Traditionally, that number's round about 60%, but now it's round about 36%. So joining existing airports is 52%. So that sort of give you a flavor of, dynamically, how we're changing the network with the changing field environment. I would imagine as time goes by, that will probably normalize back to normal sort of levels.
Okay. We've got a follow-up question from Kathryn Leonard at Numis.
So just on the Airbus deliveries and the fleet plan you guys have disclosed, that's in line with the fleet plan you disclosed at half 1, so it's unchanged. But I just wonder whether you could update whether you are seeing any incremental delays from Airbus, it's something that has been flagged to us this year recently by one of your peers, and obviously, it's encouraging to see that it's unchanged, but can you just comment on that, please?
Again, we have a renegotiated delivery platform for aircraft deliveries in 2019. By and large, Airbus is sticking to the new platform, they better do that because of the financial penalties involved. But I would say so far so good. I mean, I don't know who you are referring to exactly, but we took a deliberate decision to be proactive on the issues and get a new delivery program in place as opposed to just being a victim of industrial issues by the OEMs. And I think so far so good and no major delays we are suffering just as a result.
We have a final -- we got a final question, which is a follow-up from Andrew Lobbenberg at HSBC.
Just super simple. The legal challenges to the bag policy change offset, and then also how constant are you on the reliability improvement that you saw in the last quarter? Being sustained into the summer as you build the utilization back up, how scared are you about the operational performance in the summer ahead? Because, obviously, it was a big problem last summer.
Yes, I'm not trying to be naïve to believe that the European System's ABC will dramatically improve going into fiscal 19. So my incoming assumption is that I think it's gonna be as bad as last year. The difference, I think, we're going to have is that we will be prepared to that, and we will have contingencies in place in the operating model to deal with the problems and to recover from the dysfunctioning of European ATC that's bigger and stronger than last year. We made systemic changes to the operating model. So we're putting up standby crews for recovery. We are putting up fire breaks in the schedule. Obviously, that's stretching us a bit because we don't want to compromise our utilization, we want to make sure that we fly the same hours. So we are, in a way, extending the flying program but with more recovery flexed in the model. We will have an additional spare aircraft. So we go from 2 to 3 spare aircraft being in summer. So we think internally we are better prepared to the deal with the situation, but to be honest, I don't expect the external circumstances to improve dramatically going into summer '19.
And Andrew, maybe just to flag, so in terms of utilization, these fire breaks, these additional spare aircraft, you're talking around about 1%, 1.2% in terms of utilization, and the cost savings associated with the less E261s, so if you look over the E261, the compensation cost, it more than benefits by losing around about 0.1, 0.2 hours on utilization in the summer. The other thing I would say slightly we haven't talked about. Is that -- again, we ramped up with U.K. and there are a lot of challenges on the whole, the ramping up of that, the aircraft registration, the training of those pilots, the out-of-base flying. So we said that the summer disruptions, probably half of it will be environment and half of it will be challenge we put on ourselves, 17 aircraft in 17 weeks and Wizz UK. So the self-induced issues will not be there, but to Joe's point, we certainly expect the summer to be probably the same for fiscal summer '19.So with that, thanks everybody for spending the time with us, and we will be back on the line in May with our full year numbers.
Thank you.
This now concludes today's call. So thank you all very much for attending, and you can now disconnect.