Wizz Air Holdings PLC

LSE:WIZZ

Earnings Call Transcript 2022-Q3

[Operator]

Hello, and welcome to the Wizz Air Q3 Fiscal Year 2022 Results Presentation and Webcast. [Operator Instructions] Just to remind you, this conference is being recorded. Today, I am pleased to present Wizz Air, CEO, József Váradi; and Wizz Air, Executive Vice President and Group CFO, Jourik Hooghe. Please begin your meeting.

[József Váradi, CEO & Executive Director]

Thank you. Good morning, everyone. Thank you for coming to this meeting, and I also welcome those who are online and virtually spectating the event. So this is reporting our fiscal 2022 Q3 performance. So let me just start with a few highlights upfront. This quarter demonstrated that we have been on track to recover the business. If you look at capacity, passenger numbers and revenue, we delivered around 3x more of these than in previous year. And in certain peak periods, we exceeded 2019 capacity level. So we are clearly on the path of recovery, and we'll continue to recover the business going forward. We are reporting EUR 214 million of operating loss. Obviously, this is greatly affected by the COVID challenges, the pandemic hits us and the corresponding restrictions imposed by governments and travel and putting significant burden on consumers, especially when it comes to testing requirements. We ended the quarter with very strong liquidity level, having had EUR 1.4 billion of cash on hand. And since then, we issued a new bond with 1% interest. We saw very strong market demand for the bond issuance. I think that just underpinning the confidence of the market in Wizz Air and in the prospect of the business of the company. We have maintained investment-grade credit during the period. Those ratings are confirmed by both Fitch and Moody's. Despite a still difficult trading environment in the current quarter. And I think we've been trying to be clear with you on that throughout the whole COVID period, certainly guiding for the second half of the current financial year that we would not be expecting a great second half because of a few things. One, we are ramping up capacity for summer 2022. So we inherently carry some inefficiencies in the operating model. We have more aircraft, we have more crews than what we are deploying right now. But this is just the nature of the ramp up. You cannot ramp up an airline overnight, adding 50 aircraft and 1,000 of the crews, those assets and people have to be brought in, inducted, trained up, ready to fly. So that is a process. So that is a short-term inherent inefficiency in the system. Secondly, obviously, Omicron has dented our ability to operate, not necessary just because of the pandemic effect on people from a has perspective, but more from the perspective of corresponding government restrictions. But once we are ramping up operations, obviously, we're going to be getting rid of the inefficiencies and we're going to be resuming our every tool to properly operate and properly cost the business and also we are quite optimistic that, as a matter of fact, a few months down the line, the whole COVID might have just been behind us, and we see a lot better market going into spring, summer 2022. We are ready to deliver this ramp-up. We have invested into our network, our fleet, our people, our systems and processes. If you just look at the employment side of the company today, we are employing 5,550 employees. This is 40% more than a year ago. So we have been clearly investing into this ramp-up process. Looking at the network, we have been growing and further diversifying our network. We have been adding aircraft to the fleet. So we have taken deliveries from Airbus on a continuous basis. We have been adding airports and we've opened new bases during the period. And now we are serving more countries than before. So clearly, as said, we have been investing into network into markets, investing into aircraft and investing into people to make sure that Wizz Air emerges as a structural winner coming out of the COVID situation. And I think we are having some sight on that vision. Looking at the ramp up, as you can see, we have been ramping up capacity, and that certain points during the past year, actually, we exceeded 2019 capacity levels. Certainly, that was the case in operating throughout the summer peak and also operating through the Christmas high season. And also with that, we have been able to ramp up load factors. Now obviously, the numbers are yet suboptimal, we are not yet on 2019 and previous load factor levels, 90% plus load factor levels, but significantly higher than where we were a year ago. And in terms of capacity despite the fact that we have been growing the fleet and we have not been able to fully affect that growth into operational efficiency, but through market diversification, we have been able to ramp up our operations a lot better in the recent period than before. All those activities have been translating into strengths in the marketplace where we are focused. You can see that in most of our markets, actually, we have been gaining market share and we have been taking advantage of competitive weaknesses and market dynamics in the marketplace. So actually, we have been trying to use the period and the crisis for the benefits of the business. And I really think that once we are out of the boots and hopefully, we're going to be there in the next few months. Wizz Air is going to be a lot better compared to a much more formidable business making a lot bigger impact on the industry than before. I mean, clearly, our efforts will flow through in terms of innovation in aircraft upgauging, aircraft delivering not only operational efficiency, but a significantly more favorable economics and lower cost relative to the market relative to our competitors. If you look at our business from the perspective of consumers, you can see that customer experience has been improving during the period. We have further digitalized our interactions with customers, be it EU digital COVID certificate or Amelia, our virtual assistant, we have been a lot more appealing to customers. Very importantly, increasingly, the market is associating Wizz with lowest prices and good value for money. And as you might have seen recently, we have been putting out quite significant statements on sustainability because not only that we are able to bring the lower fares to the market, but we're also seeing we are able to bring a much greener operating model to the market. So if you feel for the environment, certainly, you should see Wizz delivering a better product or services than most of our competitors. And with that, let me just turn it over to Jourik.

[Jourik Hooghe, Executive VP & Group CFO]

Thank you, Joe, and good morning to all also from my side. Just a few highlights on the financials for the quarter. Starting with revenue, as Joe mentioned, revenue increased 172% over, obviously, a quarter that was affected by COVID last year. That was on the back of a very strong increase in ASKs 195%. Actually, ASKs for the quarter were almost in line with 2019, just 7% shy despite, let's say, the Delta variant in the beginning of the quarter and the resurgence of the variant Omicron at the end of the quarter. From a profit point of view or operating loss point of view, as expected, we guided pre-Omicron at the EUR 200 million loss, and we were able to mitigate or manage the Omicron impact to EUR 14 million since then. So we're obviously going to see something similar still happening for next quarter. But if you look from a net loss point of view, there's a EUR 30 million additional impact which is predominantly driven behind the unrealized FX losses that we have because of the long dollar position on the balance sheet. Again, this is just an unrealized loss on the balance sheet actually translates into a cash gain. So for the company point of view, the appreciation of the dollar from a cash point of view was positive. I'm talking about cash, total cash ended at EUR 1.4 billion, as József said, and we'll come back to that in the next slide. Looking at the cost structure, I think there's 2 things here that you can see. On the 1 hand, you'll see that the variable costs are in line or slightly better even than pre-COVID. But there is a certain element of cost that have a fixed cost component, for example, maintenance crew depreciation. And obviously, because we do not fully utilize the fleet of our assets. We're still around 25% utilization gain that we can achieve. Those costs are still higher. But we are very confident that as we go back to full utilization during spring and certainly as of summer next year that the cost structure will revert to the pre-COVID cost structure. Ex-fuel costs, you can see here, fuel cost was EUR 1.24, which includes 75% about the cost of the commodity. And then there's 10 points of ETS costs around 10 points of inter plane premium. So clearly, the commodity impact, you can see it here, but there's also some other things in that number. From a liquidity point of view, just to clarify, the EUR 1.4 billion excludes the financing that we have mentioned, the EUR 500 million bond with a 1% coupon that will come into January. It also excludes the repayment of CCFF that will be repaid on February 2. So you'll see those effects coming through in the next quarter update. We maintain our investment-grade credit rating. And you can see here as well, and we'll explain that also on the next slide, on Slide 10, that the cash contribution of the operation has been minimal. So we have a variable contribution of the operation that is relatively limited. Obviously, it's the winter environment, which is generally already difficult. But then seasonally, obviously, with Omicron added on top has impacted the contribution there. So what you're seeing here is basically the fixed costs coming through in the cash burn. We also had EUR 50 million worth of predelivery payments, and you can see that working capital. And as mentioned, FX was a slight positive on the cash for the quarter. On ancillary performance, ancillary is now 60% of total revenue. That's obviously a high number, a good number and it's also reflective of some of the weakness in ticket revenue. The weakness of ticket revenue is us basically continuing to stimulate the demand environment to a level where, obviously, it makes sense for us to level where it's cash positive. But with that, we're attracting price-sensitive, new trialists. And those new trialists generally consume less ancillary services. So this is why the ancillary has been lower -- a little bit lower than our guidance of EUR 1 per target. This is just linked to the current fact that we're really price stimulating demand. And as prices will revert to normal, also the ancillary performance will kind of normalize to that EUR 1 target. So we're very confident in the ancillary performance going forward. And with that, I hand it back to Joe.

[József Váradi, CEO & Executive Director]

Thanks, Jourik. I mean obviously, we are much focused on ramping of the business for the coming financial year, fiscal '23. This is all achieved on the basis of operating the best fleet in the industry. I will talk a bit more about that later. We are ramping up a strong, more diversified cost-efficient network but we have invested into throughout the COVID period. Our crewing is on track to deliver 50% more capacity in summer '22 versus '19. Today, we have 5,550 people. Towards summer, we are building that organizational capacity to around 7,000 -- in excess of 7,000 people. And with the innovation, we implement with the fleet renewal program, we are just continuing to widen our sustainability leadership position in the industry as well, which we think is going to be a big deal. I mean, sustainability is going to be loom over the industry for sure, and we can position ourselves on that as a gain in the industry and the sole leader in the industry. Looking at the fleet development, we have been very intact in terms of our commitment to the fleet program. I mean we have been reshuffling deliveries back and forth. In certain periods, we took a few aircrafts down, but in other periods, we actually added aircraft. But all in all, the fleet program has survived the COVID period and actually, we use this time to invest and continue to innovate our fleet structure and operating model. We are becoming increasingly an A321 operator. The current seat count -- every seat count is 211 by summer, we're going to be 250. So Wizz Air is the #1 operator in the world with the largest seat count of any low-cost carriers or any narrow-body operators. Obviously, that translates into operational efficiency and economic efficiency. And of course, we are adding the NEO variant to the fleet with that technological advancement, we are building further economic efficiency for the business. And we're seeing that the A321neo is a game-changer aircraft. There is no any other aircraft, be it Airbus or Boeing, that can compete with that aircraft when it comes to economic efficiency and the airlines ability delivered the lowest cost in the industry. If you look at our network expansion, I mean, we have been ramping up to a 50% bigger capacity to be operated in summer of '22. And just to give you some of the highlights of that expansion, our core market center is Europe is growing. So we are adding capacity in the core business, and we are operating a larger fleet of aircraft going into summer in speed than prior to COVID times. Italy is a pure growth market. We entered Italy during the COVID period. And ever since we have just been ramping that up and growing capacity. Quite an impressive growth in the U.K. As you can see, we are nearly doubling down in the U.K. Some of it comes through the Gatwick slot acquisition, but also we are opening bases in regional U.K. like Doncaster and Cardiff. Ukraine, despite all the geopolitical concerns in the country has been performing as a very strong market, and we have been following that through be it additional investments into the network and deployment of aircraft in the marketplace. Albania is a new market for Wizz, pretty much overnight. We became the market leader in the country. And in case of Abu Dhabi, now Abu Dhabi is ramping up very strongly. We are seeing very strong market reaction as the government restrictions got lifted and we are seeing a much better operating environment. So talking about the U.K. being here, you can see that our network has been substantially growing as a result of opening Doncaster, boosting our presence in Gatwick and Cardiff to be opened in the coming period. We are deploying more aircraft. We are further diversifying our network, bringing new markets connected to the U.K. on that basis. We are seeing very strong reaction on the demand side to the easing restrictions by the government. I mean that is a very clear coloration between the level of restrictions imposed on travel versus market demand. And now we are seeing the positive side of the development, and we are very pleased with that. And we're seeing that the U.K. essences in front of the Continental European countries. So what we are seeing today in the U.K., this is what we're going to be seeing in Continental Europe in the next 4 to 6 weeks. And what we are seeing here is that forwarding restrictions by government and corresponding robust demand coming up as a result. Looking at Abu Dhabi, we have been making some very exciting announcements. You see that our network is ramping up in Abu Dhabi as well. And we are very upbeat with regard to growing the business even further. So we are looking at doubling down on fleet this year. So we are increasing the fleet size from 4 to 8 aircraft by October 2022. When we are talking about ramping up the employment base is critical. I mean, these are the people you have to recruit, you have to induct, you have to train, you need to make sure that they are up and running and ready to fly. As said, versus last spring, we have added 40% more employees and we look at adding another around 1,500 employees in the next 6 months. And this is very significant. That's a big program but we're seeing that this is creating the basis for actually taking advantage of the COVID situation to be able to operate a much bigger airline with much greater impact on the markets post-COVID. Talking about sustainability. Asset sustainability, we think is a big deal, and we have to position ourselves for the sustainability agenda. The good news is that already today, Wizz Air is the most sustainable airline. Rating agencies have made a statement, they ranked airlines in the world, and Wizz Air came out as the most sustainable airline in Europe, #3 in the world. So we have a good starting point, but we remain committed to improve our sustainability impact to reduce our carbon footprint in the industry, and we will achieve it by continuous innovation of the fleet and also through the operating model, operating the fleet very efficiently. If Europe was to adopt the Wizz Air business model, flying the same point-to-point model with the same aircraft already emission would be down by 34%. So this is kind of giving you the competitive advantage, the magnitude of competitive advantage we have over the industry when it comes to sustainability. With regard to outlook, as suggested before, Q4 remains a difficult period, greatly impacted by Omicron. Obviously, January is largely behind us by now, but we think there is still a significant impact on February especially from a Continental European perspective. So the Q4 operating loss, we have been the same ballpark as Q3, slightly deeper but India in the same ballpark. But we are a lot more upbeat and optimistic when it comes to the next period, fiscal '23. I think we're going to be seeing a very strong ramp up not only capacity wise, but also financial performance wise in Q1 and Q2 for sure. When we are getting the fleet back up to full utilization. We have a cost disadvantage at the moment by not being able to fully utilize the fleet and crew. So we don't get the full utility and productivity out of the system. But in Q1, Q2, we're going to get there, and we're going to be resuming the operating metrics similar to pre-COVID levels. As said, we are growing the crew in accordance with the fleet requirements and the market initiatives that we have been taking. And we are totally on track, and we feel very comfortable that we're going to be able to deliver on that. I mean you also need to put that in context, a lot of airlines are kind of crying out how difficult it is to retain people, to recruit people, to train people. I think Wizz Air still comes across as a superior proposition to the market given our growth and carrier opportunities fueled by that growth. So we remain still a very attractive place for people to join. We are very keen on rain state in the ULCC principles, the ULCC cost structure. And we will get there fairly shortly as we are running the business as full utility. And I would also add that given the fleet program, the NEO technology and the savings coming through the technology, the NEO technology as well as the upgauging will give us a competitive -- a significant competitive advantage versus the market versus other airlines that we continue to rely on operating an aging fleet of aircraft with no upgauging. So we're seeing that we will see a lot more structural competitive advantages coming through in favor of Wizz Air relative to the industry post-COVID than what we are seeing today. We expect the commodity markets to be volatile going forward. But we also know, based on empirical evidence that rising input cost feeds through into the fare environment over time, over a lag of 6 to 12 months. And this is what we are expecting as well. So in summary, Omicron has been a factor, a negative factor to short-term performance. But we are actually very optimistic when we look at where the world is right now, I think the world is a lot better place today than what we have ever been since the breakout of COVID. It seems that there is an end to it. And hopefully, in a few months from now, this is are going to be behind us. So we are actually quite optimistic looking at the prospects of our business in spring and summer ahead of us. We have maintained strong liquidity during the period, and we have been maintaining investment-grade balance sheet in this period as well. It's been a priority we have been running this business for cash. And I think we've been able to deliver a good job with that regard. We are coming out of the COVID situation as a structural winner. And it is not only just surviving the COVID times, but also we have been investing throughout the COVID times investing into our fleet, investing into our network, investing into our people and our cost structures. Our ramp-up as said, is on track to deliver 50% higher capacity level going into summer '22 versus summer '19. Consumers recognize the value what Wizz Air brings to the party, be it economic value, seeing us as the lowest cost producer and the lowest fare provider to the market as well as the credentials coming out of the operation from a sustainability perspective. We're seeing that the competitive gap in our favor will continue to widen going forward as we are becoming a more mature operator, brain stating our ULCC principles and our fleet utility and productivity and crew productivity levels, and that creates a basis for further opportunities in the future. Thank you. So maybe I should give the floor to you over here for questions. Rishika?

[Rishika Dipak Savjani, Assistant Vice President]

It's Rishika Savjani from Barclays. I think I'll ask 3 questions. The first 1 is you've mentioned in the slide some good kind of forward-looking comments on the U.K. Can you just give us an idea of where forward lookings are across the business more widely. And also just thinking about the summer if you're growing kind of 30% to 50% over Q1 and Q2. What do you think your expectations are around in terms of kind of load factor impact on the business? Do you still think that you can deliver pre-pandemic load factors on that level of growth?My second question around Gatwick. There's been some feedback in the market that the Gatwick slots potentially won't be able to be kind of at group level utilization, given the timing of the slots and so forth. So can you maybe explain to us your thought process around how you're going to extract the best efficiency out of those Gatwick slots? And then thirdly and finally, on fleet financing. Clearly, you've done the bond in the last kind of couple of weeks, good pricing there. So how are your thoughts changing around leasing versus kind of cash purchases of debt finance purchases of aircraft?

[József Váradi, CEO & Executive Director]

Looking at the coming period, once we are entering the next financial year, we think we're going to be seeing a lot better market with regard to operating conditions. And as a result, we're going to be able to restore most of the KPIs to pre-pandemic levels. But I think it's going to be a gradual process. So it may not happen overnight from 1 day to another. We don't exactly know the looming effects of COVID fear at that time. I mean, looking at life from a U.K. perspective, quite likely the U.K. is going to be totally open market by that time, but we might see some lagging in other European territories. But overall, we're seeing that once we are entering the next financial year, the operating conditions will be a lot better almost pre-pandemic levels. As a result, we're going to be able to deliver KPIs like fleet utilization, crew productivity, coming up to standards to pre-pandemic level load factors, I think be able to subject of the market. We are load factor active, we at passive. So I think we're probably going to see more pressure on our yield than on load factor short-term as we are ramping up the operation. I mean we are already kind of poking at 80% load factor levels. That's an improvement versus where we were a year ago. So I think that's going to go further and it will continue to improve. But unit revenue may be on the short-term pressure on the use side depending on competitive capacity coming to the market. Personally, my expectation is that you're probably going to see more capacity than needed short-term because all the airlines, we are going to be back in the market to reengage with the franchise. But over time, I think you will see some capacity consolidation happening. Some of it is going to be forced by the competitive market and some of it by increasing input costs. But it is a process. I don't think this is going to happen overnight. In terms of financial performance, we are expecting a strong financial performance in the first half, as we indicated before, we're seeing that fiscal '23 should be a good profitable year for the company, the extent of which obviously will depend on the operating market conditions. With regard to Gatwick indeed, as you say, we are looking at Gatwick as a home-based care, but we are also looking at Gatwick as capacity for inbound flying to get the full utility out of the stock portfolio, what we acquired in this sense, we are basing 4 additional aircraft in Gatwick. So we will push the fleet from 1 aircraft to 5 aircraft under basis. And we have also launched a number of inbound routes to be operated by Wizz Air Hungary. So we're going to get 100% utility of the portfolio, what we acquired. And sorry, the third 1 was the...

[Jourik Hooghe, Executive VP & Group CFO]

Fleet financing. I can take that one.

[József Váradi, CEO & Executive Director]

Fleet financing.

[Jourik Hooghe, Executive VP & Group CFO]

So if you look at the -- we will obviously have the next round of lease -- sale and leaseback RFP coming. The bond is good because it gives us an even better benchmark I think going forward also for the Wizz Air. So we will continue to the fleet, to finance the fleet at the best terms possible. We'll need to see how the market sits. But fleet financing has been very good for us and getting a sharper benchmark out there. I'm sure we'll be challenged right.

[Alexander Irving, Analyst]

Alex Irving from Bernstein. Three for me as well, please. First of all, on demand drivers. So we've seen inflation up, energy costs up, cost of living rising. Can you maybe talk a little bit on the impact of that into demand and yield into summer? And is it possible to price stimulate when the ticket is only 1 portion of a trip cost? Secondly, maybe following up on the question we just had. But as we look at summer, thinking about route maturity. So you're coming out of a period where you've got lots of new bases, lots of new routes and we've had diminished activity in the last couple of years. What impact will the immature routes have on kind of yield and loads into summer versus maybe a normal some with a normal level of growth? And then finally, can I please ask a question on Ukraine. I mean clearly, the situation there is very uncertain, but if you had to suspend operations, how big would the impact be? How quickly could you reallocate that capacity and anything else that we should bear in mind there, please.

[Jourik Hooghe, Executive VP & Group CFO]

We are pretty confident in our ability to stimulate the marketplace under any circumstances. I mean if you really think about it, if there is pressure on the industry, I mean, being the low cost producer in commodities lowest cost of air service, we should be in a lot better position than our competitors. If there is an upside in the marketplace, given our cost base, we should be able to take disproportionate share of the cost side because of our revenue stimulate the marketplace. So I think either end, we should be winning versus our competitors. Personally, I think you will see resurge in demand. I think you will see a lot of promotional activities to stimulate traffic, not only by the airline industry but also by the hospitality industry, tourism agencies, et cetera. So people will get bombarded by kind of the feasible offers once the market opens up. I mean, I know that many of the stakeholders in the hospitality and the tourism industry are lined up to go a big months circumstances permit and to do. So I'm very confident the demand we rebound very quickly and probably more robustly than many of the people may think at this point in time, despite some of the other macro challenges like energy pricing, inflation, et cetera. Maybe I would just take Ukraine. So if you look at Ukraine, despite all the noise around the country, the market has remained totally intact from our perspective. It is -- we still think it is an investable market, and we continue to invest in Ukraine. I really don't want to speculate what's going to happen in the Ukraine. But whatever happens in Ukraine, I think we have the historical track record of moving capacity together with crews if needed. And by the way, Ukraine is a good demonstration of that because we have done it already. So once geopolitics affected the country in a severe way. We have to move back of 10 crews and we were able to do that within days and weeks. So at this point in time, as a matter of fact, we are seeing a lot more demand for our services and products and capacity, what we can make available. I mean you can imagine that the industry is weak right now, many of the incumbent carriers are weak, not serving the market and not committed to the market as before. So all those airports are very keen on attracting new capacity and stimulate the market from their standpoint. So we have become a very effective target. So we are very selective at the moment. So if we have to pull our Ukrainian operation, I mean, in no time, we would be able to redeploy that capacity in our other markets. And the second question was...

[József Váradi, CEO & Executive Director]

Maturity of routes and profitability that we see. I mean, generally, it's not a factor of how long you are in the market. It depends on the strength of your brand, the competitive position as we outlined on the charts, right, if the competitive landscape completely changes, for example, in markets like in Ukraine, Albania or in Italy, clearly, you can get to much faster profitability than just, let's say, having to spend 1, 2 or 3 years in the market. But it's true that in some of our markets, for example, if you think about, the Abu Dhabi operation, where we are more new to the market, it will take longer time than, for example, if you open a new route in Central and Eastern Europe, where the brand is very, very strong. So that's kind of how you should look at. And obviously, we strengthened a lot or core markets, which gives us confidence to build back that profitability very far.

[Jaime Bann Rowbotham, Research Analyst]

Jaime Rowbotham from Deutsche Bank. Three from me. Firstly, on the ancillaries, Jourik, you talked about these price-sensitive new trialists. Won't quite a material proportion of your future new customers be precisely price-sensitive, new trialists? Perhaps you could expand a bit on what you mean. Secondly, slightly boring, but book value of equity in the balance sheet at the half year, EUR 800 million, second half losses, probably EUR 0.5 billion. So that net book value of equity is coming down to, say, EUR 300 million. Is that an issue, it's quite a low level. And then thirdly and finally, and certainly more interestingly, Slide 14 is obviously very helpful for showing us where you've tried to grow during the crisis. As we think about you now trying to grow the fleet 2.5x over the next 6 years. Could you just provide us a reminder of how you see that growth? How much of it you expect to be in core CEE? How much of it in new markets more in the U.K., more in Italy, others? And maybe how much in Abu Dhabi, anything -- a bit of color there would be great.

[Jourik Hooghe, Executive VP & Group CFO]

All right, maybe I'll start with the first 2. The -- on the ancillary, it is really more kind of a consequence of the current structure of the market being impacted by Omicron, where we price stimulate until it makes sense, being cash neutral or slightly cash positive. Clearly, when restrictions lift, we know that price stimulation will be not needed to that extent and clearly will be very different. And as such, based -- the consumer base will kind of follow. So it's really a capacity demand dynamic and demand is very weak at this point in time because it can be very annoying if you get stuck in the quarantine in the foreign country. So the dynamics will completely change as the restrictions will lift than we've seen that before. On the book value of the equity, it's clearly -- I think if you look at it, the current year losses have obviously impacted that, as you rightly noted. But we're also confident on our ability to kind of go back to the pre-COVID profitability that has historically built up that book value of the equity. So this is really what we are focused on and focused on next year to build that back.

[József Váradi, CEO & Executive Director]

We got see that, that's the way to think about, this is that today, we are an airline operating 150 aircrafts. And by the end of the decade, we're going to be add on operating 500 aircrafts. And the question is how that 500 aircraft production will look like. The way we see it at this point in time, we're seeing half of it will be operated in Central and Eastern Europe, so 250 aircraft. 100 to 125 aircraft we have deployed in CEE market in Western Europe like Italy or the United Kingdom, maybe more. And the remaining 125 to 160 aircraft will be deployed somewhere in these, Abu Dhabi is 1 of the pillars of that for likely more pillars will come into place to deliver the growth.

[Neil Glynn]

I'm Neil Glynn from Credit Suisse. I'll also ask 3. The first one, just on the subject of inflation. Can you give us a sense the cabin crew maybe in particular, but also the pilots you're hiring today versus 2 years ago? How much more are you having to pay for those individuals?Second question on the subject of your growth. If you think about Western Europe, U.K., Italy, even Abu Dhabi, actually to the East. You're clearly less well known in those countries relative to CEE market. So can you give us a feel for how much extra you're having to do in terms of marketing and the different approach to procuring passengers beyond, obviously, price if people go to the website you're using? And then the third question on cash, the current EUR 1.4 billion. It's about half the FY '20 revenue level. As you grow, obviously, capacity growth will be high this summer, but looking beyond into FY '23, FY '24, what's the optimal level of cash as a proportion of revenue? Or how will cash be managed beyond the pandemic?

[József Váradi, CEO & Executive Director]

All right. Maybe I'll start with first two. So with regards to inflation, yes, there is inflationary pressure on the business, and that made us most on labor inflation, but not only labor inflation, we see some of the infrastructure cost rising, especially in monopoly, cost control some take on the work there. We have a thing to push through the cost increase. With regard to labor inflation. On the cabin crew side, we are seeing something between 5% to 10% in local currency. I mean, a lot of it is actually captured through the euro translation we mentioned to be sustained in euro. So this is not a full exposure on the company, but that is wage inflation, less so on pilots to be honest, but more on the cabin crew. But if you hear from our standpoint, we are upgauging the aircraft. So we are gaining a lot of productivity. So when you look at personnel cost, labor cost, on a unit cost basis, actually, you are not really seeing much of an inflationary pressure because an A321 operation with 239 seats, requires the same number of pilots in an A320 operation with 180 seats and only 1 more cabin crew. So you can run the numbers even if wage is inflated, the productivity gain offsets that inflation. So with regard to brand awareness in new markets, I think it's bearing very strongly. We don't think that this is just a marketing game. I mean, obviously, you have to invest into marketing, but you also I think can figure out very effective base of bearing your brand awareness and social media is clearly a new avenue versus historical kind of brand building exercises. I still think that this is a commodity and in commodity with those for instance, you are a provider, you spread the news very effectively to the market. So as a result of this expansion, we are not really seeing the marketing budget to be explored. But it just spend slightly differently with more focus on new markets but also activating a lot of other channels, the channel available to us, and they might not have been before. So on the cash?

[Jourik Hooghe, Executive VP & Group CFO]

On cash, indeed, the 50% level looks to be the right level. Also going forward, even if the revenue continues to expand, we'll obviously need to see and evaluate that going forward, if it's more 45%, 40% or 50%, but that's kind of the level we want to maintain. Just 1 additional point on inflation. I think the growing our employee base is also very, very important for us to kind of rejuvenate the mix of people, the salary mix of people. If you're not growing in your segment, you kind of maintain a more expensive headcount level. So the ability of us adding 40% of crew or up to 50% by summer, clearly will help us also to rejuvenate the mix and get also salary mix benefit on top of what Joe outlined.

[Carolina Botacini das Dores, Equity Analyst]

Carolina Dores from Morgan Stanley. I have 3 questions as well. First on the growth prospects, you're ramping up capacity, not only there are difficulties from ramping up post-COVID, but also with almost 50% more fleet. So what are the biggest challenges that you see to deliver the fleet growth, not only for this summer, but also for the next couple of years?My second question is if you could help us, what would be peak capital expenses or cash expenses by 2024, 2025, if you take PDPs plus all the lease and interest payments. And my final question, now looking more into summer because you mentioned going back to pre-COVID unit costs, what sort of load factor do you need given the competitive landscape that you expect for the summer?

[József Váradi, CEO & Executive Director]

All right. Thanks. I'll take the first one. So with regard to our challenges to deliver growth. I mean, if you look at growth, I mean, you basically look at a perhaps 4 things. Predominantly, you look at your markets where to deliver growth. You look at the assets -- aircrafts to get the right plan to actually get that done. People, you have command a place, and you need to look at your structures process in the systems to what extent they are scalable for a bigger operation. With regard to markets, I mean, to be honest, proves the easiest part at this point in time, since it's just the overwhelming number of opportunities out there. And as said, actually, we have to be very selective of what we are doing and what we are not doing simply because, to some extent, I mean, 50% growth is a lot to be delivered from an operational standpoint. But the 50% growth is not limited by market demand. It is limited by our own capacity and to what extent are we prepared to commit to deliver the growth, what we can execute technically with Wizz Air. So I would not be worried about the market. I mean, obviously, the people side of it is challenging because it is a big volume of people, but I feel quite comfortable that we have the program in place to make sure that we are getting the right people at the right place at the right time when they are needed. So we have been learning some lessons during the last period, especially when we were trying to ramp up for summer '21 and us in taking those lessons on board, we have become a lot more systemic and programmatic, how to best deliver on this challenge. But we have therefore coming. I think we are in a privileged position, I would say that we have a short, medium and long-term access to the best aircraft to India in the marketplace. If you were to order an A321neo aircraft, and you go to Airbus, I think you would be told that the first delivery will be around 2027. So short-term, there is no aircraft available from the manufacturer, you can buy it from the market but a lot more expensive aircraft than procuring it from the other manufacturers. So I think we are in a very good position, actually competitively advantageous position when it comes to aircraft deliveries and we feel confident with that regard. Probably seeing the biggest challenge is moving the processes and structures and systems to make sure that we remain a scalable business. I feel very good about the way how we are interacting with the consumers, our consumers -- consumer systems have been very scalable we got those systems created as such that it would serve the purpose of an airline in multiple size of the current business. The operational systems are more evolutive. So you kind of go with the flow as your operational size is growing, you have to adjust the system supporting it. But again, I feel confident that we understand the challenges. But we didn't collapse. I mean, many of the airlines collapse at 100 aircraft. I mean if you see the kind of history of the airline industry, when an airline reaches 500 aircraft basically it manages own, that didn't happen to us. So we must have been learning something to be more preventive with that regard. And clearly, I think we try to make sure that we affect those earnings on a going-forward basis. So I would say people and our own internal scalability are the most challenging ones, but we think we've come to risk those issues. With regard to getting unit was back in summer, what's the driving unit cost? I mean, unit cost is driven by fleet utilization and crew productivity. So if you really look at the fundamental drivers of unit costs, those are the 2 issues. Load factor is driving unit revenue, much more than unit cost. So in terms of delivering unit costs, I'm very confident that we're going to be able to do that once we are fully ramped up, we're going to get the utility out of the fleet. We can split these costs and we're going to get the productivity out of the crew. So we will deliver this business at the lowest possible cost. The question mark is more on the revenue side, how that capacity program translates into unit revenue, and that's the function of load factor and pricing in the marketplace. Again, we are a load factor active business, so we're going to move load factor much bigger than pricing, pricing is a market-driven issue. So we see what the market gives us in terms of pricing. But I think we would be looking at restoring 90%-plus load factor levels going into summer.

[Jourik Hooghe, Executive VP & Group CFO]

In terms of peak CapEx, you'll see a PDP outflow of EUR 85 million in the next quarter. F '23 we'll see a relatively limited outflow to be EUR 25 million. And then there will be another EUR 100 million in F '24, and that's kind of the peak CapEx linked, obviously, also to the progression of the order in, let's say, the middle half of the decade. From a lease point of view, you just need to kind of take the current asset liability position and evolve it with the fleet progression. So to get an idea on what you mean there.

[Conor Dwyer, Analyst]

Conor Dwyer from Berenberg. Just as a follow-up to the question on load factors. Do you guys expect or you have a magnitude on any load factor basically impact from the upgrading of your fleet? Or do you expect any at all?

[József Váradi, CEO & Executive Director]

I mean I have to say that -- we had some early concerns whether or not we're going to be able to move from 180 to 239 seats without affecting load factor. But that's not been the case. So I'm pretty evidence suggests that decision is a matter of pricing and market stimulations. And if you get the pricing right, you're going to get passengers on the plane. So I'm not worried about the upgauging. I think it is more of a question of yield, but we can get out of the market depending on the overall demand environment and the capacity environment there. But in terms of load factor, I don't upgauging is a denting factor. I mean maybe the best way to look at it, actually, to operate at 239 seat in NEO is almost the same fleet cost than operating 180 seater NEO aircraft. So you are essentially getting 59 seats for fleet. Any questions from the call?

[Operator]

[Operator Instructions] Our first question comes from the line of Jarrod Castle at UBS.

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

Just going to Slide 13. You want to be at about 500 planes by the end of the decade and on that slide by 28, you're on 380 planes. So I mean, effectively, can you actually take 120 planes in the last 2 years? Or are you going to bring some of those fleet deliveries forward about so that you get to the 500. And then kind of related to that, I mean, where do you see your net debt peaking on the back of this? What kind of what your -- and then in terms of -- just in terms of competitive dynamics, I mean, can you talk a little bit about what's going on at the moment in Austria and Italy, especially with Ryanair?

[József Váradi, CEO & Executive Director]

So can we take 120 aircraft for 2 years? Yes, I think we can. I mean, if you look at the run rate, I mean, we are taking roughly around 50 aircraft incremental each year as we keep growing the base, I think we can. But also, this is the current fleet. And I mean, obviously, that fleet spend keeps moving dynamically, and we'll get updated. I mean we have a few levers here going forward. I mean, we can always order aircraft for the outer period. We can retain existing aircraft for a longer period for lease. So we have flexibilities around moving the aircraft count. But yes, by design, we can do 60 aircraft per year in the last 2 years. With regard to competitive dynamics in the marketplace, especially in Austria and Italy. Look, I mean I think Ryanair is doing what Ryanair is supposed to be doing. I mean, they are the largest low cost carrier in Europe. It's an efficient business. COVID is an opportunity for Ryanair to -- and of course, they have to pursue that opportunity. I don't think the real question from our standpoint is what Ryanair is doing. The real question is how the industry is going to be shaken up as a result of the COVID crisis. What's going to happen to other low-cost carriers, what's going to happen to legacy carriers and how the market is going to be the split or split up based on the new status quo. I mean what we control is our cost base. We clearly saying that we are coming out of the crisis as a lower cost operator vis-à-vis the market. Given the scale gain, given the operational efficiency gain and the economic gain coming from the aircraft upgauging and modernized technology. And that gives us a significant competitive advantage to compete with the rest of the industry, including every player, even Ryanair. And I think that logic will flow through in every 1 of the marketplaces where we compete, including Italy and Austria. If you look at Italy, for example, I mean we are now a very established carrier in the country operating 7 basis covering the whole of the country inbound, outbound and domestic. So we built a very strong footprint and a very strong backbone for the future in the country. Austria is a competitive marketplace. And I think probably there is overcapacity in the market at this point in time, and it does be settled down at 1 point. But again, we have the operating model that delivers the lowest cost in the country. And I think structurally, it's got to be a winning formula going forward.

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

Great. And sorry, the CapEx and net debt -- sorry, you're probably going to answer it now, sorry about that.

[Jourik Hooghe, Executive VP & Group CFO]

Yes. No worries, were just switching mics here. So on net debt, obviously, in absolute, it's never an issue. It's also always relative to your EBITDA or to your operating cash flow. Clearly, we're at a peak now because of the negative EBITDA and cash from operations. The peak or the tension point is now will soften during F '23 and should be normalizing as of F '24, where we see the leverage ratio going back to below 1.5. So that's kind of where we see it.

[Operator]

Our next question comes from the line of Muneeba Kayani of Bank of America.

[Muneeba Kayani, Director & Head of European Transport]

Just wanted to ask on summer bookings. If you could give some numbers on what percent of the summer is booked and how average fares right now compare with kind of summer of 2019? And secondly, if you could just go back to some of the questions on Italy and all the headlines around ITA. How do you see that kind of impacting competition pricing and your strategy for Italy over this summer and over the next few years? And then if you could just comment on kind of consolidation and M&A in the sector. What are you expecting?

[József Váradi, CEO & Executive Director]

Thank you for your question. So with regard to summer bookings, I mean, indeed, we are seeing very strong bookings coming through summer. But I think it's more interesting to see how bookings will build up in the interim period between now and summer. Depending on a bad word, it's going to be with regard to COVID I think we are expecting a very strong Easter period, in April and a strong interim period in between Easter and summer as well. We have to know that the booking window has shortened as a result of the COVID situation. So you don't have a full picture at this point in time. What I can tell you is that summer bookings are a lot stronger both in terms of volume and pricing than what we were able to achieve somewhere before or same period last year or 2 years ago. Regarding Italy, I don't think ITA makes any impact on us and our ability to operate and expand and deliver a profitable business in Italy. I mean, if you really look at what is going on there, I mean 2 airlines are trying to get together before you beared out during the pandemic more than anyone else. I mean, Alitalia or the reincarnation of Alitalia is a business that has been beared out, I don't know how many times by this guy or that guy be it the government or the private player. I'm not sure anything has changed. And I don't think we are really focused on what is happening there. And by the way, ITA is a -- its own focused business, why we are going nationally in the country covering the whole of Italy, and we are a point-to-point business flying people inbound, outbound and domestically as opposed to trying to play hub and spoke in 1 airport quadrum for them. With regard to consolidation, well, the COVID crisis will have the aftermath. And I think you will see more lines of consolidation happening in the marketplace. Some airlines will go down. Some airlines will be gobbled up and some assets used by other airlines will be used by new carriers. And you will see a lot of organic growth. Wizz Air has been growing on the base of organic growth, which is the most preferred way of growing our business. That does not compromise our ULCC model, our ability to run this business without any complexities or minimizing complexities coming from scale. So when we are talking about is Wizz 500, Wizz 500 is a vision built on organic growth, not on M&A. Having said that, we, of course, are interested in acquiring certain assets, and those assets would be included in our business, and we would roll over our operating model on those assets as the best example is the recent acquisition of some Gatwick slots that does not compromise our model that doesn't compromise our ability to avoid complexities, and that would not creep cost as a result on a structural basis. So I think that's the way we think about consolidation. We want to be a consolidator of assets as opposed to businesses. But I believe the market will consolidate and you will see all sorts of forms of consolidation happening in the next year or so.

[Operator]

And our next question comes from the line of Mani Subash of Citigroup.

[Manikandan Subash Chandran, Analyst]

A couple of questions from my side. Given the rise in fuel prices and the rise in carbon offset prices, what do you think will be the impact in FY '23, given you will be flying capacity much higher than 2019. How will you be able to offset it? Do you think you'll be able to pass on the higher fuel costs as well as the higher EU ETS cost to consumer? Second is on PDP, given a new order, what should we model in terms of PDP numbers for FY '23 and going forward?

[József Váradi, CEO & Executive Director]

If I just may start with the fuel and inflationary environment, I mean, it seems to be -- when we are seeing issues like that, we always get surprised. But that has been happening probably for the 5th or 6th time just in my career at Wizz. So input cost commodities are fairly cyclical, you see these prices rising, and you see these prices falling given -- depending on the period you are in. And the industry always settles down in the end on these matters, no matter which way it goes. So when input costs rise, they tend to feed through into the fair environment through capacity discipline. So if the industry's input costs go up over time, you will see capacity moderation in the marketplace to adjusting supply to demand. And vice versa when input cost fall, you see a lot more capacity coming to the market. We have gone through this cycle a number of times, as I said. But this is a process with a lag. So that's not going to happen overnight. So it's not like today fuel prices up and tomorrow, you see airline capacity to fall. So that takes 6 to 12 months based on empirical evidence. So it's simply, this is a capacity discipline. But the real question is that how do you get out of this as a business. And as far as Wizz Air is concerned, I mean, we should be winning on this game at either end. So when commodity prices are up, obviously, the lowest cost operator will be in the best position to retain market position actually to gain market position vis-à-vis the high-cost operators because simply, this is just going to be a lot more painful to do as people. And when input costs fall, the lowest cost operator should be in a lot better position than the rest of the industry because your ability to stimulate the market through pricing, it's just much greater than the rest. So I think at either side of the cycle, we are very confident that it will turn into our benefits. By the way, we clearly see that when input costs are rising and capacity discipline comes into play, that is also a migration of customers from high cost to low cost. Low-cost carriers tend to benefit from high input cost environment. So I think we should be benefiting from a high input cost environment.

[Jourik Hooghe, Executive VP & Group CFO]

On PDP, as just referenced. So for the current fiscal, we'll see another outflow in Q4, EUR 85 million, there will be outflow in F '23 of EUR 25 million roughly and then around EUR 100 million in F '24. So all-in-all, despite the significant order that we have ahead of us, it's a relatively modest cash outflow on PDPs.

[Operator]

And our next question comes from the line of James Hollins at BNP Paribas.

[James Edward Brazier Hollins, Senior Transport Analyst]

Two from me, please. First 1 is just on the Slide 5, despite you lost market share in Hungary and Poland, I'll pick on those because I think they're fairly important markets for you. Just wondering if you can comment on what your competitor activity has been there, whether it's just you moving capacity elsewhere? And I suppose it is the former, how you intend to react to that, whether it doesn't matter to you? And secondly, will you be profitable in Q1 fiscal '23?

[József Váradi, CEO & Executive Director]

All right. Well, with regard to Hungary and Poland, yes, indeed, we have been moving capacity around. But I think what you are seeing in Hungary and Poland is the short-term effect. So when you go to model expected market share going into summer, you're going to be seeing bigger numbers. So we are ramping up both Poland and Hungary. So I wouldn't worry too much about this. But with regard to first quarter profitability, I think depending on the circumstances, especially government restrictions, whether or not they continue to prevail. I'm actually quite optimistic looking at the current situation that we should see a much better market to operate when we come to the first quarter. So depending on those conditions, I think we should be delivering strong corresponding performance should the market be open and good.

[Operator]

And we have time for 1 more person. And those questions come from the line of Ross Harvey at Davy.

[Ross Harvey, Transport, Distribution and Logistics Analyst]

Just wondering, József, can you talk about London. Obviously, you have 5 aircraft based at Gatwick this summer. What are your thoughts on being able to increase that, particularly as the slot usage rolls increase? And Secondly, if you were to compare your experiences at Gatwick so far with places like Luton, to what degree does that confirm or not your determination to get into Gatwick more?

[József Váradi, CEO & Executive Director]

I think the issue in London is not our desire or appetite to grow the business. I mean, yes, indeed, we have had a desire and have had an appetite to continue to grow our business in London. You may recall that even during the Brexit times, certainly during the COVID times, Wizz Air has remained 1 of the most upbeat carriers remaining committed to the U.K. to London in particular, and we have been building our business. We have been investing in our business in the London market. The issue really is infrastructure available to our expansion, be it Luton, be it Gatwick. So we are kind of running off to limits at both airports. So I think it has become quite challenging. And indeed, we have an interest to continue to elevate our presence in Luton and continue to expand in Gatwick. But these ambitions remain subject to our ability to access the airport capacity given the slot constraints at both places. So this is what we are working on, and we are looking at ways of getting more access through market transactions or hopefully also through kind of organic growth of the airports, providing us with more opportunities for the future. But absolutely, we are interested. With that, I think we conclude the event. Thank you very much for your interest. And with that, I'm handing back to the operator.

[Operator]

Thank you. This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.