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Good afternoon, this is the Chorus Call conference operator. Welcome and thank you for joining the ENAV First Quarter 2020 Results Conference Call.
[Operator Instructions]
At this time, I would like to turn the conference over to Mr. Stefano Songini, Head of Communication and Investor Relations. Please go ahead, sir.
Thank you, operator. Good afternoon, ladies and gentlemen, and good morning to those of you connecting from the U.S., and welcome to ENAV's first quarter 2020 results call.
I'm joined here in Rome by Roberta Neri, our Chief Executive Officer; and Luca Colman, our Chief Financial Officer.
As always, we will walk you through a formal presentation, after which we will be happy to take any questions you should have.
With that, I will hand the call over to Roberta.
Thank you, Stefano. Good afternoon, ladies and gentlemen, and welcome to ENAV's first quarter 2020 results call. As you carefully know, the aviation sector has suffered from the severe the impact of COVID-19. This was start in March 2020 with en-route service unit down 12.3% in the first quarter of the year and a negative trend expected to continue into the second quarter. Despite the challenging environment, we have maintained the full business continuity while also protecting our employees in terms of health and physical safety while maintaining their full salary. More in general, we are supporting national emergency efforts with all ACC and the control towers operational providing air traffic control services to cargo, medical supply and repatriation flights as well as with donation by the company to hospitals and the so-called Protezione Civile.
On top of that, we have decided to donate 50% of our 2020 short-term management incentives to scientific research to combat COVID-19 virus. Now let's take a further look at our third quarter financial performance. Net revenues decreased by 3.8% year-on-year to EUR 171.6 million, with traffic revenue decline largely offset by a positive balance. EBITDA was also down by 6.7% year-on-year to EUR 28.9 million, with cost efficiency measure offsetting most of the decline in revenue. Similarly, EBITDA margin was down 0.5 percentage points year-on-year to 16.8%.
Indeed, the first quarter of the year is seasonally the weakest, as you know, due to the very low traffic coupled with linear cost, and this effect has been further amplified by the COVID-19 issues. Consequently, we expect -- experience a decrease also on the bottom line with a net loss of EUR 6.2 million compared with -- to net loss of EUR 3.6 million recorded in the previous year, with the difference mainly due to a higher taxable income in the first quarter of 2020.
CapEx in the first 3 months of the year was EUR 15.3 million (sic) [ EUR 13.3 million ], so in line with the first quarter of 2019. In spite of the critical situation created by the coronavirus, we are well equipped to weather the storms, relying on a strong liquidity profile and a solid balance sheet that provides resilience over 2020. Indeed, given our financial solidity, we are able to confirm the dividend payment per share of EUR 0.2094 provided in the 2019 financial year's results, which is an increase of 4.8% over previous year. The dividend, as you know, will be paid on May 27, 2020, with an ex dividend date on May 25 and the record date made on [ May 2026. ]
Moving on to Slide 2 of our presentation. Let's have a closer look at the traffic trends recorded in the first 3 months of 2020. As I previously mentioned, the en-route traffic performance already shows some effect of the lockdown that started in the end of February with a total decrease of 12.3% in service units year-on-year. This decline is the combined effect of a very strong growth in traffic experiences in January and in February when service unit growth was 8.5% in January and 11.2% in February. And a sharp slide in March went off decrease by 51.8% year-on-year.
In terms of en-route segment, it's important to note is that the decline in service units mainly characterized the national and the international segments. While overflight continued to grow at a slightly positive rate of 3.2% over the first quarter of the year. Also in the cases of overflights, this positive performance is mainly explained by a double-digit growth in the first 2 months of the year and the growth in the first 2 weeks in March after which the effect of the COVID-19 has become visible, unfortunately.
Finally, for the sake of comparison, it's useful to note that the decrease in traffic route [indiscernible] in Italy in the first 3 months of the year is in line with the performance of the other major countries in Europe, mainly U.K. suffering the least with a decline of 10.8%, and France suffering the most with the decline of 14.8%.
Terminal traffic growth in the first quarter of 2020 is also hit by the virus emergency, which we believe at 22.4% decrease in service units [indiscernible] by an overall negative performance in both national and international traffic segment and in all three charging zone [indiscernible].
In percentage terms, terminal zone 1 is the most of [ severe ] hit, followed by terminal zone 2 and terminal zone 3. This higher impact on terminal zone 1 is also due to the fact that terminal zone 1 traffic was deteriorating already in January and February also due to the ban of flights to and from China, while zone 2 and zone 3 were performing very well in those small amounts. The business mix of the Italian market with overflights representing more than 40% of en-route traffic has ensured a partial mitigation of the COVID-19 emergency impact until mid-March.
Looking at revenues in more detail, and I'm looking at Slide 3. Net revenues decreased by 3.8% year-on-year due to a decline in revenues from operations, down 23.5% at EUR 154.9 million, largely offset by a positive balance of EUR 28.4 million. We saw a material decrease in both en-route and terminal revenues down 24% and 30.8%, respectively, mainly as a result of the lockdown following the COVID-19 outbreak combined with lower to 2020 tariffs versus 2019. While -- thanks to the traffic protection mechanism in place, this revenue decrease was mitigated by a positive balance to contrast to the negative balance recorded in the first quarter of 2019.
The deposited balance amounting to EUR 28.5 million in the first 3 months of the year, and it was mainly driven by en-route and terminal traffic materially lower than forecast. More specifically, en-route traffic balance accounted for EUR 12.6 million, while terminal traffic balance was EUR 14 million. On top of that, we are -- we also recorded a slight positive balance reversal applied in 2020 tariffs of EUR 1.7 million. A further positive contribution came from the nonregulated business with revenue at EUR 5.8 million, more than double the revenue in the same period of 2019, and it is mainly due to the revenues from IDS AirNav that was not consolidated in the first quarter of 2019 due to the acquisition in July 2018.
Finally, other operating income was at EUR 8.3 million, marginally lower by EUR 0.5 million over the first quarter of last year, mainly due to the lower level of EU project financing.
Moving on the cost on Slide 4. In the first quarter of 2020, we continued to deliver on our OpEx efficiency plan. And more in detail, we streamlined personnel costs, given also the sharper decline in traffic from end of February onwards. In general terms, total cost declined by 3.2% year-on-year, reaching EUR 142.8 million in the first quarter of 2020. On comparable basis, excluding, I guess, AirNav, total costs were reduced by 6% year-on-year. More in detail, as you can see on the top graph, we recorded external cost of savings of EUR 0.6 million, 1.8% reduction year-on-year. We were able to significantly reduce the cost of the several services such as utilities and telecommunications cost declining by 17%, also due to the lower consumption, driven by the most employees working from home in March as well as due to lower cost related to our full IP digital network.
We also show the reduction of some expenses related to the activities performance by our subsidiary, TechnoSky, is down 12%, given to the slowdown of many activities due to the health emergency. These significant reductions were partially counterbalanced by higher cost for external services linked to COVID-19 specific initiatives undertaken by the company, including the extraordinary sanitization of our facilities and by higher expenses related to international activities performance by IDS AirNav and by AirNav Asia Pacific.
Personnel cost in the first 3 months of the year decreased to EUR 117 million, down 3.5% year-on-year, include [ IDS ] related cost. These result is the combination of several factors: First of all, material decrease in variable pay and social securities cost as a consequence of reduced over time combined with use of outstanding vacation balances. Given the material slowdown in traffic starting of February, as I told before; secondly, we experienced again increase in fixed pay of EUR 1.9 million as effect of 2018 labor cost renewal, and more importantly, the inclusion of IDS AirNav employees. These effects were partially offset by headcount reduction of 70 employees on average. Excluding the effect of IDS acquisition, as I mentioned before. Indeed, the -- when including IDS AirNav at the end of the first quarter of 2020, our [ delegation ] reached account of 4,258 people.
Lastly, capitalized internal work was almost stable year-on-year at about EUR 6.6 million.
Let me now give you our view on the main developments we are seeing in 2020. In light of the significant impact of COVID-19 from air traffic over the last 3 months and by its own and in collaboration with other players, the national sector is currently undertaking several measures to deal with the implication of the traffic performance for 2020 and beyond. As you may know, Eurocontrol and the vast majority of its members states -- agreed to postpone the payment of traffic charges due by airlines to air navigation service provider related to the period February, May 2020. This will allow airlines to tackle the liquidity issues that they are facing currently and be able to pay those charges starting from November 2020 onwards. To understand the impact of these measures, I invite you to look at the timeline in the slide. We prepare a slide to explain better, as you can see February 2020, traffic will be paid within the current year in November -- next November. While in March, April, May, payments will be postponed to 2021 with the last cash-in due in August 2021. Now to better understand the impact on our financial sector considered that in the normal pre-COVID-19 scenario revenues from our core business, en-route and terminal charges amount to about EUR 60 million to EUR 70 million per month with higher volumes in the summer season and the lower volumes in the winter season, excuse me.
Starting from this part, we try to provide some assumptions of traffic development in the coming months. As already mentioned, we estimated April and May traffic down by 90% and a gradual recovery starting from the summer. In terms of revenues, this also means lower revenues recorded from
[Audio Gap]
fully compensated by positive balance created in the period, we believe to less severe impact on the net revenues.
Turning back to the cash flow effect. The revenues from the period March, May will be much lower than it was between minus 50% and minus 90% versus a normal year, which will greatly reduce the cash flow impact on the May payments. On the other end, the payments for February 2020, in last month, with traffic volume effect at pre-COVID-19 level, we will be cashed-in November of this year with a positive impact on liquidity by the year-end. Starting from traffic flows from June 2020 onwards, so we expect the system to return to the standard 2-month billing and settlement cycle. With regard to regulation and RP3 development, the RP3 regulatory framework was approved in February 2019. The country-specific performance plan and negotiation process is still underway. Based on the formal submission by our country, by Italy, the applied 2020 tariffs are the following -- the tariffs that we are applying, starting from last January: EUR 66.02 per service unit for en-route; EUR 177.33 for -- sorry, EUR 167.33 per terminal zone 1; EUR 167.56 for terminal zone 2; and EUR 298.93 for terminal zone 3.
So with that, I will hand the call over to Luca.
Okay. Thank you, Roberta. So as you can see on Slide 7, our net revenue in the first quarter of the year decreased by 3.8% year-on-year, driven by a negative performance in our revenue from operations, both in en-route and the terminal business, which was largely offset by a positive balance. The main contribution to the year-on-year decline in revenue from operations came from en-route activities, which saw a revenue decrease of EUR 29.8 million. Then we have terminal activities that also posted a negative performance with revenue down EUR 14.4 million over last year. And it is worth noting that Op results were impacted by the effect of COVID-19 emergency combined with lower tariffs applied in 2020 on en-route and terminal. Indeed, en-route applied tariff was reduced by 15.3% to EUR 66.02 in 2020. Similarly, terminal zone 1 tariff was reduced by 12.3% to EUR 167.33. Terminal zone 2 tariff to EUR 167.56, down 15.2%. And finally, terminal zone 3 tariff shrank to EUR 298.93, down 6.3%. As mentioned above, the negative contribution of revenue from operation was, however, largely offset by a positive balance of EUR 28.4 million in the first 3 months of 2020 compared with a negative balance of EUR 6.7 million in the same period in 2019. More in detail, the difference between actual and [ planned level ] traffic [indiscernible] that, from plus 2.4% in the first quarter '19 to minus 15.5% currently. Despite the material reduction in topline, thanks to our continued focus on personnel and external cost discipline, we managed to contain the impact on EBITDA to a decrease of 6.7%, reaching EUR 28.9 million. As a result, EBITDA margin decreased by 0.5 percentage point to 16.8%. As Roberta mentioned before, the first quarter margin is seasonally the weakest and is also affected by impact of the COVID-19 outbreak.
So looking at the P&L on Slide 8, as you can see, the decrease in net income was mainly driven by the negative contribution of the topline, partially compensated by cost efficiencies and lower D&A. Moreover, a high tax item further contributed to net income decline. With regard to the below EBITDA items, G&A decreased by EUR 0.5 million, mainly due to the lower depreciation and slightly higher CapEx contributions. Provision and write-downs remained quite stable in absolute terms. We have witnessed a marginal increase in net financial expenses as a net result of lower interest income from VAT receivables and lower gains on foreign exchange transactions, more than offsetting lower interest expenses in the period. You can also see a margin increase in income taxes in the first quarter, also explained by higher taxable income from other subsidiaries, [indiscernible] and other [indiscernible]. As a result, we recorded a net loss of EUR 6.2 million compared to a net loss of EUR 3.6 million last year.
Moving on Slide 7, let's have a look at our cash flow and financial position. ENAV's liquidity and financial position remain very solid -- sorry, slide it was Slide 9, not 7. So ENAV's liquidity and financial position remain very solid, enabling a smooth management of the COVID-19 emergency in the coming months. Our cash balance as of March 31 increased to EUR 477 million, up by EUR 27 million versus 2019 full year, mainly as a result of the cash-in of traffic revenue related to the period in November '19, January 2020 as well as of VAT receivables. Three elements more than comp -- these elements more than compensate the cash absorption of about EUR 29 million from investment activities performed at the end of 2019 and from other current payables. In a nutshell, our net financial position reflects a solid net cash of EUR 153 million at the end March 2020.
Moreover, in order to ensure the financial stability of the company, we are currently working on many initiatives. As previously mentioned by Roberta, we have agreed with Eurocontrol to defer en-route and terminal charge for February to be cash-in in November 2020, while charge related to March, April and May, to be cash-in in 2021. En-route and terminal charge from June onwards are expected to be cashed-in regularly, which means within the normal 2-month billing and settlement cycle. On the cost side, we have reduced our average cost of run rate from approximately EUR 50 million per month to EUR 45 million per month, thanks to further cost-cutting initiative. We also have an additional liquidity buffer by postponing part of the 2020 CapEx, which has been reduced from approximately EUR 120 million to about EUR 80 million. It is important to point out that the remaining CapEx of EUR 40 million are only postponed, also due to the difficulties in deploying investments due to the lockdown.
Finally, I would like to highlight that we have no material debt maturities until 2022. And moreover, we have additional liquidity available, including EUR 70 million EIB financing and approximately, EUR 150 million of other credit lines. We are also in the process of negotiating committed credit lines of approximately EUR 150 million in total. As a result of our solid liquidity position, we can confirm our dividend on 2019 full year results, amounting to a total of EUR 113 million to be paid at the end of May 2020.
I will now hand the call back to Roberta.
Okay. Before opening the floor to your questions, please, let me give you an outlook on 2020. Given the information on the COVID-19 situation available currently, traffic could reached an inflection point in late June and gradually recover over the second half of this year. But also in this complicated and uncertain situation, we are committed in maintaining full operational continuity in the light of lockdown phase, while assuring maximum protection, obviously, for our employees. Moreover, in addition to the reduction of cost [indiscernible] in our first quarter results, we have put in place further cost efficiency measures in order to defend margins. In this moment, the situation is highly uncertain, and we are not able to provide a detailed and real -- sorry, guidance for the full year 2020.
However, thanks to the visibilities afforded by our regulatory framework, we can provide an indication of revenues, declining mid-single digit. Thanks to the additional cost initiatives we have to put in place, our net income should decline high-single digits over last year.
Last but not least, we decided to postpone a portion of our 2020 plan at the CapEx. So we expect the CapEx to be around EUR 80 million in 2020 rather than the previous target of EUR 120 million.
Finally, I would like to remind you that our AGM will be at the next week on May 21. The AGM will elect the new Board of Directors, including the new CEO and Chairman. As you may know, this is my last results conference call as the CEO of ENAV. I would like to thank all of you and wish ENAV and each employees all the best and to continue delivering on [indiscernible] story.
With that, we are now ready to answer any questions.
[Operator Instructions] The first question is from Nicolò Pessina with Mediobanca.
First question is on the regulatory review. I'm wondering if you could give us an update. And I'm not really asking for any number, I just want to understand, if you perceive any risk given the current situation? What you would expect as the outcome of this regulatory review? Is extending RP3 is an option? Or what we should expect going forward?
Second question on the balance generation. Would you expect the balance generation of this year that it's likely to be very relevant to be deployed into the tariffs during RP3? Is it feasible? Do you foresee the risk of having very high tariffs at the treatment of traffic volumes?
And final question on the outlook. I would like to ask if you could explain the traffic assumption underlying the indication you provided. And if you could add a comment maybe on EBITDA also?
Okay. I think Luca will answer the first question on regulation.
So the regulation, as we told you last time, I mean, the last update was that the commission was going to have a Single Sky Committee on end of April, beginning of the May, to decide what to do with the performance plans of the different countries. The point was that Single Sky Committee was supposed to be held on May 6. And the commission decided to postpone this meeting because still they don't -- I mean the commission [indiscernible] right idea how to approach the situation. I mean, didn't define yet how to discuss how to approach the performance plan. Because on the table, you can imagine there are different talk also because -- and so what they decide to do was to postpone this meeting. They decide not to have any more. Just a couple of days ago, they decide -- just couple of weeks before, they decide to [indiscernible] it and to postpone in a couple of weeks. So we are waiting for this meeting to have some indication about what the commission is going to do. We believe there's something that could be done or would be done for 2020 to partially offset this very -- in terms of brand, in terms of -- probably, we really don't know. We really don't know anything, but we just know that there could be some -- I mean, they'll try to find some grant for everybody, maybe they find something else for us. But in this case, the regulation at the moment is not issue from what we know. And so we still have to wait a couple more weeks to understand better what could be the future efficient situation.
And so I will answer with that -- I will answer also your second question about the balance. For sure, the balance we are going to generate this year is going to be very high. I'd say -- let me say that much will depend on the -- of what will happen in the summer, [indiscernible] in September, October, November in term of traffic volume. And so -- but still, the balance would be very high. The first discussion that we have with the counterparty Eurocontrol and the commission was to at least to postpone this balance in more than 1, 2 or 3 years, probably -- it depends on the demand. At the end of the 2020. We will decide. [indiscernible] as long as we don't have pressure on liquidity, probably, we will be able to postpone a little bit more than the receivable of the balance.
So that's our point. About the traffic, I don't know if Roberta wants me to...
Yes, yes, about the outlook of -- regarding traffic and what we assume are the forecast of control in the, I can say, worst scenario in the cases of no coordinated [indiscernible] and considering that that's the forecast, effectively, the lower level of traffic could be around June. And traffic income that's -- traffic will hopefully rebound. In particular, starting for -- from considering the assumption of Eurocontrol, the hypothesis is that around December, the level of traffic compared with the previous year is around minus 25%.
I would like to just, Nicolò -- I would like to just add to what Luca says about the balance. We have also to consider that the issue that some countries are considering that to support the life company are in order to contribute to the sustainability of the system of the air traffic. And so in the medium-long term, the possibility to recover the [indiscernible] the balance, obviously, known in 1 year, considering the extraordinary level of balance. But in more than one year, it's something that could be.
Sure. If I may still ask on the outlook on EBITDA, if you are willing to provide any indication on this?
We prefer that to indicate the level of the outlook about net revenue, net -- sorry, net income, so it's not difficult to understand what is our view about EBITDA considering that the relevant impact coming from COVID-19 is on revenues side. And obviously, on cost side, considering the efficiency and the action that we already put in place in order to mitigate the reduction of revenues on our EBITDA in...
Next question is from Juri Zanieri with Kempen.
Two on my side. But before asking them, I just would like to say that I'm sorry to see Roberta leaving. I'm sure she can say that early days at ENAV were a success. So first question is, maybe if you could spend some additional words on the nonregulated business. What you can expect in the next few quarters? Also, how Aireon, for instance, is performing? And how it can evolve its performance?
Second question is mainly on having a bit of visibility on the CapEx. If you can elaborate which type of CapEx are not going to take place?
Okay. Regarding the nonregulated business, we are -- our outlook is to consider a growth in more regulated revenues compared with 2019, and it is obviously mainly due to the IDS consolidation. Although, the critical situation coming from COVID-19, IDS is continuing to deliver our contract also from remote side, and it is a good factor so considering that, we expect to increase the level of revenues from nonregulated business compared with 2019. Regarding the Aireon. Aireon is not consolidated. So in terms of revenues, more regulated revenues that can -- Aireon is not impacted. What we expect about Aireon is start to receive dividend starting from 2022. And it is confirmed, also considering the last update of the Aireon business plan.
And about CapEx, what is important to underline is that the reduction of the level of CapEx of the current year is not -- is mainly a postponement of some activities and of some payments regarding CapEx. So it is to contribute to support the free cash flow of the year, but also considering the capability to effectively deliver some program of investment due to the friction coming from COVID-19. What we expect, in fact, in the medium-long term. So in the CapEx investment plan of the 5 years, not impacted [indiscernible] and the reduction of about EUR 40 million is [ remodulation ] of some program, such as for flights or other [ ENAV ] for the last -- the final part of the implementation and some others -- some other small projects, small investments.
It's no addition [ to us ]. That's a good point.
Yes, yes. No, no, I get it. Maybe if I can just follow up on Aireon. I mean guidance, so far, always have been like very limited. I think you just indicated roughly 10% IRR on the investment you made. Can you at least confirm that this is going to be the case for the years to come? Or maybe you are continuing to revise this type of guidance?
No, for now, we can confirm the previous outlook about Aireon, in terms of IRR, in terms of timing of dividend payment.
The next question is from Luigi De Bellis with Equita SIM.
Some question for me. The first one is on home balance. Putting in another way, the question of my colleague. Looking at the speed of recovery of balance, what is the level of en-route tariffs that do you think is acceptable for the carriers to avoid less traffic on Italy? I mean an acceptable level also from a commercial point of view.
The second question is on the net debt. Based on your assumption and guidance, can you provide us an indication of net debt level expected by year-end or an indication of working capital change, expecting your scenario?
The third question on provisions. Based on your experience, do you expect a relevant level of write-downs by the year-end, making a comparison with the past crisis in your sector?
And last question, do you think the bonus models mechanism will remain in place in 2020?
Okay. Talking about the balance. Right now, it's very difficult to define the right level of tariff applied in 2022, '23 and '24. It will depend on the general discussion that we are having now with the whole -- the counterparty. So at the moment, we cannot give any more information because actually, we really don't know it, [indiscernible]. Net debt, we -- even if we have [ translation ], at the point now, the real point and Roberta said at the beginning, there is no real scenario -- traffic scenario for, I would say, [indiscernible] for the country for 2020. So the point is, it's very difficult to give disclosure of our, I would say, net debt without taking consideration what could be the -- a very good scenario that is in some way defined it by the [indiscernible] stuff for the unit that it's the one that's supposed to [ simulate ]. We have some internal one. We don't feel -- I mean, at the moment, we stress this scenario, this internal scenario. So we are not -- I mean, in general term, worried in this moment, but we don't disclose because actually there is no traffic forecast available at the moment. Future [indiscernible] available for inquiry at the moment.
Provision -- fill with the provision. At the moment, actually, let me say, it's not a problem because there is no flight going. So as long as the airlines are not paying at this moment because Roberta said before, as we said before, the cash-in that we are supposed to have in April, May, June and July are postponed. So the airlines, they don't have cash out in this sense. When they will come back to fly and will regenerate a new -- I mean, cash revenue and cash related -- so I'm talking about July -- sorry, August to September, October. So probably in the next year, we don't see why they shouldn't pay us. Even if -- and on top of that, I still remember that we still have our system that cannot protect ours because if they don't pay, then they cannot run their business. So they could be stopped and still on place is [indiscernible].
And then the last one was on bonus models. In general term, the regulation say the bonus models is on at the moment. But we believe we think that at a level of traffic that is now, and it's probably at the end of 2020, we don't believe that there will be any bonus models on capacity performance because the capacity in so low. Actually, it's no problem. So actually, this year, I'm talking about 2020, probably will be back in 2021, '22, but we don't think -- even if we don't still have the certainty, but we don't think to -- that the bonus models will be applied in 2020.
The next question is from Rishika Savjani with Barclays.
I want to ask 2 questions. The first one is, in the context of you reaffirming your dividend for 2019 to be paid at the end of the month and also the strong liquidity position. Can I ask you to talk about how the Board is thinking about protecting the dividend going forward? Do you intend to still protect that in 2020? Or do you think that the dividend may potentially have to reflect the environment being very challenging at the moment?
And then my second question is on the business plan, the 5-year business plan. With the argument that the air travel industry will be smaller in the years to come with airlines restructuring and shrinking their businesses. Do you think that the business plan needs to be accelerated, more aggressive, bigger changes need to be made in order to make your business adaptable to the new environment?
Okay. Talk about dividend. As you can imagine, there would be an issue of the next Board of Directors, as Roberta said, it is changing at this moment. So we cannot actually see something about it without having this discussion with them. But other than the [indiscernible], let's say that it will depend on the cash. The cash we will generate 2022 -- 2020, and how the traffic will go around the business, we will have a general talk and complete talk with our Board at the end of the year, and we will define it.
Rishika, about your second question. First of all, it's up to the new CEO. What I can see is that the industrial plan and industrial program of the company remain very solid in my opinion. I have to say that there could be -- this a critical situation and next step of the critical situation could be the right trigger to also to try to anticipate some program I mean [indiscernible] or cluster of the approach activities.
The next question is from Arthur Truslove with Credit Suisse.
Arthur Truslove from Credit Suisse. Just a few for me. So I mean, firstly, in terms of OpEx reduction, how should we really think about then -- in respect to how they move with traffic? So clearly, your variable personnel costs were down materially in the first quarter. So can you just give us some color on how your OpEx is influenced by traffic performance? Secondly, from a personnel cost perspective, again, clearly, they were down in the first quarter. But if you strip out IDS AirNav, what was the trend that you saw there?
And I guess, finally, on cost savings as well. You've obviously put forward previously a plan to reduce the number of employees. You've obviously -- you've got people's holiday balances at this time. Are there any other sort of serious measures that you've been taking since the outbreak of the COVID crisis to cut cost.
The link between the level of traffic and the -- our cost, in particular for labor costs, is that there is a strong component that is fixed, I can say. But there is -- there are also some component on labor costs that are variable linked to the dynamics of traffic, mainly I refer to overtime that in a normal -- in a situation of high level of traffic during the summer season are very high normally. And so it is a variable component on which it's possible to leverage. The traffic cost of people that move in -- from site to another site, in particular during summer when we need, for example, in some airports to reinforce the number of controllers to support a very seasonable dynamics of traffic. And obviously, where traffic is so low, no initial cost are in place. The outstanding vacation is another important leverage that we are using that we used over the last 3 initial first quarter of the year, but the effect of this leverage will continue also during the coming years, considering the high level of spending vacation.
Training activities because also due to the critical situation out of COVID in terms of distance between the people. And the other one, also the social distancing, also some activities of training are going to be full when traffic will rebound when the situation -- sorry, no traffic rebounded but when the situation of COVID-19 will hopefully became better.
And the cost of IDS.
And what I would like to underline is that the level of cost -- total costs in the third quarter of the year compared with the previous one, without considering -- excluding in the perimeter, IDS is 6% of reduction, 60% is a huge amount, considering the fact that labor costs represent about 80% of our total cost. And it's important to consider that in the first quarter of the year, normally due to the seasonable, the dynamics of our business, some variable components are normally lower than in summer. So it means that the effect coming from the reduction of overtime, for example, will be huge in summer compared with the previous quarter of the year.
[Operator Instructions] The next question is a follow-up from Nicolò Pessina with Mediobanca.
Yes. Just a very quick follow up. Maybe an update on the auction for the control towers in Spain.
Yes. We know that the process is in place. What -- there are no change about the initial program, and the expectation is that around summer, could -- we receive the outcome of the offers. More or less, in June or July, we expect.
[Operator Instructions] There is a follow-up question from Arthur Truslove with Credit Suisse.
Just a quick follow-up. So within your regulatory framework, you obviously have the balance mechanism, which compensates you for some of the traffic loss that you may incur. But if your variable costs are lower than what is laid out in the performance plan, is that a benefit that you are likely to retain? Or is there some measure laid out within the regulation that would mean that you would lose some of that benefit?
At the moment, with the regulation say, no. So actually, we don't have any other indication at the moment. So the answer would be, we will treat the cost and the traffic in the same way we have until now. Until somebody say that something has changed, at the moment, we don't have this information. Did I answer your question?
Yes. That was perfect.
Ms. Neri, there are no more question registered at this time.
All right. Well, thank you. Thank you, operator. Thank you, ladies and gentlemen, for joining us on this call. My personal thank you to Roberta Neri for these last 5 years. I think she's done an incredible performance for the company, and we will surely miss her. With that, thank you very much. And if you have any follow-up questions, please reach out to me and Alexandra.
Thank you. Bye-bye.
Bye.
Bye. Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.