TUI AG

XETRA:TUI1

Earnings Call Transcript 2020-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the TUI AG conference call regarding the COVID-19 update and FY '20 9M results. [Operator Instructions] Let me now turn the floor over to your host, Friedrich Joussen and Birgit Conix. Please go ahead.

[Friedrich Joussen, Chairman of Executive Board & CEO]

So good morning. Everybody. So we are in a little bit of a special situation, not only because of COVID but also because we are in different places. I mean Birgit is in Belgium because of current sales requirements, I'm in the Düsseldorf, and we have our central team in Hanover. So it's a little bit of different logistics. But I think we can make it work very well. One of the changes we are doing is actually that I have to announce, which pages are on because then it's flipped through by our assistant. So please turn to Page #5. I think what we can say in the last quarter, we have actually done a successful restart of operation and particularly when leading into July as well as August. The restart was of the size and stature that it generates immediate working capital inflow. And as you recall, one of the bigger problems was actually to repay customer prepayments. And that is something -- which now is actually fixed. So customers have actually received the repayments, and we are sure on that. And also, we have enough working capital inflow to work on that. What we also said, and what we did was in -- we reduced significantly the cash fixed cost to a level of below 70%. And therefore, we expect Q4 based on what we see, so the quarter, which has now started July, August and September, to be broadly cash breakeven on an operational level. Anyhow, the situation is still volatile. And there are -- the cash -- the [indiscernible] coming in and going out and advice is coming in and going out. So therefore, we applied for a stabilization package with the German government and agreed yesterday, an amount of EUR 1.2 billion. If we need it or don't, remains to be seen, but plan for the best -- plan for the worst and hope for the best. We are now in a situation that we have secured enough liquidity for winter and the time thereafter. That is something which is really reassuring. And that's, of course, something which now lets us focus more on operational level, which is important. Now booking numbers itself, particularly for summer '21 are extremely strong, 145% up compared to the previous year. That's a very good indication. And I come to that in detail how that unfolds into new booking and also amendments from this year. The good thing is also, by the way, that I want to say, even with the amendment, the price per booking are up. So it's not only big volumes, but it is also on a very good price level. Now assuming that actually everything goes well, in '22, we see a normalized business, which we believe we will have more debt. Of course, we will look at the balance sheet restructuring. But particularly also, we have launched this 30% overhead cost-saving program, and we are now disclosing that we will be doing more than EUR 300 million per year structural cost savings, and I have brought with me major projects, a couple of projects, 5 projects, which are carrying almost EUR 300 million -- of the more than EUR 300 million. So therefore, it's also good for the follow-up and future disclosure of our savings program. Now this opening. When I look right now on Page #6. We have been the first to start of the business in many instances. And that was mid of June, particularly from Germany, through the integrated model we could agree, for example, in Majorca, but also in [ Minorca ] to open the corridors, what we call the safe corridors. And we were actually the first one also opening hotels worldwide. The first one right now doing -- or one of the first ones, I have to say, there is the small food company associated with it. But of the major cruise company, the first one to open the Cruise business again. And so we could actually, through the integrated model, make integrated decisions to restart the business that was helping a lot. And when you turn to Page #7, and what you see is that June was small. But in July, we actually went to 2,300 flights. In August, we are now at 4,200 flights, which actually will be even increase a little bit in September. Our program will be of 30%. And when you turn to the next page, I think it's even more reassuring. What you see for July, and these are the numbers for July, you see we had 563,000 customers already. And the thing which is very important as well. Our load factor was 89% on the aircraft. So when you start, the business, the most important thing is that you get the demand-supply equation right in order to manage your cost. Of course, your cost will increase because you are using the fuel, you are unfurling the people and so on and so on. But you need to do it in a way that's adequate to your demand. So we had a load factor of 89%. August will be also very good. And that is, as we believe, a result of our integrated model that actually, the capacity planning and the control of the whole value chain allows that to happen. Now that said, turning to the next page, I think another reassuring that which we believe is that health and safety protocols and relaxing holidays are not a contradiction. We agreed with the destination countries and also with our partners, the extensive safety -- health and safety protocol, which you see on the left, and still customers give us a rating for -- the average rating for customers for the holidays has been 8.5 of 10. So that is very high, but a couple of remarks and quotes from customers. The first one, say, relaxing holidays are good holidays. I mean, yes, it is a little bit more empty than it has been before, but customer value it. And also what customers value a lot is that we take care of them, so they feel safe. They are attentive to their health, and they feel that actually, we are taking care of it adequately. So adequately means still they have enough freedom, still they have actually nice and relaxing holiday. Now then I turn to the next page of my operational update. You see on the Page #10, we had 1.7 million new bookings since the travel bans were lifted. So since June, and you see the seasons on the top left, new bookings for summer [ 1,050 ] total net bookings, so including amendments and older bookings, so the bookings which happened in the system, 2.4 million. So that is 30% of capacity, you saw our load factor 89%. So I think we are in a good shape. The bookings come in much more short term. So the new bookings will increase because we have good visibility now for August. But September, still a lot of bookings coming in. Winter, you see that we will increase our capacity to 60%. But it is 60% of winter capacity, which is, of course, usually half of the summer. And therefore, we stay on a very constant level, if you like. And here, you see the bookings need to catch up a little bit. That is not a problem. Quite to the contrary, that is a result of also the short-term booking cycles, which we see in summer as well. But then I think the very promising thing is then summer '21. Summer '21, total net bookings are 1.5 million. Last year, it has been 630,000. So we are up 145%. But even new bookings since June, is 430,000. Last year has been 380,000. So you see that even on a 100% capacity level, we would be doing well. What we also do is we are careful. So particularly through also the Boeing arrangements, we have been doing. We will plan our aircraft capacity and also commitment capacity in hotels to 80%. Because this actually puts us on the safe side. We believe if the market will go on and it will be the booking like we see right now, yes, it will be easier to extend capacity then if for whatever reason, in January, the bookings are not coming in as we think and so on. And this advantage actually will be fading away, which we have right now in the systems, then it's better to be on the 80% in order to be profitable next year guaranteed profitable next year. So this year, liquidity -- secured liquidity lines, bookings for summer are pretty good. Load factors for summers are very good. Therefore, cash break -- operational cash breakeven in Q4. Summer '21 is a stunning number. And it is I think almost 15% of capacity sold. So it's not [ 1 5]. So it's not very old protocols. And I think that -- that's I think is very reassuring messages. That said, I would like to hand over to Birgit in [indiscernible] to lead you through the financial section of our presentations.

[Birgit Conix, CFO & Member of the Executive Board]

Thank you, Fritz. And also a warm welcome from my side. So I'm pleased to talk about financial achievements during the standstill and restart as well as our current financial priorities. And let me start by saying that we have successfully delivered the previously announced cash fixed cost reductions of over 70% during the lockdown. And we also demonstrated our strict and rigorous liquidity management. And then second -- the restart of operations has led to an immediate inflow of working capital and is positive to our operational cash flows. And then the Boeing compensation has been finalized and then the [indiscernible] transaction proceeds are secured. And then we are, of course, like Fritz already alluded to equally, pleased to say that we agreed the additional liquidity headroom to manage the unprecedented crisis. And then going forward, our full management attention will be on rebuilding a solid and robust financial profile, and also it will all be about improving our operating effectiveness with the transformation program. So let me now further detail these achievements. And you'll see that on the -- sorry, the previous slide. So you see that on the first slide, detailing the German Federal Government facility that we secured. So we were pleased to announce the agreement as Fritz already said, for an additional headroom of EUR 1.2 billion. And Fritz also said, so with this new stabilization package, TUI will have access to additional liquidity, which further strengthens our position in this volatile market environment, and it also better positions us in case there is a further period of disruption in our industry. The liquidity headroom is agreed, is a combination of debt and also an equity-linked instrument, as you could see from our communication yesterday. And the package consists, therefore, of a further KfW loan, increasing to its existing revolving cash facility by EUR 1.05 billion. And the drawing of the additional KfW tranche is subject to an issuance of a convertible bond with a volume of EUR 150 million subscribed by the German Wirtschaftsstabilisierungsfonds, WSF, by the 30th of September at the latest. And furthermore, it is subject to an agreement with the bondholders of the EUR 300 million Senior Notes due October 21 regarding a covenant waiver for a potential future limitation of indebtedness. And on the next slide, you will see the details of TUI's government stabilization financing. And first, let me remind you that back in April, TUI was the first company to successfully receive the approval for a EUR 1.8 billion KfW bridge loan facility from the German state, and it was just 10 days post applications. And the EUR 1.8 billion and the EUR 1.05 billion are the extension to the existing EUR 1.75 billion revolving credit facility. And both covenants, net leverage ratio and interest cover relating to the existing and increased RCF will be suspended for the next 18 months. So covenant testing will resume in September 2021. The new stabilization measures comprise also a new element, which is a convertible bond for an amount of EUR 150 million. That will be subscribed by WFS, subject to the conclusion of the subscription agreement. And the bond will have an initial term of 6 years and interest at a rate of 9.5% per annum. And the remainder of the terms are described on this page. So what I would like to point out is that access to this facility will provide us with sufficient liquidity headroom in case we see a prolonged period of disruption or in second lockdown. And as you can well imagine, during the period of crisis, the finance team has run through various COVID-19 scenario analysis, and I would like to share our most recent assumptions with you. So the first scenario is our resource scenario. The ramp-up of operations is expected to work as communicated, and we see a continued positive inflow of working capital. In this scenario, we expect that the so far secured financing instruments give us a sufficient headroom for the winter season to come and beyond, and it is unlikely that we need to utilize the second stabilization package. And then a second scenario assumes an environment where the operational ramp-up is slower than expected. And we have negative news flows about, for instance, increasing infection rates, et cetera, might have an impact on consumer confidence. And here, we expect that we might need to utilize the second stabilization package to cover short-term liquidity gaps. And then we calculated a third scenario, and this assumes major disruptions or a second lockdown leading again to the suspension of large parts of our travel program as well as an obligation to refund our customers. This is a scenario where we expect to utilize the stabilization package. So in summary, the second stabilization package secures our liquidity needs even in a scenario of a second lockdown. So let's move to the next slide. So this is on Hapag-Lloyd. And so the successful closing of the sale of Hapag-Lloyd Cruises TUI Cruises, a joint venture will enhance our liquidity position by around EUR 700 million. And we received the first amount of approximately EUR 300 million of disposal proceeds already in the third quarter, and we received the second tranche of around EUR 320 million in Europe, post the transfer of the ship in mid-July, around EUR 70 million are to be received over the next 2 years. And in Q4, you will also see the deconsolidation of around EUR 400 million of net debt and debt-like items. Additionally, we will also report a positive P&L effect in Q4 as we anticipate a disposal gain of EUR 400 million based on the impact of evaluation terms of the transaction. So this transaction is part of our asset right strategy and combines Royal Caribbean's expertise with TUI's strong distribution power. So then let me move on to the Boeing agreement. So as promised, we managed to agree a comprehensive compensation agreement with Boeing, which strengthens our liquidity and, equally important, also allows flexible fleet planning in time of the pandemic. And as you know, the specific details of the agreement with Boeing are confidential, so I cannot really share them. However, they consist of 3 key elements. A staggered cash compensation to be received over the next 2 years, which covers a significant proportion of the grounding costs. A deferral of 61 aircraft by an average of 25 months, and this enables our fleet capacity to be flexed over the next 2 years, which is, of course, useful in the current situation, and then credits against future orders. So the deferral agreement will also reduce our financing requirements over the next 2 years, whilst we rebuild our financial profile. And we are quite proud of this successful deal in a difficult market environment. So this brings me to the liquidity position. On the next slide. Yes. Thank you. As already mentioned during my introductory remarks, I'm very pleased to say that liquidity developed in line with expectations. And during the half year results, we talked about a reduction in liquidity from the 27th of March to the 10th of May by around EUR 1 billion. And the main buckets were the repayment of commercial people and bilaterals, customer refunds and operational cash out. And since then, we have managed our cash out for customer refund successfully. We executed on our cash fixed cost reduction targets, the ones that we discussed with you in the previous call, and we delivered on the promised cash ins like Hapag-Lloyd and Boeing, which because there were a lot of questions around that as well during the call last time. And the positive contribution as per our restart announcement is well on track. So we are also pleased to communicate that if the current scenario continues, we expect to be broadly operationally at breakeven during Q4, but I will come to that on my next slide. So let me summarize first. On the 12th of August, we can report EUR 1.2 billion of cash and available facilities, and pro forma adding the new government-backed funds to the cash and available facilities would amount to EUR 2.4 billion. This liquidity position makes us well placed to cover our upcoming winter needs and also beyond, even in case of the second lockdown. So with that, let me go to the next slide. And at our H1 results, we discussed how the exceptional shutdown required significant group-wide cost reduction. Having reduced costs to an absolute crisis minimum, we expect a cash fixed cost outflow of between EUR 250 million to EUR 300 million per month. Additionally, we expected payment obligations below EBIT, such as interest, pensions and debt repayments, for around EUR 50 million per month. And we also said we anticipated customer refunds of between EUR 250 million to EUR 300 million. So a total of EUR 550 million to EUR 650 million per month. And under a restart scenario, based on our current plans, we expect Q4 full year '20 to be broadly cash breakeven on an operational level. So this is a cash view, including working capital. And for Q1 of FY '21, we expect a muted cash out of low single digit, EUR 100 million, compared to normal yields based on a less pronounced liquidity curve. Looking ahead, and I will explain it on the next slide. So looking ahead, we expect full year '21 to be a transitional year. And as consumer sentiment for travel recovers, we expect a more normalized working capital cycle in full year '22 -- fiscal year '22. To summarize, we reacted quickly to reduce costs and to secure liquidity. And I can assure you our focus on strict liquidity management will be continued. So that leads me to the slide where you see the liquidity profile. And as last time, I would like to guide you through our assumptions and how the research is expected to impact the seasonal swing. And you can see this from this illustrative graph again, the partial restart, and that is the light blue line, has led to an immediate inflow of working capital and is contributing positively to our cash curve compared to standstill or a lockdown, and that is the dotted light gray line that you can see there. And the main reasons are the reduced customer refund obligations, cash inflows as our customers are committing for summer '20 and future seasons and then a lower outflow of [indiscernible] payments due to smaller summer business, and also a consumption of certain prepayments that as we already meet. And then our liquidity enhancing measures, and these were discussed on my previous slide. And then also, obviously, what I mean with that is a strong focus on cash and costs. And as I already mentioned, we expect to return to a more normalized working capital cycle in fiscal year '22, when the consumer sentiment for travel is expected to recover. So that brings me to the next slide. Yes. Thank you. So now that we secured the necessary liquidity headroom with the additional stabilization package to cover risk even in a case of a second lockdown, our next financial priority is to rebuild a solid financial profile. And it does not sound so long ago when we presented our full year '19 results, but also there we said that the overarching target of the capital allocation framework is to maintain a solid balance sheet with a gross leverage ratio in the range of 2.25x to 3x. And the COVID-19 pandemic resulted in the withdrawal of our guidance, and it remains withdrawn due to the continued level of uncertainty. But this priority remains the same, and we need to rebuild a solid balance sheet profile post the COVID-19 pandemic. And for this reason, TUI Group will now evaluate options to achieve the optimal balance sheet structure to support the business over the long term. And with that, I think it is a right moment to hand to Fritz because the global realignment program that is underway is very integral part to that. And we can also show that we will work on operational effectiveness.

[Friedrich Joussen, Chairman of Executive Board & CEO]

Thank you, Birgit. Very clear. So then you page -- when you look to Page #21. You see the components of our realignment program. It's not only about cost. It's also about capital intensity and it's also about digitalization. And particularly, when you think about capital intensity and digitalization, this has been part of the strategy which we have communicated to you already before the crisis. We wanted to do less investment on asset-right strategy, as we called it part of it was the Hapag-Lloyd integration into TUI Cruises, where we generated significant proceeds, very good valuation, good deconsolidation of that. Of course, we have EBIT, but at the same time, you [indiscernible] synergies, we said would take care of it that in 2 or 3 years, we would be an EBIT level of 100% again. So that was actually before. And also the digitalization was an integral part, become a digital platform business including the full digitalization of processes an additional [indiscernible] mentality in our operational business. I'll come to that in a minute. What is new is actually the reduction, of course. And we had communicated 30% less overhead cost that was the target, impacting potentially 8,000 roles globally. How did we want to do it? How did we communicate to do it, consolidation of IT structures, 1 process across all markets, merchant task and organization across the group. I will communicate in a minute what that actually will cost. I will also communicate major 5 initiatives, which actually are the cornerstones of that program. And these 5 initiatives, I will talk about, already generate close to EUR 300 million yearly savings. So everything else which we are doing on top of it, will be bringing us to the way above EUR 300 million. And we will like in the synergy reporting, some of you may remember of the merger of 2 entry travel communicate the savings coming forward. Then we talk about capital intensity. It's not that we sell hotels or it's not that we sell cruises, but we will work on our capital structure. And we will work less -- introduce -- or invest less. And that's something which is also clear there will be overcapacity for the next years. So the level demand with supply, it is anywhere good thing to invest less. And part of it was also, of course, the rightsizing of airlines, and we talked about the 20% less. And you saw in the summer '21 program, 80% of previously planned capacity. So the agreement with Boeing enables to do that, particularly in Germany. We'll reduced our airline capacity through what we call the summer -- the winter capacity. Also, we talked about the divestment of nonprofitable activities, maybe the most prominent being front. Then drive digitalization. Digital platform businesses, thinking digital first, particularly, you will see that in the significant reduction in workforce because all the customer journey processes centered around the IT digital processes, particularly the very increased investment. So we increase investment in IT, while decreasing investment in -- overall investment in IT. And even within the investment, decreasing legacy because we now have less business here, it's easier to do that. And all -- more or less all investment in IT goes into our new platform. Important here is that we are striving to save cost and enhance quality. So just saving costs are not the right thing to do. We are a premium brand. So we increase quality, and that's only possible because we think digital first. So overall cost reduction target will be over EUR 300 million cost benefits in '20. And you can see the ramp-up of the program on the next page. You'll see also associated SDIs. The full benefit will be achieved on a running rate basis, financial year '23. But significant parts already in '21 and '22, right? So when you look at now what business -- yes. So what are the major cornerstones? You see 5 main projects, which I want to talk very briefly about. First, TUI fly Germany, we have overcapacities in Germany in the aviation market. We communicated to reduce around 50% of the fleet. That actually also reduces headcount by half. Transformation planner presented in negotiations. So the conversation has started. We have the backing through our reduced order book. So that is something which is on its way and is in the execution.TUI France, restructuring rollout, we have a [indiscernible] appointed. This is actually agreed even with the government. So that is particularly on the -- also a reduction of overhead, but also reduction of own shops, also evaluation of partnerships, at least 500 to 600 roles reduced. So this is actually in rollout and progressing now. DX, restructuring program. We used to have 10,000 people. Now we are down to 6,000 as well as another 1,000 roles being addressed. The -- is all -- as I said, digital first, we have increased our IT capabilities on the -- particularly the app development, customer care in-app, cross-selling in-app, CRM in-app. That is something which is more proactive. And also we see that creates better customer satisfaction, and also reuse of the app is very high as well. So the technical maturity is there customers also through the back -- through the lockdown are more used to actually use digital services. And we will take the advantage. TUI U.K., the closing of 166 high street stores is communicated. That actually will then generate the associated savings, and is a big issue. Of course, again, here, people are more used to online shopping because of the lockdown, and we are taking the advantage. And then on head office, we will actually integrate all functional areas under 1 leadership. So that is actually reducing duplication. Streamlined service delivery, quality improvements, we can more automate because of the bigger scale, restructuring plan is ready. It is already communicated to social partners, and that's actually underway and committable. And only these 4 -- these 5 projects actually have a target saving of just close to EUR 300 million. We commit to above EUR 300 million. The 30% level would be EUR 350 million to EUR 400 million. But to illustrate, it's not only agreed, but it is actually very tangible projects, which are in execution, we put this slide up. Now maybe then come to the quarter. I will just very briefly open and hand over to Birgit then maybe just 25 -- Page 25. I just want to very briefly, from my perspective, say, short word, before handing over to Birgit, on the bottom left box. When you look at the bottom networks, minus EUR 1.1 billion based on no churn over. That contains EUR 400 million, and Birgit will talk about it, mainly through impairment because of the higher WACC we have right now. That's clear. I mean the situation changed. The WACC changes, therefore, actually devaluation changes. So the -- operationally, we talk about the EUR 700 million. And that translates quite nicely, I think, to the over to the overhead cost reduction of more than 70%, which we communicated last time to you. So I mean, as a sanity check, it's very clear. And you see on the top left box, the revenue was minus 98%. Of course, until end of June, just the pilot projects, actually, we're operating and a little bit of overland traffic. But other than that, our business was in the total lockdown. And I think it does quite nicely to the communication we had done before. And maybe Birgit, do you want to take over now for actually the section here?

[Birgit Conix, CFO & Member of the Executive Board]

Yes. That's fine. Thank you, Fritz. So maybe let's move immediately to that yet, to the next slide. With the bridge, and here, as you can see, we saw a very successful first 5-month period with EUR 100 million improvement versus the same period last year. And here, on the bridge, we singled out the impact of the COVID-19 pandemic to our year-to-date results for an amount of EUR 1.2 billion. And here, I would like to highlight again our achievements on the fixed cost reduction, and we managed to reduce cost of sales in the third quarter by 78%. And this demonstrates how quickly and efficiently we can manage down our operational gearing in an absolute crisis situation. So I will then just quickly go over the impairment because thank you, Fritz, you already talked about them. And I can tell you, so these impairments, the EUR 410 million, you see there. In detail, we needed to impair EUR 200 million in Hotels & Resorts, EUR 133 million in our Cruise segment. And finally, EUR 88 million for [indiscernible]. And in addition, we had to absorb an impact from the COVID-19 related loss. So overhedged open contracts as a result of our business stands still and our reduced capacity assumptions. And a topic that you probably remember also from last time we spoke. And overall, the net hedging effectiveness -- ineffectiveness for the 9-month period amounted to the EUR 189 million. So then let me quickly move over to the income statement. And as last time, I will focus on the year-on-year comparison with pro forma IAS 17 figures for the 9 months of the FY '20. But I will keep my comments really brief as all figures are impacted by COVID-19, which makes a more detailed analysis somewhat meaningless, you could say. So turnover. Yes, that feedstock already a bit about that. So let me immediately move to the net adjustments of EUR 220 million, and is driven mainly by restructuring costs relating to the global realignment program which we announced, and the EUR 9 million adjustments are composed of the following. So EUR 217 million of restructuring costs. And then COVID-19-related goodwill impairments of EUR 53 million. And then usual purchase price allocation of EUR 40 million. And then also in EUR 90 million disposal gain from the sale of the German specialist business. And net interest result increased by EUR 31 million, and this is predominantly reflecting the drawdown of our RCF facilities to support the liquidity during the business standstill. And then moving to the cash flow statement. And in this unprecedented situation, so managing our cash flow and liquidity is the #1 key priority. And you will see lower cash flow, how quickly we actively address the cash items in our remit. And here, you will see the working capital outflow. That is the biggest item here. And it reflects the customer refund obligations and the reduction of new bookings inflow during the COVID-19 business standstill for the majority of Q3. And then I think with that, the rest is more self-explanatory. The net investments maybe here still to make a small point that we reduced this significantly immediately. Actually, we put all our projects on hold to enhance liquidity. So with that, let's move over to the slide on net debt. Thank you. And at this time, I will focus my comments on the net debt bridge from half 1 to Q3, on the right-hand side of the chart. And net debt before lease liabilities increased by EUR 1.2 billion to EUR 3.8 billion. This is in line with our H1 communication of an expected EUR 550 million to EUR 650 million cash outflow per month for the cash fixed cost and the customers' refunds. And the outflow was mitigated by the received cash proceeds from our disposals. And the position was also partly reduced by the Hapag-Lloyd reclassification as a disposal. And including these liabilities for the first-time adoption of IFRS 16, the 9-month closing net debt stood at EUR 5.9 billion. So let me summarize this financial section. And all in all, the Q3 financials are, as you see and know, heavily impacted by the COVID-19 pandemic. But when the crisis started, we were able to analyze the situation quickly. This is also how we got to the first agreement with the German state, only 10 days later because we proactively analyzed. We also secured liquidity in now 2 tranches, and we executed rigorously on our cash reduction targets. And we are also proud to confirm that restart delivers on what we promised, and it contributes positively towards our cash costs so that we expect to be cash breakeven on an operational level in Q4. And as already mentioned, our next priority will be rebuild the optimal balance sheet structure to support our business over the long term. And last but not least, as a reminder, our guidance is withdrawn. And they are -- and the dividend payments are waived.So let me -- with that, let me hand back to Fritz.

[Friedrich Joussen, Chairman of Executive Board & CEO]

Thank you, Birgit. And just for me as a recap and summary. And focusing on page number 33, just the right [indiscernible] the dark blue box. I mean after full breakdown and 3 months of no business at all. The integrated business model allowed us to have a quick restart, and very efficient restart. So 89% in the first month, 89% of a low tractor, when you start from 0, more than 0.5 million customers, I think, speaks for itself. Also, we take the advantage of the COVID-19 situation to accelerate our already initiated digitalization strategy. So [indiscernible], we limited all investment. There's no investments going out, but digital was increased as well as a focus away from legacy structure, more than 90% of our investments are now going into the future digital platform, and we talked about the effect. And when you look at the summary of the next slide, I mean, this put it very well. I think the restart more or less was about liquidity management, which is now finalized in terms of getting the access to an additional credit line, which we might or might not have to use. But it is important to put certainty and reassurance into the business just in case, plan for the worst, hope for the best. Now we work on the balance sheet. That is important as well. And when I see transition year '21, that our goal will be the return to profitability. And actually finalize the digitalization. So the transformation agenda. And I -- and by the way, I think when I look at bookings of up 145%, there's a very, very good chance that we will be fine. And in year '22, we believe a vaccine -- provided the vaccine is there, we will have back to low but a consolidated nominated market, the demand will be back. And we will be EUR 300 million -- hopefully, more than 300 million more or less cost -- or so more profitable. That means be not less capital-intensive and more digital business. So I think we will be -- we will have in hindsight seen as during the crisis as a chance. That is from my side as well. And now I would open the floor for questions. I will concierge the questions between myself, Birgit and also the team at Hanover and please shoot.

[Operator]

[Operator Instructions] And our first question comes from Jamie Rollo from Morgan Stanley.

[Jamie David William Rollo, Managing Director]

I've got 3 questions about liquidity and cash, please. The first one, the June cash position is EUR 2 billion. I assume that's the same as the liquidity position as well. Yesterday, that was EUR 1.2 billion. So it looks like EUR 800 million of cash burn in about 6 weeks, but your Q4 guidance, obviously, for a lot less than that per month. So it's -- what am I sort of missing there? And I'm assuming the remaining Hapag-Lloyd proceeds and not in the EUR 1.2 billion. Secondly, if I could push you a bit on the cautious scenario. Slide 19 shows the liquidity posit line sort of dropping and then stopping at the end of Q4. So could you talk about for the first half if we do see another lockdown, is it fair to say the maximum monthly EBITDA loss is now maximum EUR 230 million, EUR 240 million? And also, how much of the EUR 4 billion customer deposits before winter season? And if you could, finally on that point, talk about the monthly interest costs now or even the annual interest costs post the additional KfW loan. And the final sort of question, I guess, summing it all up, but you have interviewed -- talking about a rights issue. Could you sort of try and size that for us? And should we assume that should come by the end of September sort of going concern, account and for license purposes, please?

[Birgit Conix, CFO & Member of the Executive Board]

Yes.

[Friedrich Joussen, Chairman of Executive Board & CEO]

Okay. So maybe Birgit, do you want to start.

[Birgit Conix, CFO & Member of the Executive Board]

Yes. I will start. So I think I have -- I noted all your questions, but I mean, it's a lot to follow, and I have no now assistance to do -- to multi-task on the questions. So I may have to ask you to repeat. But the first question was about, how do you get from the May half year results of EUR 2.1 billion to EUR 1.2 billion that we showed on the liquidity development. Is that correct, Jamie?

[Jamie David William Rollo, Managing Director]

Actually, it was the end of June balance sheet cash figure of EUR 2 billion. I'm using that [indiscernible]

[Birgit Conix, CFO & Member of the Executive Board]

Let me take it from the EUR 2.1 million to the EUR 1.2 billion, and that will give you an indication. So if you look at the starting point, the EUR 2.1 billion, then you add actually back the Hapag-Lloyd proceeds and also Boeing, which gets you to a EUR 2.8 billion. And then from that, you take the run rate of the refunds for 3 months and also some customer deposits. So then you get to around EUR 2 billion. And then you actually need to still deduct the standstill cash out for 3 months, and then you get to the EUR 1.2 billion position. That is how this actually reconciled. And then you were asking a question about the liquidity profile, I believe. And here, what happens is, as you'll see -- what you see is a less pronounced seasonal swing versus what we normally would have. And we showed that during the previous results presentation, and now you see that light blue line, which is more or less, it's going down actually slightly, but that is because we have, of course, the cash in the fourth quarter. And so we have -- the fourth quarter is broadly cash neutral on an operational basis. And also, you see what we said earlier that it's a low single-digit cash out because you also have some other effects. And then what we also can do is we can really use some of the customer prepayments that were meant for summer '20. We can reuse them for the summer '21. So we have less of them. And then we also have, of course, less supplier payments because we had a much smaller summer. So that's why you see the liquidity curve develop as it does. And for the first quarter of fiscal year 2021, normally, you would see a really major dip. But of course, there are less supplier payments as well. And so that is what you see in the case of a situation with the information that we know today of the pandemic. Of course, nobody has a crystal ball. And should that change, then with that the liquidity curve change, but that's why we also have secured now the second tranche of liquidity so that we have enough liquidity to cover all of these scenarios as I said earlier during the presentation. But then there were other questions, I think you asked on the right -- on a potential rights issue. So with that, let me tell you, we are now evaluating all the potential options for an optimal balance sheet structure. And this is also -- it's also the transformation program that we just launched because we want to be much more effective going forward. And with that, over EUR 300 million cost saving run rate commitment, we will be able -- I mean that will substantially change our cost savings, and that is a plus going forward. And also on the assets, we will be -- we will make a change, and we already announced that last time to be more asset-light. And you saw that also with the Hapag-Lloyd transaction. So that also helps. And then, of course, we will further look at other options. We need to evaluate the full spectrum. It's just -- is that answering your question?

[Friedrich Joussen, Chairman of Executive Board & CEO]

I think there was a question on interest costs, right? [indiscernible]

[Birgit Conix, CFO & Member of the Executive Board]

On the interest cost? Okay. Yes, so here. And I cannot really go into detail on the interest cost also for the second tranche. That is something we are not -- and it depends on whether we draw up on the second tranche, RCF, of course. But indeed, interest costs will go up. That is kind of a normal, if you do the math. But it all depends on also how quickly we can repay the debt and whether we need to draw upon the second tranche or not. So I think you've seen it also from the -- from now our third quarter results, you also already saw the increase in the interest component.

[Jamie David William Rollo, Managing Director]

Sorry, you didn't quite answer my questions. Can I just maybe rephrase them then? The first question was actually about the Q4 cash burn because you've given us the June cash, June -- end of June. Not May, end of June, EUR 2 billion. And you've given us the middle of August, liquidity. It's EUR 800 million drop in the fourth quarter in 6 weeks, which is more than the whole Q4 guidance for cash burn. So that was that specific question. And the other question was looking forward on the first half, what is the maximum EBITDA loss now, now you've taken the fixed cost down. I think it's EUR 240 million, but just confirm that. And how much of the EUR 4 billion cost in the deposits are for that 6 month period? In other words, what could the worst-case outflow beyond that, please?

[Birgit Conix, CFO & Member of the Executive Board]

Yes. Maybe in my line is a little bit bad. I didn't get that. But -- so on the fourth quarter, what we did say, and I will just repeat that, is that on an operational basis, we are cash neutral. But of course, there are still other elements, which is also -- which are not operational, and some net items. And there, we can assume -- and I will repeat it again, like the low single EUR 100 million. And that is what I can say about that. So I'm not sure you'll see that when we report back in December that we will again deliver upon what we said. If the situation, of course, stays as is currently with the information that we have on the pandemic, if something dramatically changed, then that may change. But based on what we know today. It is what I -- what we guided for.

[Jamie David William Rollo, Managing Director]

So why is there an GBP 800 million cash outflow in 6 weeks?

[Birgit Conix, CFO & Member of the Executive Board]

So let me remind you. So the July cash out, in particular, refunds. So this is phasing. So including June and supplier payments. And it relates to -- and we also have supplier payments, which relate to the restart of the business. So what I said when I talk about the Q4, then that is more, in general, if you would divide it by 3 months. But of course, you are phasing from 1 week into the other. We're talking about cash and not about, for instance, EBIT. So that's just phasing of some items. And especially with refunds, you can imagine that, that is -- that's not so clear-cut by a week.

[Friedrich Joussen, Chairman of Executive Board & CEO]

But I mean, Jamie, to be absolutely clear, when we talk about operationally breakeven. We can -- we don't talk about the historic burden of the refund of customers, which we had to bring Azure in July as well as supplier payments. And the absolute majority of actually -- the liquidity development in July was both on these. They are over new suppliers and refunds. Of course, now we are sure. This will be not an issue, quite to the contrary. Now we actually get more cash in then actually refund on new bookings. Yes. When we talk about operational breakeven, that's what it says is that the operations, full operations and actually are covered by the operational business, which we have in that period. And that's also the reason why in Q1, as you see on the slide, the situation is slightly deteriorating again because then you get slightly bigger summer business with a phased cash cow to suppliers, namely hotels lease. And that actually reduces the liquidity position again. So in July, it's -- particularly in July, but also beginning of August, we still had a significant -- beginning of our significant refunds to our customers and suppliers.

[Jamie David William Rollo, Managing Director]

Got it. And can I rephrase my last question. The question was about the timing and the size of a potential rights issue. Should we [indiscernible]

[Friedrich Joussen, Chairman of Executive Board & CEO]

Yes, can we -- can I ask for your patience here a little bit because, I mean, the issue is, of course, highly -- in a highly volatile market, what we do is we will be prepared to take the chance. I mean the message we want to send is we know that our balance sheet needs to be restructured, and we will take the chance to do that. But of course, when and exactly how much will highly depend, of course, on the volatility of the market as well. The rights issue is, of course, one of the components we have an approval of last AGM. But of course, that needs to be taking up. So please allow us not to do comments on that issue now.

[Operator]

The next question from Adrian Pehl from Commerzbank.

[Adrian Pehl, Head of TMT and Consumer]

Just 3 questions, I think. First of all, to be clear, what you've been saying on rightsizing of your airline. I mean we talked about it probably previously, but I was just wondering, given your new announcements on cost, if you're contemplating on lowering the airline capacity any further? And clearly, linked to that. I mean, obviously, I know you're not commenting on any rumors, but potentially, you might look a little bit more closer on whatever kind of joint venture structure, and probably there's a German partner out there, for which it makes sense. I just wondered what are your contemplations potentially around it. And is there something in a making? The second one is actually on the whole topic of hotel prepayments and touristic prepayments. Can I assume that actually, also from legal litigation perspective, you have sorted everything out so far? Or are there any remaining risks from that to be factored in? That is the second one. And actually, the third one is on -- you did some asset write-downs already with the Q3 reporting. What is your view on that? I mean is there anything to come in Q4 potentially? And given that your equity ratio has been declining quite substantially, obviously, as a natural consequence of what happened. Can you rule out that this will be negative by the end of Q4?

[Friedrich Joussen, Chairman of Executive Board & CEO]

Okay. I'll leave the third one for Birgit. Let me answer the first 2. The first one is the rightsizing of the airline. When you look at our short-haul fleet, we have been able to reduce our order book -- reduce or delay our order book significantly. And that is around 30, 35 -- 34 for next 2 years, which -- of MAXes don't take. Now in Germany, the biggest pressure we have, as you mentioned, is actually Germany, we have now 39 short-haul [indiscernible] flight, and we will reduce half, that is 20. And when you also stack up that number with our overall short-haul network fleet of 120 something, we will go down to around 100. Yes. This also includes a little bit of the structure, which we already initiated in the Nordics and a little bit of lightening as well as in the U.K., but the smaller pieces, a big thing is now Germany. Now you talked about future plans, and you've talked about consolidation in the market. What we are doing is aside of reducing capacity, what we say, to the winter capacity -- because we believe in the next years, it will be fine. We need strategic access because it's an infrastructure for us, yes? So we need to be guaranteeing that something flies to [indiscernible] if you build a hotel in [indiscernible]. But more than the winter program, we might not want to fly our own. And therefore, we reduce it. Now what we also do and the same, we have actually separated all airlines into a separate entity, what we call a [indiscernible]. Yes. Also, we have everything on the same platform right now on, for example, [indiscernible] is the same [indiscernible] platform. And that will allow us to operate the airline as a profit center and not as a cost center. And when you operate as a profit center and you have an integrated full IT stake in operations, right, integrated, right? Then you are partner-ready. And what that means more or less before, it would have been difficult to think at all about partnerships. But now we are partner-ready because we connect very easy. And that is something we will actually look at. More than that is difficult to say because we will be on the right side and we will be on process operations in IT and also P&L structures in a way open to partner, and that then opens a whole array of options. We can either just interconnect with others, code-share with others. We can actually have inter linkage, we can maybe work even this aircraft, which we don't invest. So where we have investment vehicles to run the aircraft companies and so on and so on. So -- but that before was not possible, but now opens the options. Any specific we would actually talk about if -- when time comes. On the assets itself, I think the biggest asset disposal we have been doing was Hapag-Lloyd. And that was not done -- that was even decided before the crisis. And then it was a very good strategic reason. And one of the options, of course, longer term on our watchlist is definitely [ Magala ] [ Magala ] will be refleeted at a certain point in time, maybe not now, definitely not now. But when we do refleeting, we will not do in our balance sheet. That's also very clear. And the queue of interested parties to work with us was long before the crisis. That's a little bit shorter now, but that's definitely something which is on the list, to give you another example. But we will not rush into any kind of higher sales. Again, here, the liquidity line, which we have been securing from the state also prevents that to happen, right? Birgit, do you want to say something on the Hanover team or whoever on the asset side?

[Birgit Conix, CFO & Member of the Executive Board]

Yes, the equity ratio. Yes.

[Friedrich Joussen, Chairman of Executive Board & CEO]

Yes. Go ahead.

[Birgit Conix, CFO & Member of the Executive Board]

Yes. The equity ratio in the group is not triggering a consequence. The element here is that TUI is about -- TUI Ag as a legal entity, but in the Q4 impairments were COVID-19 triggering event, and this had to do with reduced free cash flows going forward with then an increased WACC due to our weighted average cost of capital risk on premium. So it's not an equity ratio really that will trigger a consequence. And equity, TUI Ag at the end of this quarter was above EUR 5 billion.

[Operator]

The next question comes from Richard Clarke from Bernstein.

[Richard J. Clarke, Research Analyst]

Three questions, if I may. The first one is just on the nature of your current deposits. I know you've said that you're kind of done with the refunds. But if there's any -- can you give us some detail on how much of those deposits are holidays that were booked pre COVID, and maybe to which seasons the current deposit levels relate to? Second question, on the convertible. Is the EUR 150 million -- that's already been drawn, so you have to draw that today. And just on being able to avoid it being converted. It sounds like you can avoid it if you've repaid the other facility. Do you have to repay the first liquidity facility before you pay any of the second one? So will you need to repay the entire sort of first tranche before you can avoid the convertible being able to be utilized? And then the third one, hopefully, something a little bit more positive, but you haven't mentioned in your release the booking deal with Musement. Anything you can comment on that, the potential scope you might have from that Musement deal? And what else that might lead on to with booking?

[Friedrich Joussen, Chairman of Executive Board & CEO]

Okay. The prepayment is pretty easy. More or less everything you see right now business return is before this before the travel, which actually has been booked before the crisis. So particularly now, it's very encouraging. We had this very morning our current tailing from Spain to U.K. More or less nothing actually returned there. Everything has been rebooked, for example, to Greece. So -- and now, of course, particularly when you look to the future, a lot -- it's more -- and now it's more the operational issue. It's not so much returning the money. But redeeming vouchers. And you see that particularly #21, the difference between the net bookings in June and actually the booking status, the EUR 1 billion, and that is actually a voucher. By the way, including the vouchers, the prices are still up. So I think that's a good message. The convertor is only related to the second tranche of RCF. Yes. I mean the first tranche of RCF is not affected at all. And the booking is -- of course, when you look at booking itself, we are the sole provider now. But of course, the booking business itself is very low, but the numbers are -- the first numbers are good. But of course, you know it is much lower than expected because the volume itself and booking as well is not high.

[Birgit Conix, CFO & Member of the Executive Board]

And then on the refund. So for month, as we said we have a refund rate of EUR 250 million to EUR 300 million. And then you know that the customer deposits at the end of third quarter, the balance sheet were around EUR 3 billion, like EUR 2.9 billion, let's say. And then the change versus end of March 2020, when we were at EUR 3.4 billion, it is related to refunds for summer '20. But it's also including new bookings because some people rebooked for later periods, winter or summer '21. And also sales of the restart is a mix, let's say.

[Friedrich Joussen, Chairman of Executive Board & CEO]

Yes. But the main part of the refunds, of course, relate to, as I said, to prebook -- to pre-COVID booking. Okay.

[Operator]

And the next question comes from James Ainley from Citi.

[James Robert Garforth Ainley, Director & European Hotels and Leisure Analyst]

Just you talked about operational news wise is saying as well as a potential capital raise, you might consider selling other assets. At a high level, kind of what bits of the business do you think you could sell without undermining the integrated nature of the business model? Second, related to that is how does the kind of lower cash resources impact your investment plans for the growth plans for the DX business and the [indiscernible]? And then the third question is, can you talk a bit about your experiences of restarting the cruise business, what have you learned about maximum levels of occupancy that you can manage on board? And what are your plans for restarting port calls? And how are you, therefore, thinking about the capacity plan for your cruise business in 2021?

[Friedrich Joussen, Chairman of Executive Board & CEO]

Yes. Okay. So the potential -- to be very clear. If we sell, and that was the communication of -- even before the crisis. If we sell things on the asset front or if you divest or make actually, then we don't -- you do that without -- then we only do it if we keep control on the asset itself, the sales, the marketing, the product, everything. The best example is, of course, TUI Cruises. TUI Cruises is an equity, but at the same time, we control everything which is necessary and possible. Yes. And I talked about [ Magala ], for example, maybe other things to come, but we don't sell and we lose control. And that actually as already something about -- this will never be a fire sale, and we will be very careful. And quite to the contrary, if we want to scale on the digital platforms, then it's very clear that long term, just to invest into assets, we'll maybe not fit 100%. So we need to be careful what is in our balance sheet and how much invest and where we invest. And that's what we said, asset-light. It's not that we say we don't like it, quite to the contrary, we like it. But the finance structure must be right. On the experience on Cruises, that has been good. I mean, customers like it, the feedback is very good. We expect the first -- the limitations right now is actually the opening of ports. We expect the first opening of ports will be happening in September, and that will be in the Mediterranean. And we will put the ships there. Today, we are satisfied with what we do. But of course, long term, we need operations in Southern Europe. Definitely, if not even more south, particularly when the winter comes. Bookings for summer are good. Volume is good. Prices are a little bit weaker than this year. So the yields are not where they should be 100%. But on the other hand, I have to say that the bookings, for example, for overall, I mean, for hotels, and that business, is up on prices. So it's still a little bit early days. There was 1 more question, right?

[James Robert Garforth Ainley, Director & European Hotels and Leisure Analyst]

It was related to the cruise business, what level of ability you have been running that on?

[Friedrich Joussen, Chairman of Executive Board & CEO]

Yes. We just operate -- we just operate now on 60% level. The 60% level is cash positive. So I mean, that we don't lose cash. That's the objective.

[James Robert Garforth Ainley, Director & European Hotels and Leisure Analyst]

Do you think you can increase that 60% from there? Or is that the kind of level you're planning?

[Friedrich Joussen, Chairman of Executive Board & CEO]

It's a pure decision of us to do that right now. And we could do -- demand would be higher. I mean we just -- when we operate the ship, we decided right now to do 60%. Over time, it will go up, I'm pretty sure. But for the time being, we operate 60%. And it depends a little bit on the travel advices. Now the most important thing is that we start to operate in the Mediterranean, and we get a port openings. I think that is the next step to face.

[Operator]

And the next question comes from Jaafar Mestari from Exane BNP Paribas.

[Jaafar Mestari, Analyst]

I'd like to ask 3, if that's okay. So firstly, on customer prepayments. You did flag that you saw an immediate inflow of working capital since you reopened as you mentioned, a couple of your answers on this call, it hasn't been that clear-cut in June. So could you maybe give us some sense on how big those booking-related inflows were in July and August after your balance sheet date? And second question on the same theme. Today, how much cash down payment has your average corporate customer paid in percentage of the price of the holiday? In other words, when those customers who've booked or rebooked will eventually travel in winter '20 or in summer '21, will they have a significant cash top-up to pay to you? Or will you pretty much have to provide the holidays on the basis of what you already hold? And lastly, just on the German economic stabilization fund, the WSF. My understanding from a very bad Google translate is that the fund is only accessible to companies that have not secured any other form of financing. So can you retain part or all of the now EUR 2.9 billion loan and find new equity, your new bonds and your bank financing on top. Is that the plan? Or would you have to actually refinance the entire EUR 2.9 billion in any balance sheet solution that you're working on?

[Friedrich Joussen, Chairman of Executive Board & CEO]

Yes. I'll leave the last question for Birgit. Let me take the first. You cannot see the customer payment inflows. And the reason for that is because June was only was only the pilot, and it was not clear in -- the last quarter when actually, everything else would be opened. Usually, the structure is as follow. When you get -- when you -- the customers start actually booking, then you have a down payment, let's say, of 10%, 20% whatsoever, depends a little bit on the plan on the country and so on. But the big cash in comes when you actually provide travel because then the remainder is actually taken from the customer, and that is in the 80%, 90%. So the cash in, you cannot see when you look at last quarter. You only can see in June. July, where actually we want 560,000-plus people on vacation, right? So that's the reason why June is meaningless. And the -- on the second question was about the vouchers. So what actually happens is a couple of things. The first thing is you have vouchers, people redeem vouchers. Of course, they get a discount with it. Now the question is what do they buy? And what we see at least for summer next year, where we have significant numbers, and you see about 1 million amendments already. That is the difference between the 430 you see in this slide and the 1.5. This million, they have discounts, but the resulting price, so after discount, is actually up yes. And the reason for that is our CRM systems are now, of course, trying to upsell customers to more valuable holidays, if you like. So that's number one. The second thing you see is maybe also interesting. Particularly now, for example, when we started to open Turkey, but also Greece. That is actually, again, a result of July as well as August. We have been successful of channeling demand into hotels where we have significant prepayments. And that actually says, we have the cash in and cash out because the cash out happened in the time before. And there was a question, do we have still settlement [indiscernible] and so on? Of course, by doing so, it's enormously relieving the pressure to pay out hotels as well because now we're doing the business again and prepayments are redeemed, and that is, of course, some [indiscernible] which is helping a lot as well. On the WSS, it's a convertible bond -- or it's a -- we can emit the convertible and then we can actually add excess to the KfW line. But maybe to the refi conditions, maybe Birgit or [indiscernible] and Matthias also. And Birgit, do you want to elaborate on that?

[Birgit Conix, CFO & Member of the Executive Board]

Yes. So the KfW is a bridge financing, which we will refinance in due course. But what was important is to be the first secure liquidity as you can understand. And that is what we did. And I also said earlier, we may not even have to access the second half based on the scenarios. So -- and then now like -- Fritz also said, now it's the time to evaluate also balance sheet options, and there's various things we are looking at, for instance, the asset-light, which we already discussed. Also the cost, and this has to be a recurring cost saving, which we are working on, and then other options. But what it's for sure is that we have the intention to drive down leverage going forward. And we believe it's very well possible as TUI is -- I mean this is caused by the COVID-19 pandemic, but TUI is a great business. It's a great brand. Customers want to go on holiday with TUI. And just look at the first 5 months of our results where we really demonstrated that we are in a strong position, and this was also post the collapse of a major competitor. So -- and also the forward business is looking strong. So it's now all about also executing the alignment program, reducing costs, focus on cash, which we already did pre COVID, as you all well know, we were constantly focusing on cash. And also constantly focusing on getting the leverage down. So this is just unfortunate, but we will -- that this happened, COVID-19. But now after having secured a liquidity even in a worst-case scenario because that's what the second tranche is all about. It's more like a risk insurance premium. So save for anything worse that could happen. And then obviously, we will do everything to drive down the leverage and then look that all balance sheet options that are available to us at the right moment.

[Operator]

The next question comes from Cristian Nedelcu from UBS.

[Cristian Nedelcu]

Three, if I may. The first one, you talk about an optimal balance sheet. Could you give us a bit of color, how you define that? What is a level -- a sustainable level of debt in your view? Secondly, for FY '21, could you give us a range of EBITDA expectations, the range of free cash flow expectations for FY '21? And if you can make a bit reference to working capital CapEx developments in your base case scenario going forward? And thirdly, I guess on advanced payments, and you flagged earlier, people are booking closer to the departure date. How do you see that profile of bookings? I know, for example, January just used to be the strongest month in booking, 30% of the summer booked in January. Do you believe that could still be the case? Or what do you think is that shape of the booking curve over the next 6 months, 9 months?

[Friedrich Joussen, Chairman of Executive Board & CEO]

Okay. I mean -- Birgit will talk about the balance sheet. I think we have talked about net levels historically, and we think we should achieve that range again. But let's talk about [indiscernible] FY '21. We say we will be -- we strive to be profitable. So that means profitable is definitely above 0 when it comes to EBIT. But of course, we will see. I mean that's a good question. How much and how fast things will come back. I mean 1 thing is very clear. I mean short-haul Mediterranean summer business will be very strong. And you see that in the booking numbers. You see that in the booking numbers, up 145%. But what will happen exactly to long haul, what will happen exactly to the Cruise business and so on? It's a little bit more unclear. But EBIT levels will be positive. And that actually says we will actually respect the investments into hotels and cruises, to something which I would call maintenance level. Of course, we will change to digitization that will be the main investment area. But of course, it's much smaller. And also the delay of the deliveries of aircraft will be huge benefits to our balance sheet as well. And then you have -- then you asked about the booking profile. I mean that's really interesting to see. That will be interesting to see. The good thing for '21, we have already 1.5 million bookings in the system where we have actually even the full or partly cash. And that is on the booking status, very advanced of where we have been last year. But one thing is also clear, most likely, next year's bookings might be a little bit more short term. And by the way, therefore, this -- we don't assume that this advantage will persist. But it's nice to have it. And also when you look at the prices, I said we are up. Next year's prices are up high single digit -- mid-high single digits. So because of the booking profile today, for this 13%, 15% booking status, we are now significantly up. That's good. It's a good starting point. But it's difficult to say what will happen in January or February. Maybe on the balance sheet, Birgit, do you want to say, what are we striving to do?

[Birgit Conix, CFO & Member of the Executive Board]

Yes. Yes, indeed. So as you know, so pre COVID, we had a capital allocation framework. And there, we set the leverage target ratio is between 2.25 to 3x. Now as you also know, we were really focusing on that pre COVID. And as I said earlier already, we will continue focus on that going forward and to redrive it to the lower end of the guidance. But before that we still have some work to do because of what happened to us with COVID-19. Of course, previously, we were well underway also with Hapag-Lloyd transaction, the Boeing compensation and everything. We did to focus on cash, also the business being where it was. So now we should go back to these levels. And we feel comfortable that we can grow out of this due to the things that I talked about earlier. So as Fritz said, so you have the ramp-up of the bookings you have the operational cost intake and out the asset-light disposals, like volumes that we did with the Hapag-Lloyd transaction where you actually have a combination with a strong other partner, and you actually have synergies on the expertise. And we are the distributor of -- and for instance, in TUI Cruises, you have all the expertise on the ship, et cetera. So that is a perfect combination, as Fritz also alluded to. And then we'll work further on the capital structure in all other means. But you can understand that fixed for now in terms of what we can comment on that because we have had the question, already said a lot of times, and I seem like a broken record. But -- and then on the guidance because you also ask for guidance, and it is a bit early to guide. It's also why we withdrew our guidance. And as I said, with the financing, we built several scenarios, and we have a current scenario, which is -- with the information we all know around this call, but there's also other scenario. But it's too early. We don't have a crystal ball and nobody will be able to say what happens next. The only thing is that what we see now as soon as the business picks up. TUI is in a good position to immediately pick up travel and provide service to the customers. And you know I'm not so long into -- in this industry. But it's amazing how quickly TUI can turn around and actually operationalize everything. So I think that's important also to know. And with that, okay, we cannot really say. We consider 2021 to be a transition year, and 2022 for things to get back to normal.

[Friedrich Joussen, Chairman of Executive Board & CEO]

Okay. Thank you very much. I have been informed by the central team that this was actually the last question. Is that correct? I mean...

[Operator]

That's correct.

[Friedrich Joussen, Chairman of Executive Board & CEO]

Okay. So thank you very much, everybody, for tuning in. Thank you very much. I think the COVID-19 crisis is unprecedented. But I have to say 1.7 million bookings since the breakdown in the first month of operations, more than 500,000 customers on vacation, Q4 operationally breakeven. And next year, being up 145%. I mean promising sense. That's what I believe. Thank you very much, and have a great day.