Wizz Air Holdings Plc

Good morning, and welcome to Wizz Air's Full Year 2025 Results. This is being broadcast live online.

And after the presentation, there will be a full Q&A session. So with that, I'll hand over to József Váradi and Ian Malin.

Thank you. Good morning, everyone.

Thanks for coming. So we are reporting the last financial year.

And obviously, your interest is mostly on what's in front of us. We believe that, indeed, we are cleared for takeoff.

But at the same time, we are tainted over the short run given the various issues we are facing. So let me talk about kind of how we see the next 3 years and what picture we are seeing developing there.

First of all, we're seeing that we have a significant opportunity to win market shares in our market. Central and Eastern Europe remains bread and butter for the company.

This is where we are investing most of our growth capacity. And we believe that we are in a unique situation that we actually can grow while our competitors will be contained.

This is happening probably for the first time in our history when we have less constraint on our ability to grow while others will have significant constraints. Secondly, you look at technology as a significant driver of outperformance over the long run.

Structurally, in the next 3 years or so, we're going to be fully converted into a -- into new technology. I mean, this is a significant benefit on fuel burn.

This is a significant benefit in operating cost, and it brings significant environmental benefit to markets wherever we operate from. We continue to upgauge.

We have done a big part of it, but still upsides to come through to 239 seats. We're going to be effectively an all A321neo operator in a short space of time.

Again, this is a source of economic advantage, competitive advantage versus some of our competitors. Thirdly, we are looking at the network to be restructured against the realities, what we are facing.

First of all, given the cost creep resulting from the Pratt & Whitney situation and some other issues, we are moving the bar in terms of threshold for profitability. So we are reviewing the performance of our route network against the new threshold to make sure that we are eliminating loss-making activities.

I think that is one significant portion with that regard, and this is operating in hot and harsh. Hot and harsh has reached roughly around 20% of capacity.

In a hot and harsh environment, we are burning engine lifetime 3x faster than operating in a benign environment. And in context of engine scarcity, obviously, that creates a lot of opportunity costs as well because we are unable to extend the engine lifetime.

So it's not only cost, but also on availability of engines. We are reviewing that operation fairly fundamentally.

We've already taken actions on Saudi Arabia and more to come. And in the next few months, you're going to be seeing significant announcements with that regard.

Also we are refocusing ourselves to lower airport costs. We have not been able to leverage our positions, vis-a-vis airports over the last 18 months due to the lack of growth.

But now we are growing, and I think we're going to be using it as a significant leverage for putting pressure on airport operators. And with all of that, we're seeing that our margins will recover, and we will become investment grade again in the few years down the line.

And we will be back to kind of the performance, what we were delivering a few years ago. But we need to clean ourselves.

We need to clean ourselves with regard to the Pratt & Whitney situation, and we need to take some further actions, especially on hot and harsh network adjustment to make sure that we benefit from the current environment as much as we can. Could you please move the slide?

So if you look at some of the numbers, I think that kind of gives you an idea of where the business is standing as we speak. So in fiscal '25, we slightly improved passenger count by 2%, adding another 1.4 million passengers to the franchise.

You look at the fleet. By the fleet, size increased by 11%.

Effectively, the operating fleet was stuck. It was flat.

Same way if you measure it on the base of ASK, but we were able to improve some load factor, which was basically the source of growth for the passenger count. Good news.

Revenue improved by 4%. So we are up on RASK.

But as you can see, our cost CASK fuel performance is usually deteriorated, and I would explain why that happened. And if you look at the next piece of the table here, you see -- kind of you start understanding the real damage of the Pratt & Whitney situation.

So effectively, 14% of the fleet was on the ground during this period affecting utilization. But if you measure it on the basis of ASK, and we have a slide for that actually, it's 21%.

So 21% of our capacity got grounded and affected fleet utilization. So if you kind of run the numbers and you say, "Okay, so let's say that the Pratt & Whitney impact is around 15%, if you kind of average out the utilization and the ASK production, how much did we get compensated by Pratt & Whitney?"

So we were getting roughly around EUR 300 million against a EUR 6 billion cost line. So this is kind of 5 points you were getting.

So effectively, you can say that 1/3 of the issue was compensated by Pratt & Whitney. 2/3, we had to absorb ourselves.

And basically, of the 20% ex fuel costs, if you kind of flip it over on that metric, so basically, 10% of that 20%, so half of it is purely associated with Pratt & Whitney, maybe a little more than that because you have some ripple effects here and there. But at least, half of the ex-fuel cost creep came on the Pratt & Whitney issue, net-net after compensation.

And I was elaborating on hot and harsh. I mean, hot and harsh became a significant issue because if you just run the numbers, 20% capacity operated in hot and harsh, 3x faster engine degradation, that's roughly around 6% impact on cost across the board.

So that's another 6%. And 4%, I would say, is change in inflation, some spiking aircraft returns on all the A320s.

We had wet lease and all those sort of issues, which we had to take in order to protect capacity. But really, when you look at cost performance ex fuel, that really boils down to 2 issues, what the actually can affect or might not be able to fully effect.

One is Pratt & Whitney. So strategically most important is to get out of Pratt & Whitney -- the Pratt & Whitney cycle, this engine grounding cycle as quick as we can.

And that's why we have been acquiring 40 more spare engines on top of the original contract. That's why we are going to remove capacity from hot and harsh and reallocate that capacity in benign to gain engine lifetime, which basically helps you lift more aircraft from being grounded.

And the second big issue is the hot and harsh itself. It's simply just a higher cost operation, and we are going to address it with significant capacity withdrawal and reallocation of that capacity.

So I hope that kind of gives you a bit of a sense on the business, the good part of the business as well as the bad part of the business, and you understand the drivers of the business. I think, again, just to sum it up, good news, revenue performs well.

We're seeing there is demand out there. People continue to want to fly.

They continue to book tickets. Bad news is that we got hugely affected by some issues when it comes to cost gas fuel, maybe Pratt & Whitney net-net impact and our own decision-making on hot and harsh, which is now being scaled back.

But all in all, we're seeing that the long-term strategic drivers of the business continue to stand firm and positive, and they create the pathway for superior performance, what you guys got used to a few years back. And with that, I will just hand it over to Ian.

Thank you, József. Can we please go to the next slide?

So it's going to be a bit of a technical session today, just to help people understand what we've managed to learn when going through this journey of parking aircraft and the mitigation that we've taken to offset the impact of parked aircraft. So a summary in terms of the P&L.

For F '25, we were able to protect revenue. That was very important to us.

We didn't want to concede markets. We didn't want to have to then go back in and compete to win those markets back.

So revenue protection was very important. And so how we did that also plays into the cost base, which we're going to explain how that goes away.

But revenue was up 4% both in terms of nominal and in unit terms. We benefit from fuel.

We had a slightly better fuel price this year. Obviously, we're hedged, and so we didn't get all of that, but the unhedged portion, and we're locking in fuel pricing now systematically according to our policy, which will benefit us for the months to come.

Our nonfuel costs are up, both in terms of units and in nominal terms. I'll come back to that on the next slide.

And we had basically an operating profit of EUR 167 million. And then we had a net profit of EUR 214 million, supported by this tax credit that added some group restructuring, and that drove a EUR 214 million net profit.

The tax credit is a big number. It will end up being bigger once we finished all of our tax calculations than we had initially anticipated.

And what drove that is the way that the group is designed. So in an all-leasing based business, we have a leasing entity in Hungary that is the counterparty to the aircraft lessors -- the third-party aircraft lessors.

They lease to that entity and then we sublease to our various AOCs, the 4 AOCs within the group. And we do mostly operating leases, but we also do French tax leases and JOLCOs and finance leases.

We'll talk a bit more about ownership later on. But those nonoperating lease-based structures are problematic for the Hungarian entity because depending on the structure that you apply, the counterpart -- the third-party counterpart may have to apply and receive a Hungarian banking license.

And not everybody has the appetite to go into that sort of framework. And so we've decided to restructure where we hold our aircraft within the group into a non-Hungarian entity, so that we can avoid that administrative burden placed on the financing market because, obviously, that creates complexity and cost, which we are trying to mitigate.

And so within the group, we have various entities in various locations, and we look at where we have substance. And so we moved that entity from Hungary to Malta.

And in doing so, there was a tax rate differential, which creates this tax -- this net tax credit situation. And so that's what drove that.

And then, as you can see, that was a big contributor to the reported net profit number. We always knew that, that was a potential, and so that was factored in initially to our early guidance last year.

And so we were able to deliver that and, hence, the outsized net profit versus the EUR 175 million high-end guidance range. In terms of ASKs, slightly lower this year, but supported by higher passenger numbers and higher load factors.

That load factor trend is something that we're focusing on ultimately because we're trying to drive traffic into the business. It gives us opportunities to drive those airport costs lower.

It gives us opportunities to sell more ancillary products. And ultimately, that's what we're in the business of doing is moving passengers around.

In terms of the balance sheet, we ended the year at EUR 1.7 billion. That was after paying off roughly EUR 250 million of the PDP debt that we had taken out in 2023 to shore up the cash position.

We felt -- we feel comfortable that through the operating performance of the business as well as the additional renegotiated Airbus contract, that our cash profile will continue to be strong. And so we felt that it was time to retire as much financial debt as possible.

And so what we really have outstanding now is the January bond maturity in this coming January of EUR 500 million and then some emissions-related repo loans that we're going to repay at some point next year. And that will take us completely out of financial debt as we look to try and reduce the cost within the business.

Net debt went up, as our -- as did our leverage ratio, and that's driven by the continued growth of the fleet, especially now when we see the fleet deliveries starting to recover. And of course, the EBITDA dragged with the performance of the business.

And therefore, that drove the ratio up. We would see that number coming down this year to somewhere closer to 3.

That's our expectation for F -- for the end of F '26. In terms of revenue, as we mentioned, we were able to continue to drive revenue up.

Ancillary revenue, also increasing. We were up EUR 0.57 year-on-year per pax, so back to that EUR 1 per passenger growth number that we're targeting.

And -- but overall, as Joe says, and we'll get into this further, the groundings have an impact on nearly all cost categories and specifically on those cost categories where you have a high fixed cost element. Next slide, please.

In terms of the cost structure, so as I mentioned, fuel, we benefited from the efficiency of our aircraft as well as the fuel price. Our staff costs went up in terms of both unit and nominal.

We always had expected that to happen because of the inefficiency comes -- that comes with carrying staff as we prepare to return to growth. So that was expected.

I would say that as we think about fiscal year '26, we've talked -- we've mentioned later on that we expect a modest ex-fuel cost increase in that fiscal year '26, I stress the word modest. And so maybe to give you guys a bit of sense is, I think, that fuel will continue to come down.

In terms of year-on-year, improvement staff, we expect to be flat. Maintenance and depreciation are where we see the biggest jumps this year and where we'll continue to see pressure on that, and I'll deep dive into those.

But you can expect maintenance and depreciation to continue to be elevated in F '26. Airport handling and on route went up year-on-year.

I would expect that to be flat -- flattish this year. On route was a frustrating element because we were hit, as was the whole industry, with rather severe navigation charge increases.

We're not the only ones to be complaining about the on-route charges. And as Joe says, the airport side will benefit from the focus we're putting on the network.

But ultimately, this is volume driven. We've just started returning to volume growth, and we need to deliver that volume and then we need to use that volume to our benefit.

And we need to design the network around those airports that are prepared to reward us for that volume. Depreciation, we'll talk about later, comes from pure mathematics in terms of how ASKs work as well as some of the maintenance costs that flow through the depreciation line.

And then the rest of the items, there are small distribution and marketing. And then other costs, we've broken out for you again.

You can see that this year, our sale leaseback activity reduced. We did 30 sale leasebacks in F '24.

Only 16 sale leasebacks. These are aircraft in F '25.

That number basically was cut in half year-on-year because of the less activity. I would also caution that in the sale leaseback -- our engine sale leaseback, so you're not going to get a pure aircraft sale leaseback number there, but you can see that in terms of nominal terms, it came down.

That will go back up. That put pressure on this year's earnings because, last year, we relied on sale leasebacks for a greater part of its earnings.

In terms of compensation, you can see that it increased, and that makes sense considering that we had a full year's worth of compensation this fiscal year versus F '24, where we only had about 4 months worth of compensation in there. Disruption was flat -- or flattish.

We expect that number to improve this year. And then overhead is basically flat as well.

So overall, in terms of where things are going, I think the biggest -- the benefits into fiscal year '26 versus FY '25 was going to be the wet lease costs. We're not going to see that.

It will be modest single-digit type wet lease cost as opposed to EUR 113 million this year. So there's always an element of wet lease costs required, especially when you have the peak season and you want to make sure that you're not disrupting people's holidays or business travel or all sorts of travel.

So the benefit of wet leases will be basically offset by an increase in sale leaseback activity this year. But the maintenance and depreciation lines are what's putting pressure on the overall cost structure.

Next slide, please. All right.

So we're going to touch upon this now, and then Joe is going to talk a little bit more about how we're planning on looking at the overall commercial side of the business. And then I'm going to show you some more examples as to what's happening on the fleet.

But in terms of the capacity, this is very important here. So we made a choice when faced with powder metal that we wanted to protect capacity.

We would like, of course, to increase capacity, but we were looking at, on average, 41 aircraft grounded in this fiscal year. And so we were taking delivery of aircraft.

Like I mentioned, we took a total of 26 new aircraft in fiscal year '25, but we were unable to increase the total number of aircraft flying because of the aircraft parking that was happening with the existing fleet. And so that added a lot of cost to the business because we take -- we pay rent regardless of -- and we take depreciation regardless of whether we fly the aircraft.

So we were able to protect revenue by doing certain things like extending leases on older aircraft, getting these extra spare engines that were put on to aircraft and so those aircraft could fly. We configured some of our flying differently, which came with benefits and detriments.

And so the fleet grew to 231, and that's deliberate. That's part of our design, and that benefit will be with the business when we can unpark the aircraft.

So that's consistent with our objective. However, as Joe mentioned earlier, whether you look at it in terms of hours per day utilization or the way that I'm showing it here on this slide, which is ASKs per aircraft, we generated 21%, let's call it, 20% fewer ASKs per total aircraft versus operated aircraft.

So basically -- we're basically generating 20% fewer units. And if you just, I mean, entertain me for a second here because I'm sure many of you get this, but maybe you don't.

If you have $10 of cost and you have 5 units, right, you have $2 of cost per unit. If you end up now taking 20% of your units out, which is what we've done here, you get 8 units at the end of the day, you have now 10 divided by 8 and you get $2.5.

Your cost has gone from $2 a unit to $2.50. Your costs have gone up 25%.

So a 20% reduction in units is a 25% increase in cost. So any line item in our business that has a fixed cost element is mathematically inflated when you do unit costs by 25% in this fiscal year as a result of that.

Where do we have a high proportion of fixed costs? We have it in depreciation at the end of the day.

Depreciation is a complex topic when it comes to IFRS 16 lease accounting because you have right of use depreciation, which is effectively the depreciation you take on the aircraft; and then you have maintenance depreciation, which is a net maintenance cost that gets capitalized and depreciated. And so we'll come back to that in a second, but you have a lot of issues around that because of the profile of the aircraft, the durability of the engines that Joe talked about and how the frequency of these events put pressure on some of the maintenance costs that don't show up in the maintenance line, but they show up in the depreciation line.

Ultimately, what happens is that you're pushing up your costs, but reducing your units, and that's what's pushing all this pressure on your depreciation. But it's not just depreciation.

It's any fixed cost within the business. And while we try and make as many of our costs variable, we do have fixed costs that put pressure on the overall line.

As we unpark aircraft, that will come down, not because we have to do anything else, but because of math at the end of the day. Next slide.

So here's a way for -- we're trying to get people to look at the lines with a bit more nuance and context as opposed to just looking at the prior table and looking at the absolute increase, whether it's in nominal terms or in unit costs. So if you look at fiscal year '24 CASK, fiscal year '24 did -- was impacted by the Pratt & Whitney groundings.

The compensation that we get, as I pointed out earlier, flows through the other cost line as a negative expense. That compensation line includes not just the Pratt & Whitney compensation, but compensation received from Airbus, compensation received from other OEMs.

Any time there's an issue with a vendor and there's an offset, it gets put to that line. So it's not a clean Pratt & Whitney number.

But what we've done is we've established the methodology for trying to allocate some of this compensation across cost lines, and we're trying to do this consistently, so that we can show what a sort of net compensation effect is for specifically depreciation and maintenance because those are the areas where we have the most challenge. And so if you take fiscal year '24 on the depreciation line, EUR 0.26 -- EUR 0.62 gets down to EUR 0.57 as a starting point.

We estimate that this 21% ASK shortfall that we talked about in the previous slide is EUR 0.11 worth of cost increase. Then you have the cost of aging ceos, which I'll come back to.

And then you have other costs, and you get to where we ended up this year at EUR 0.79 CASK. But then you need to allocate this year's Pratt & Whitney compensation to that which, because, of course, it's a full year's worth of compensation as opposed to a partial year's worth of the compensation, it comes down EUR 0.20, and we get to EUR 0.59.

So on an apples-to-apples basis, one could argue, we're arguing that the cost is up 5.2%, and that's because most of that ASK production shortfall is offset by the compensation at the end of the day. Maintenance.

Maintenance is another interesting situation. So this is now not the depreciation maintenance, but just the pure maintenance cost.

Obviously, there's inflation that's in fact affecting us and everybody else. But there's also an interesting evolution of our fleet profile that's putting pressure on the business until we can get rid of certain -- of our aircraft.

If you think about what we did and what we've told you about as part of this powder metal journey that we've been on, we wanted to protect capacity. We looked at what we could do.

We grabbed as many engines as we could off the marketplace, but we also tried to squeeze as much utility out of our operating fleet at the time. Our operating fleet is mostly ceo A320 family, ceo, the legacy aircraft engine model.

Those aircraft are approaching the end of their lease life. Those are older aircraft relative to the new aircraft that we're taking.

It's an older technology. There's less fuel efficiency that come with those engines.

Yes, more durability, especially on harsh environment. But ultimately, we expect those -- the GTF engine to become durable at some point.

But most importantly, those older aircraft cost more to maintain. That is obvious.

But what isn't obvious is under lease accounting and under lease contracting, there are several things that we must do, not because of the technical obligations that we have on the aircraft engine, but because of contractual or accounting-driven drivers. I'm focusing on the maintenance here.

So let's talk about the technical things. As an aircraft is approaching its redelivery period with a lessor, you have to perform certain maintenance activity.

And those maintenance activities are not because the aircraft maintenance manual requires you to do it, but because the lease contract requires you to do it. And so you start to see certain costs creep into the maintenance line because you're now trying to comply with the lease contract.

Typically, what you do is you try and design a lease contract to line up with the maintenance -- the natural maintenance cycle, so that you do maintenance scheduled, a heavy check of some sort and then you return the aircraft to the lessor fresh from shop. And that is a nice unique alignment.

But if you think about it, these leases were written, let's say, on average 10 years ago by people who no longer are in the business, or some of them. And since then, we've had COVID, and then we've had powder metal and all sorts of evolutions of the operating assumptions and expectations.

And so what happened is that you may find yourselves, and we do find ourselves in a scenario where you do the maintenance, but then the lease has a couple of years left before the redelivery. And as a result, you're ending up facing the decision to either do extra maintenance to comply with the lease contract, even though it's not required, or there's an alternative, which is you pay the lessor a compensation, which the lease has a formula to calculate.

We were a much smaller airline 10 years ago, and we had less leverage over both our lessors and our maintenance providers. And so you can imagine that those calculations aren't particularly lessee-friendly.

And so as a result, paying lessor compensation means you could either pay more cost or we can do the maintenance. But of course, the maintenance ecosystem is constrained because of the whole supply chain challenges.

And so we have to face the choice of either doing maintenance on our operating fleet or doing maintenance on our redelivering fleet. And that creates then tension between how much capacity we need to -- we have available for these activities.

And so that's where you're starting to see cost creep. So a bit of context, we're going to come back to that in a little bit because I'm going to talk to you about how this problem goes away.

It drove costs up in F '25. It will continue to drive costs up in F '26 and, to some extent, in F '27, but it starts to roll off as certain things happen.

So -- and in particular, I just want to go back to engine depreciation because it's an important context for later on. The other thing that happens back on these maintenance events that you capitalize and depreciate is that they end up being back loaded just because of how strict obligation accounting works.

So you do an event, you capitalize it and then you depreciate it over the remaining life of that aircraft lease. If you have a shorter lease and some of these aircraft that are leaving the fleet now are, say, 8-year leases and you do something in year 6, you have 2 years to depreciate that cost, which creates a higher cost per year versus if you had a 12-year lease, you do something in year 6 and you have 6 years left.

And so what happens is that we're starting to see, as a result of some of the retirements, these costs manifest themselves in our P&L in much more lumpy fashion. And because of all the renegotiating of lease redelivery terms and dates, because we had to accommodate powder metal, we're seeing a clustering of activity pushing that cost up exactly at the time when our ASK production is down, causing this unit cost distortion.

If you go to the next slide, please. So just quickly on our cash conversion and our cash balance.

I'm not going to dwell on this too long because I've created what I think is a pretty nifty slide in the appendix, which takes the same cash flow bridge and tries to marry it up to the different cash lines that you see -- will see in our annual accounts, which we published today as well, audited. And so you can see that we generated EUR 187 million of EBIT, operating cash flow of EUR 1 billion.

Net CapEx is positive because we're taking money in as we do sale leasebacks and as we benefit from fewer PDP payments as a result of a renegotiated Airbus contract. And so ultimately, we generated EUR 422 million of free cash flow this year.

Next slide, please. Similarly, this shows our cash improvement.

So we ended the year at EUR 1.7 billion. And as you can appreciate between March and where we are now, our cash balance has continued to grow as we continue to do aircraft deliveries and, of course, as we sell our summer bookings.

And so cash generation is one of the few things that we're very good at forecasting, and that's helpful because what it does do is give me and us the confidence to look at other ways to reduce cost, particularly in the maintenance and the depreciation. And we'll talk about the aircraft ownership related opportunity as well later on in this slide.

We also started balance sheet hedging. We were obviously looking at the U.S.

dollar-euro relationship post election. And then post Rose Garden in April, we saw the dollar weaken, and we've been jumping on that in order to build up our lease liability hedge position to levels in line with where our fuel and fuel effects hedge levels are as of April.

In the back, we have an appendix that tells you where our hedging was. It was 60% hedged at that point.

Our net exposure and that hedging activity has increased since April. And I think there's an important data point that people need to make note of is that our average hedge rate for the balance sheet is around 110, Okay?

That's the result of where we started and where the euro is now. Next slide, please.

So I'm going to quickly just summarize directionally where we think we're going for this fiscal year, and then I'll hand the mic back to József. So in terms of capacity, we are seeing growth return, which is reassuring, and you've seen that in the traffic figures as well.

The growth is ramping up in H1, but it will be lower and then more active in H2. I'm sure we'll get lots of questions about the H2 capacity growth and how we plan on deploying that.

It will make a lot more sense when you hear the next section of this presentation, but it's also important to remember that we don't want to be growing only in summer, taking that growth in summer because then you're putting immature capacity into your highest revenue opportunity -- revenue generation opportunity period. So you need -- you do want to put some of that capacity growth in the winter to make sure that by the time summer comes along, you're able to capture that revenue.

Load factor is increasing year-on-year, and we're seeing that through the numbers as we speak. RASK is higher than F '25.

We're not ready to form a view as to how much higher, and that's an important element to emphasize considering that we're now returning to growth. That's, I think, a combination of our focus on opportunities where we see profitability as opposed to trying to stimulate profitability.

So that's staying within our markets and staying within our footprint and rationalizing some of the markets that we are operating in. And then CASK is one that we will continue to work on explaining.

As we are getting better at running an airline under these conditions, we're seeing the impacts and better able to quantify that and also able to show what the business looks like as we move away from older aircraft and unparked aircraft. So overall, summer trading is, I think, solid.

I wouldn't say it's bad. I wouldn't say it's terrific.

It's solid, and that's supported by the data. And as we get closer to the peak summer, and thankfully, we'll be seeing you all in July at Q1, we'll have a lot more visibility as to what that's looking like.

Thank you. Next slide, please.

Thanks, Ian. I hope you guys stay with us after all these insights.

So thanks, Ian, for doing. So could you please move to the next slide?

Okay. I'm going to dilute the technical nature of this presentation a little, so trying to be moving over to kind of a more strategic view on the business.

So we created a pathway for expanding margins, and it always starts with addressing the current network to optimize it. As said, given the higher ex-fuel unit costs, now the bar is moved up in terms of threshold for assessing route performance against profitability expectations.

So we are looking at that, and we are affecting the current route network. As said, hot and harsh is a significant issue which we are going to address.

That will also create not only a lower operating cost and more engine lifetime, but also it will give more productivity on sectors measured on a sector per day basis. Given that the business is now growing again, I think that gives us the leverage for negotiating with low-cost airports and to refocus our business on that segment.

And as we have been communicating it before, we are looking at densifying established markets as opposed to necessarily taking on new markets. It's always a balance, but now the balance has shifted towards densification versus new market activities.

Technology leadership remains a very important strategic derivative of the business. We are converting our entire fleet into A321 on the one hand and into neo on the other hand.

I mean, of our scale, I think we're going to be the first airline flying such a gauge of narrow-body aircraft and being fully converted into new technology. The new Advantage engine is coming soon actually.

We are expecting significant durability improvement. So that will extend the engine lifetime of the GTF.

And actually, a lot of the improvements can be retrofitted on the existing engine. So it's not only the new engines that will benefit from the improved technology, but also the existing pool of engines will improve.

AI, we have talked about that in various fields. We've been using AI, and that adoption will continue to roll out and accelerate in the field of especially pricing revenue management and the day-to-day operational management.

Maintenance and depreciation, I think Ian gave you a pretty deep insight of what is going on there. But 2 key issues to discuss.

One is obviously on parking aircraft will usually affect maintenance and depreciation. Right now, we have a significant chunk of the fleet that is unproductive, dragging capital on the one hand and producing nothing on the other hand because it's not productive.

And the second issue, what was discussed by Ian, is the ceo returns to lessors. It's a spike we are going through at the moment.

And you may appreciate that the original assumption was that, yes, we understand all these returns and we understand all the issues coming with the returns in terms of exposing ourselves to incremental cost towards the tail end of the leasing period, but that would have been offset by the continuous flow of new aircraft deliveries into the business. But what has changed is that the GTF engine basically does not have the same durability as the V25.

And as a result, maintenance costs happened on the GTF a lot quicker than what was originally anticipated. Basically, that offsetting mechanism of new deliveries against the spikes of redeliveries is just not happening.

It's broken, and that's why we are seeing this kind of an exposure. But once the Advantage improves the GTF fleet and once we are over this kind of a spike on the old aircraft returns, I think this is going to get cleaned up very quickly actually.

And quite impressively, you will be seeing improvements there. Now with regard to our aircraft ownership, it is important.

We have been overly reliant on sale and leaseback. Sale and leaseback has a very different P&L accounting.

It is advantageous for cash generation, not necessary advantageous for profit generation. We are looking at ways of balancing that off by effectively investing capital into our -- into aircraft and reconsidering the portfolio for aircraft ownership.

This is going to come. As you know, the company is in a liquidity position that actually we can use our liquidity.

But obviously, that needs to be balanced against credit rating and cost of capital we can tap into. So this is quite a delicate issue, but you will be starting seeing the company moving in that direction over the course of the next period.

Next slide, please. So let me talk a little bit more about network optimization.

This is a key issue we're seeing given the higher cost of operations and given the GTF engine. So we need to clean up ourselves.

I was talking about hot and harsh. This is significant.

It's a lot higher cost of operation, and that creates scarcity of engines. And basically, the more we operate in hot and harsh, the later we're going to be able to move past the Pratt & Whitney cycle.

And as said at the beginning, the #1 priority for the company is to move past the Pratt & Whitney cycle because this is the single biggest damage to the business as we speak. So we are looking at, of course, the entire network, how to better optimize the network design for profitability, for financial performance.

We are looking at consolidating ourselves within our markets. Central and Eastern Europe, as said, performs very strongly.

We have leading positions in Central and Eastern Europe, and that kind of sets the backbone for consolidating our capacity there. We're going to be allocating capacity in markets, which we know well, which we are able to stimulate, which we are able to enhance our market leadership positions on.

We are focusing on efficiency. Of course, we are looking at more productive routes from lower cost airports.

I mean, it's not like that we kind of lost focus from low-cost -- with regard to low cost airports. But basically, low cost airports can only be triggered with growth.

That's why they are low cost airports. So basically, their trade is that they are trading cost against growth.

But we lacked the mean for growth over the last period. But now as we are having the means, we think this is appropriate to go back to that segment and effectively drive that segment by densifying our positions over there.

And that will also result in higher group efficiency and group productivity over the course of the next year as we are improving aircraft utilization by moving past the Pratt & Whitney GTF cycle. And we are looking at ways of lowering the risk on expanding the business.

We are looking at a very established market against Central and Eastern Europe or the likes of that kind of a nature of markets. We just opened positions in Armania, but Armania, to be honest, is just an extended arm of what we have been doing in Central and Eastern Europe.

We've just opened a base in Baneasa for Budapest, which is more like an extended arm of what we have been doing at Otopeni Airport, but as Otopeni Airport ran out of capacity, we have to find other ways of inducting capacity in the marketplace because the market is on high demand for our capacity. May I ask for the next slide, please?

So if you look at the footprint and kind of key markets we are focused on, so you can see what's been happening in our key markets over the course of the last 5 years. So if you classify Romania, Poland, Italy, U.K., Hungary, Bulgaria as sort of key markets, you can see that actually, CAGR -- so you just ignore the other markets, CAGR was around 10% in this market, even less than 10%.

And now we are looking at enhancing our capacity allocation in those markets. We think these markets are very strong.

We are very established. We are market leader or very close to market leadership.

We are solidly profitable in these markets. And we think there is a significant pathway for putting more capacity into those markets.

So we will be focused on these segments as opposed to chasing brand new market opportunities. Next slide, please.

So with regard to technology leadership, I mean, you can see that we have been greatly converting our fleet from old to new technology. The relevance of that matter is that new technology, of course, is a lot lower fuel burn.

And it is supposed to be lower operating cost, save the GTF powder metal issue. And you can see that we are significantly more converted than any of our competitors.

Now you can also argue that with regard to the GTF engine, this is our problem because we are the early adopter. And as a result, we are now exposed to kind of the childhood diseases of the new technology.

But we still think that this whole powder metal issue is a one-off. This is not structural.

And once this is behind us, I think we're going to be looking as green as anyone else, irrespective of the very engine we are flying. But you see that our conversion rate is more than twice as higher than any of our competitors, certainly a lot higher than the overall market.

Then you look at the next slide, and this is showing you the GTF grounding exposure, which is going to come off from kind of 20% in fiscal '25 to basically single digit, mid-low single digit in 2 years from now. So at that point, I think the impact is going to be fairly marginal in our business.

So already, fiscal '26 is somewhat of a moderated impact relative to '25, but this is still significant, but going beyond that -- this issue which start easing itself and will start fixing itself. But this is a long cycle, and we need to make sure that we manage it as best as we can and as quick as we can.

As said, our interest is to get out of the grounding cycle as quickly as we can. That's why we are reviewing what we are doing in a hot and harsh environment that creates scarcity of engines.

So next slide, please. So I think this is also important because I know that this has been one of your concerns, to what extent we are kind of putting pressure on ourselves through growth.

As you can see, we've done a realignment with Airbus with regard to aircraft deliveries. I would say that we feel quite good about the next 3 years to come.

And the next 3 years are trying to balance off new aircraft deliveries on the one hand and aircraft lifting from the grounded fleet on the other hand. And obviously, this is like a delicate balance that you don't want to be overdelivered new aircraft and you are actually lifting.

And what we are seeing, despite the volatility of forecast by Pratt & Whitney, that we might be able to lift a little more, maybe more aircraft than what we were expecting. As a result, we are now in discussions with Airbus to shift a few aircraft deliveries from the back end of this financial year, a year later to the end of fiscal '27.

So you can see that this whole process of capacity management in terms of lifting and new aircraft delivery -- deliveries actually is quite dynamic. So I don't think you should be stuck with any numbers here.

I mean, this is very dynamically managed, and Airbus is quite collaborative. As -- and Pratt is also quite collaborative with that regard to make sure that we are adjusting the fleet as things happen, not to create overcapacity what we are flying.

And I would say, so far, so good. Maybe we will have to look at kind of the back end of this theme, but I think we have the means and ways of doing it.

But actually, as far as I'm concerned, fiscal '26, '27 and '28, they look really good in terms of moderated capacity overall, in line with what the business can absorb and what we can handle in order to drive profitability and growth at the same time. And with that, let me just hand it over to Ian, please.

Next slide, please.

Thank you. I got the hint, I'll be less technical, but I think it's important.

Two more slides from me. So this is meant to demonstrate the impact of the older aircraft that we have been holding on to longer.

So you can see the evolution of, what I would say, the profile of aircraft retiring this decade since F '22. So in F '25, we only retired 6 aircraft.

This is because we are protecting capacity. These aircraft were not extendable.

The lessors had other plans with this aircraft. So they left the fleet.

And so you see that we went from sort of 114 in F '22 to 86, only taking 28 aircraft out of the fleet in that period. Still holding 86 aircraft this last -- this past year.

So now we're starting the year with 80 aircraft. And we will retire 18 and then 21 and then 25.

So you'll start to see more than half of the aircraft this decade retiring in the next 3 years. And with that, yes, there's cost that comes with that because, a, they cost more to operate, but also they cost more in order to dispose of.

But then once those costs are incurred and those planes leave, then you don't rely on those costs anymore. Those costs are gone until the next wave of retirements happens.

Hopefully, we can spread that out, so it's not spiking like we're seeing here. And I guess, an unintended consequence of the durability of Pratt & Whitney engines, as Joe mentioned, they require more frequent maintenance, which means that you take some of those costs sooner, which means you don't end up with as big of a spike later on.

So that mitigates the problem going forward. But of course, it increases the cost in the short term.

But as you can see from the chart below is the pink band is the cost associated with retirement costs out of total depreciation. And you can see that we had a big spike going up in F '25, 23% on a depreciation CASK number year-on-year.

It will increase another 7% or so in F '26, but then it starts to come down in F '27 and '28. So the sooner we can retire these aircraft, yes, there will be a cost associated with those retirements, but the sooner, those costs will go away.

And so that's the -- those are the costs associated with the depreciation, but there's also a similar cost, as I mentioned, on the maintenance line with regards to the cost of the condition of those aircraft and making sure that they comply with the lease delivery terms, which brings me to the next slide, please, which is something that we've touched upon in the past with regards to when is the right time to buy aircraft and why would we want to do that versus the sale leaseback model. So you now understand that leasing aircraft has its benefits, right?

You have an upfront gain, which is the sale leaseback profit. You end up derisking yourself because you are able to hand back an aircraft to a lessor at some point.

Yes, there's a cost associated with it, but you're not stuck with managing the residual value risk. And it comes with lower leverage because you're not putting the whole value of the asset on your balance sheet.

But it also comes with additional costs because you're maintaining that aircraft for the future life of that aircraft when the lessor finds a new home for it. And so there's a lot of trade-offs here that we're in the process of evaluating.

We said before that we wanted to wait a little bit longer to see if we could get our leverage ratio down and maintain a higher credit rating to be able to borrow at a cheaper rate. But the -- as you can see, the cost benefit of using our cash in this fashion starts to become very compelling, even if all the stars aren't lined up when it comes to our overall cost of financing because we think we can still finance these aircraft at competitive rates and certainly at rates that will allow us to bring our overall cost structure down.

So what this chart is trying to show you is that the overall profile, including the pink is the -- is a representative profile of owning -- or sorry, leasing -- doing a sale leaseback on an aircraft. You have an upfront gain and then you have costs throughout, and then you start to see a spike towards the end, the spike that we're in the process of digesting.

If you take away the leasing element and just focus on owning, then you look at the gray-shaded area. And so you don't have an upfront profit gain, but you are also financing the aircraft at a lower overall cost.

So we're not adding a -- the margin when we buy at wholesale from Airbus and sell it retail into the leasing community. We're putting a lower amount of asset on the balance sheet and depreciating it over a much longer period.

More than 20 years would be the overall profile. And so you are now also free to perform maintenance based upon the technical requirements of the aircraft, not the contractual requirements of a lease contract.

It also gives us flexibility to hold on to aircraft longer. We don't have to go to lessors and ask them for extensions.

It gives us opportunities to retire aircraft sooner if we see an opportunity to sell the aircraft into the market. And that's not something that we've been able to benefit from in the past and certainly not in the past 5 years due to the circumstances that we've all lived through.

We were always looking at the cash balance. We're looking at the financing profile.

We're looking at the credit ratings. The challenge, of course, is that transitioning away from a model that has worked very well for a business like us will come with downside.

There's going to be the loss of the sale leaseback gain. Now we are convinced that, that detriment, that loss will be made up by benefits down the road, but it will have a short-term impact.

And so what we're in the process of doing is evaluating very closely the right formula for this business over the next 5 to 10 years to take into account the earnings profile, what the impact of sale leaseback gains going away is versus the operating profit of better maintenance costs, better depreciation costs, better interest costs and, ultimately, what it does for the balance sheet and what it does for our overall credit rating. And so there's a lot of nuance there.

And so it's not going to be something that we activate in sort of a wholehearted shift. We're going to have to ease into it.

And it's not going to be something that's going to benefit this fiscal year because most of the aircraft that we have coming are already contracted with lessors towards sale leasebacks. But that's fine because we'll need some time to convince ourselves with the right model, bring you guys up to speed as to why we're doing this and really setting this business up for the fiscal year '27, '28 and '29 territory of getting rid of all the aircraft, unparking the grounded aircraft and having a cost structure that allows us to truly capitalize on the growth of the fleet and the margins that will come out of that cost structure.

Thanks, Ian. Would you please move to the next slide?

So this is really just to give you some background on how we are looking at Ukraine. We think it's a significant upside, but we don't know when this is going to manifest itself.

I mean, you read the same news as I do. So we shall see.

But if you look at Ukraine prior to the outbreak of the war, we had a 10% market share in Ukraine. We were the only Western-based airline in the country.

And we believe that the market opportunity is significantly larger today than what it was prior to the war. But first of all, at that time, prior to the outbreak of the war, 1/3 of the market was basically controlled by Ukrainian Airlines.

They are all bankrupt. They have no capacity.

A significant portion of the market was controlled by Russian Airlines. I doubt they would be the first ones to come back to the market.

So a very significant market vacuum will be created at the restart, which I think creates the opportunity for us. We've already presented the plan to the market, how we would start in the first week with 30 routes scaled up to roughly around 150 routes, 15 million seats.

That's around 15 aircraft at year 3. We're seeing that Ukraine is effectively new Poland.

Poland is a new Germany, if you want to put it that way. There will be significant VFR traffic, people commuting from new home to old home, connecting friends, relatives, families.

I think there will be significant inflows of kind of reconstruction traffic. Europe is going to take a big chunk on the reconstruction of Ukraine, and that needs to be catered for in terms of infrastructure.

So we think that it will actually be a very significant market with new drivers, and those drivers were not existent before, but the war created that. So you can take the former U.S.

Navy as proxy, what happened in the '90s and how would that affected migration of Yugoslavians and how that was catered for by airline traffic. So we are actually very upbeat and very positive about the Ukraine opportunity.

And we are eager to -- we would be eager to go whenever it becomes possible. I think the restart would come not without challenges.

It will be difficult for Ukraine to put back the -- especially the ATC infrastructure. I'm pretty sure Europe is going to help with that regard.

But talking to people on the ground over there, I think the system is eager and capable. The airport infrastructure is going to get activated very quickly.

They've been able to preserve the infrastructure well. They've been able to preserve the workforce well.

Probably, the single biggest challenge is going to be ATC, ATC capacity to operate the market. But we are very positive here.

Could you please move to the next slide? And the next slide is really to sum up what we have been discussing.

So fiscal '25, what we are reporting, remained significantly and largely distorted by the Pratt & Whitney engine issues. I mean, you can see all aspects of that.

I mean, maybe we underestimated that, to be honest, when we started facing the issues. But maybe, you can take an excuse because this is such an unprecedented event in the industry.

It has never happened. It's basically only happening to us in Europe.

It's not happening to any other competitors in Europe, that we have to kind of learn our ways through this. But clearly, Pratt & Whitney GTF groundings created heightened unit cost pressure across basically all the lines -- all the cost lines of the business.

But at least, the good side of it is that this is not going to stay with us forever, and we are seeing the GTF cost headwind to unwind over the next 2 years. So basically, we will start benefiting from that unwinding.

Again, I mean, still, there are certain uncertainties in the process. But through all this, it's fair to say that the worst might have been just behind us, although the issue will continue to drag for some time.

But it will get cleared over the course of the next 2 years significantly using our performance on these cost pressure points in the system as we see them. So clearly, we believe that we are at a turning point.

We are getting back into profit generation. And you're going to be seeing a lot more profit generated through the operating activities of the company as opposed to some of the other metrics, which I think should be giving you confidence on the process and a pathway to sustainable profitability in the future.

Fiscal '26 will remain difficult due to the hangover on the Pratt & Whitney issues, due to the spike on the A320ceo redeliveries. But clearly, structurally speaking, I think we are on a pathway that should be really showing significant improvement on cost performance over the course of the next 2, 3 years.

And clearly, we are seeing that the revenue lines are holding up well, and that enables us to contain some of the cost pressure and enable us to grow the business, although somewhat moderated versus the original ambitions we were discussing before. We believe that the strategic direction of the business will deliver a return to where we used to be in terms of double-digit net margin territories in the course of next few years, together with the investment-grade balance sheet, what we used to have.

So again, we think we have the pathway. Execution remains difficult and challenging.

But at the same time, I think we are coming to grips with most of the issues even if we suffer some of the consequences of them. But you should be seeing structural continuous improvement from here on, but it's not going to be overnight.

Thank you.

[Operator Instructions] Thank you.

It's Harry Gowers from JPMorgan. Two questions, if I can.

The first one, just on the full year RASK guidance or outlook for higher year-over-year, I mean, there's obviously a lack of visibility over winter and the capacity growth spikes up in H2 as well in that period. So maybe you could kind of talk through what gives you the confidence this early on to talk to that result.

And then second question. Maybe you could try and quantify how much incremental cost is being added over the next few years from retiring the older ceo aircraft in terms of the spike in depreciation and maintenance, just in terms of that job that you showed on the slide, the 18 ceos this year and then 21 next year, if you could put some numbers around it.

Maybe I'll start with RASK. So I think kind of the way to look at this is that I wouldn't want you to be stuck on looking at the business on a fiscal year basis, on a quarterly basis.

I know it's hard because that's how everyone gets measured here nowadays. But I think we have to take a little longer view on life.

As Ian said that -- rightly so, that you have to weigh some benefits of investing earlier to get more out of the maturity. And when you invest capacity in summer time, basically, you are leaving maturity on the table.

When you invest capacity in the winter time, yes, it's going to cost you money, but you are going to earn maturity in summer. So I think that's the game.

And you can look at some of our competitors. Some of them have been playing it very well.

I mean, there is a competitor who only used to grow in winter time and inducted aircraft in winter time in order to gain maturity for the higher-yield summer environment. So I think this is kind of what we are looking at.

So winter growth is not necessarily bad. I mean, you may consider it bad in terms of putting pressure on financial performance of the very period, but you're going to be reearning that investment in the next period, in next summer.

So we are trying to balance it out how to protect financial performance of the current year or the current quarter or whatever it is, but with view of how we create revenue uplift, profit uplift in the following period. But as I think we said in the second half, we try to mitigate the capacity exposure by potentially moving some Airbus new deliveries.

So the numbers that we have been contemplating are not necessarily inclusive of those shifts on capacity. But again, this is like a fine balance between how many aircraft we can lift on the GTF and how many new deliveries do we really need in order to contain the kind of the overcapacity of the business.

So we continue to manage this. So I think there is still some level of uncertainty, how we set the numbers will play out.

I think we understand the levers. But this is a dynamic process, as said.

But we try not to create overcapacity in any period in the year. But at the same time, that is an investment story here that you invest in winter, which you will benefit from in summer.

So that's also going on. So we're seeing that the RASK expectation for fiscal '26, I would say, is that on positive territory versus fiscal '25.

But I think it's hard to quantify at this stage how positive that is.

And I guess, for the maintenance and depreciation cost increase, I think that if you wanted a factor with EUR 0.15 for both, split roughly equally, that would be the sort of cost increase that you could think of. And some of that will be offset by the fact that we're doing more sale leaseback gains.

We have the -- no longer the wet leases. And then we have a reduction in compensation because we're grounding the aircraft.

But ultimately, that's the sort of ballpark that I would work on.

Jaime Rowbotham from Deutsche Bank. I'll limit myself to two topics.

First is cost and the second is your medium-haul flying. So just following on from Harry on the cost.

So I think you alluded to the fact that SLB gains will go up. There will be something like 40 spare engines.

There will be a lot more neos. You'll have 20% more ASKs.

You'll take some management actions. The number of aircraft on the ground will reduce 6%.

And yet you still expect unit cost ex fuel to increase. So if I've understood correctly, the biggest driver there is the ceo redeliveries.

You also have the high inflation in the on-route charges, but you touched on it there, compensation that was EUR 350 million this year. Should we be expecting that to come down a bit as well?

And then the second one, maybe for Joe. So in terms of your medium-haul sort of flying ambitions, I don't think Milan-Abu Dhabi has started up.

Is that part of the sort of sacrifice on hot and harsh? Looks like your new XLR is flying Gatwick-Jeddah.

What have the load factor has been like? And finally, if I'm not mistaken, sort of hot and harsh and longer-haul flying kind of go hand in hand.

And you've got XLRs coming. So where -- does this change where you're going to be flying those?

Will you have to fly them on some shorter routes?

So I'll just talk on cost. So yes, so compensation is going to come down.

That's one of the big factors. It's good because it means that we're actually parking through our aircraft.

And so just to correct, the 40 engines that you mentioned in your question that Joe had referenced earlier, that's the -- those are the incremental engines that we're currently carrying right now that we used to limit the number of aircraft parked that we currently have. It will be 20 more aircraft parked obviously, 2 engines of plane, if we didn't have those.

That's also contributing to this cost increase because those engines, we sale leaseback. Yes, we took some upfront profit in F '24 and F '25, but that's also adding the depreciation increase without necessarily an ASK -- a proportional ASK increase or an EBITDA increase, right?

So that's further putting drag on this relationship between the unit cost calculation, right, your cost divided by ASKs. So I would say that the biggest problem right now is still the detriment of the ASK production.

That screws up the unit cost calculation most. And then on top of that, you're inflating your cost through the older aircraft and then reducing the cash value of compensation.

And that's why if you look at the unit costs, it's creating such volatility in the numbers.

All right. So hot and harsh, XLR, really good question.

So XLR by definition must be hot and harsh. We don't have a choice.

So -- but where you have a choice is how many XLRs are you going to induct. We have conversion option over the entire XLR order for A321neo, and this is something we are looking at.

But in terms of criteria for flying XLR, the XLR must be almost like disproportionately profitable in order to offset the hot and harsh cost exposure. So this is what we are putting out as criteria.

And yes, indeed, Milan-Abu Dhabi didn't meet the criteria, and we were slashing it. But we were also struggling with the lack of aircraft because at that time, we didn't know when the aircraft would be delivered.

With regard to Jeddah, we think that Jeddah is going to meet the criteria, although the start was difficult because we were not delivered the aircraft. So we had to back it off with the neo aircraft with seat count limitation.

So I think it's a bit distorted to look at. But structurally speaking, we're seeing that, that flight is going to meet the criteria.

We're seeing that India has a runway. So this is not going to be a U.K.

product. This is going to be a Central European product, where Central Europe can create a gateway between Europe and India very effectively.

So we are positive about that. But maybe our conclusion is going to be that, actually, the 47 aircraft subfleet of XLR is far too many, and we will have to scale back on that.

But we have that flexibility. So we have that option.

So we are not going to do XLR for the sake of flying XLR. We are only going to fly XLR should we be making disproportionately higher margins on that operation.

And I think there is another element of hot and harsh, and we are actually basing aircraft in hot and harsh environments through the venture of Abu Dhabi. So we are reviewing that, too.

Alex Irving from Bernstein. Two from me, please.

First one, I want to come back on Harry's question earlier on about the path of RASK this year and the expectation for an increase. Think about the building blocks here.

You're guiding to ASKs plus 20% for the year. H1, low to mid-teens up implies H2 up about mid-20s.

So you've got a negative mix effects by growing more in the winter months with low unit revenues. At the same time, if we're growing in the mid-20s in H2, I would expect, correct me if I'm wrong, that RASK would likely be down given the capacity growth being put into the market.

Does that, therefore, imply that RASK needs to shoot the lights out in the first half of the year? Or how do we kind of square that circle and have RASK up in F '26?

I understand the logic about maturity for F '27 and beyond, but focus on '26 here. Second question is around the balance sheet hedging.

So if you could please help us understand some of the moving parts for F '26 here. First of all, what sort of mark-to-market gain are we looking at in the net income -- the net FX income and cost line in the first quarter?

And then on a go-forward basis, if we've hedged the principal, does that line become a small number, whether positive or negative in future quarters?

Okay. Let me just continue to embark on the capacity issues in fiscal '26.

So we created this contingency of shifting 4 aircraft supposed to be delivered in the current financial year a year later. So this is the contingency for capacity management.

So actually, that may take down the whole capacity plan. And this will be activated on the basis of what performance we are seeing coming through the first half.

If we are confident in the first half performance that it would give us the window of opportunity to invest more in -- during the second half. We may do that, but if you're seeing that we are more squeezed, we want to protect the performance of the second half as well.

So we are not going to overdo growth in the second half. So this number may come down.

So that's why we are scared of guiding because there are too many moving lines in the equation. But this is going to be performance driven.

I mean, we are very focused on profitability. I mean, this is the whole scheme.

There is nothing more important than regaining margins and improving profitability, and we are investing a lot on the network side, on the aircraft supply side and basically everything what we do. But we have to accept whether we like it or not that there are certain determinations coming through, especially the Pratt & Whitney issues.

But we think we can affect hot and harsh, and we think we can affect actually aircraft deliveries, and we are very focused on those.

Okay. So on the balance sheet hedging, so it's a new topic for us.

What we've done is you will see in our P&L that for F '25 because, obviously, we haven't finished Q1 yet, so I don't know how that's going to play out, but you can see that there's a line called net loss on derivative financial instruments. And so that's where you'll see the benefit of detriment from those products.

So we'll still see the unrealized gains and losses coming through from like we used to see within the benefit -- or detriment of those hedges will come through that other line. And so you'll be able to see how that's performing or how much of that is being offset.

The -- in terms of how -- the quantum or benefit for Q1, like I said, I don't know yet because we haven't finished. But if you think about it, if we're at 110 right now and we started hedging it around, say, 104, 105 and we're at 114 now, we're sort of at more -- there was more benefit than detriment at this point from having locked in at in -- on that average.

So we'll happily help you walk through it on modeling sessions since it's a new feature for our business.

It's Jaina Mistry from Jefferies. One question on your costs.

In the press release, it sounds like there are incremental costs coming in from the Pratt & Whitney groundings. But if your proportion of fleet grounded peaked in FY '25, why should there be incremental costs from grounded fleet in FY '26?

I thought it'd be a tailwind this year. And then the second question around your group optimization.

You're removing loss-making routes. You're switching to secondary airports.

What proportion of your routes or capacity will be affected this year? And actually related to that, what's the competition doing on your routes where you're planning to densify?

Okay. Maybe I'll start with the second one.

So I think the best way to think about this is that we are in a position that we think our competitors are somewhat contained in terms of their ability to put pressure on us. They put a lot of pressure on us, by the way, last year.

I mean, you see some battlefields developing here and there. I mean, Tirana was probably the most outspoken by our competitor.

But the fact of the matter is that we contained that pressure, and we pushed back a lot on that. I mean, we had prices bigger than then the next guy in Tirana, and we are a profitable business.

So I think we competed very well, and we defended the business very well. But I don't think we should be expecting that much of a pressure to be built upon us this year.

So actually, we have now the opportunity to backfill some of the needed capacity, which we have not been able to deliver over the last 18 months due to the grounding. So really, what we are doing in terms of reallocating capacity is we are backfilling the holes created over the course of the last 18 months due to our inability to grow the business because we were focused on just protecting capacity.

So I don't think that this is lost. I know that you guys are kind of concerned that we might be overinflating ourselves in terms of capacity, putting a lot of pressure on performance.

But I think there is a need out there, there is a hole out there, which we would have filled before should we have had the capacity to do it. But we didn't have it.

So we are kind of acting on that now. And we don't think that we're going to be overly countered by competitive reaction in the same period.

If I was to guess in terms of how much capacity we would be reallocating, probably, it would be kind of the teens area, so something between 10% to 15% capacity would be probably reallocated.

Thanks, Jaina. So to that comment and to your question, so don't forget that the compensation agreement that we have covers not just the impact to Wizz on powder metal, but the impact of durability, right, or any other reason that is creating a shortfall in engines as per the contract that we signed with Pratt & Whitney.

So what we're seeing, as our fleet grows and we're ramping up in summer and everything is that we were offering -- operating a very tight operation. Tight because we want to generate the most optimal KPIs when it comes to utilization and on-time performance and completion rate and things like that.

But there's not -- we don't have a lot of spare planes. We have the right number of spare planes pool in the business.

But when there's not a lot of spare assets in the overall ecosystem, and let's say that there's, what we call, a UER, which is unexpected engine removal, it could be any reason. It could be powder metal.

It could be for a bird strike. It could be because someone drives a baggage truck into an engine, right, something like that.

Then we're at the mercy. And actually, what we've seen operationally is that we've seen a spike of UERs more than we were anticipating.

So some of that -- that comment means that there's more to it than just the powder metal related groundings. Anything that creates grounding triggers compensation, if there's not the right spare engine that we're holding or they're holding.

And so that's why we're seeing the cost go up as a result of operational demands in the business because we're growing again separate from the Pratt & Whitney related powder metal grounding calculation. But overall, we're still looking at like, say, 35 aircraft grounded this summer, which is not too far off of the 40-something that we were last year.

So yes, relative to the total fleet, it's less, but it's still a similar amount of aircraft, and it could grow or decline depending on operational impact. And so that's part of the challenge of trying to estimate this is that we just don't know.

And there's no slack in the system. Every event that happens, right, creates a disproportionately higher impact on the business.

Conor Dwyer here from Morgan Stanley. First question is on the higher provisioning for maintenance.

Is this solely because the ceos are being kept on for longer? Or is there a risk that we start seeing kind of more aggressive provisioning as the neos then end their own lease terms?

It seems as though that's what Slide 16 is implying is basically the addition to the cost towards the end of that. And the second question is on leverage.

You're talking about basically getting down to close to 3x for this year versus 4.4x at the moment. But just given you're taking on about 50 planes, margins will be down this year.

I'm struggling to see kind of how we're getting there. Is that simply because of the PDP holiday that's kind of helping with that significantly?

Maybe you could help with some of the drivers there.

Sure. So the profile that's on Slide 16 is a profile that you would associate with one of these mature engines, the V2500-powered A320ceo family aircraft.

And those engines are very reliable because they've had 20-plus years of operation, and they've gone through all the problems that the GTF is going through at this point. And basically, what triggers some of the recognition of this accounting is based upon the relationship of the timing of the maintenance event and the redelivery conditions of the lease.

And so if you have an engine that doesn't need a lot of maintenance until, say, a larger interval, then that ends up backloading the overall treatment of that accounting. What we're seeing with the GTF right now, because of the more frequent events, because their intervals are shorter versus the V2500, is that you end up front-loading that.

And so you'll start to recognize the cost sooner. So I think if your question is, is this going to continue to be an issue, it is.

It's going to be more and more front-loaded until we can get the durability of the engine to be similar to the V2500 profile. And then on the -- sorry, the second question was on...

Leverage, leverage.

On the leverage, yes, yes. Well, look, I mean, leverage is going to track similar to the performance of the business and our unit costs in a way because we're holding these extra assets, which come with leverage, aircraft and engines.

But those -- but they're not generating enough EBITDA proportionate to flying an aircraft. Now obviously, having fewer aircraft parked is good because it means we can fly more aircraft.

That's what we want to do, and that's how we generate better returns than compensation. But ultimately, the -- for as long as we have this feature of depressed earnings and more unproductive assets, it's going to put pressure on the leverage ratio.

But we're highly focused on getting that leverage ratio to improve because we expect that will then ultimately impact our cost of borrowing, which enables us to go into this aircraft purchasing environment, which is a big step for an airline that's maturing like this.

Dudley Shanley from Goodbody. Two questions, if I may.

They're both to do with the redeliveries. First of all, if I understand what you're saying correctly, the GTF engine problems have caused a misalignment of the ceo engines in terms of their maintenance versus the redeliveries.

Is that not something that you could go back to Pratt & Whitney and ask for compensation for given that it's GTF related? And then secondly, you seem to allude to the fact that aside from the GTF issues, the maintenance -- underlying maintenance costs turned out to be higher than you expected.

I know MRO capacity is tight at the moment. Can you just talk us through the underlying assumptions versus what actually happened?

So we constantly go back to Pratt & Whitney and seek compensation for everything that we are impacted on. The -- it's not like we are able to submit an expense report and they say, "Okay.

Fine. Here you go."

It's a negotiated process. They're negotiating with every airline that's affected on the planet.

And we leverage both our existing fleet with them as well as the future potential fleet with them to drive a -- the highest amount of compensation possible from them. That is then -- that translates into, in simple terms, a day rate per grounded aircraft.

There's other features, too, but the one that everyone focuses on is day rate. It's up to us then to manage our costs within the bounds of that compensation day rate.

And so we've talked about this before. Because we're in a competitive environment, we chose to fly and protect capacity -- protect revenue instead of other markets where both competitors who were affected could just park at the end of the day and, as a result, tighten capacity and yield up to compensate that.

We didn't have that luxury. So the -- we only really start to digest all the damage to the business caused by this sort of effect as you go through it.

And that's why we've been struggling to provide some steady predictions on our cost base because the numbers are changing, the predictions of engines available to us are changing and some of the levers that we've had to pull to mitigate the impact have been dynamic, right, wet leasing this, extending that at the end of the day. I wouldn't necessarily say that the GTF specifically has changed the maintenance alignment between aircraft lease term and maintenance profile because there's other things that happen, right?

COVID happened and things like that. It's just that there's a lot of dynamic things that happened.

It's just that we're seeing that there are challenges around making sure that we can deliver the aircraft in the right condition without having to move in and out of these strict obligation periods and the timing between dates and events. On the second one, so, yes, so maintenance is a highly labor-based business, whether it's the base maintenance or the line maintenance.

And so labor has seen a lot of inflation since the beginning of, say, pre-COVID. And so that's sadly something that's being passed on to all airlines.

And as we try and manage not just the maintenance of our fleet that we're flying, but the additional maintenances required to redeliver aircraft in a constrained environment, there's obviously people trying to offset their costs and come after us as a source of that offset.

It's Jarrod Castle from UBS. Two as well.

It sounds like you're going to be doing a detailed review of how you finance aircraft. I was wondering if kind of looking out this year and next year, at least, you could give us a gross CapEx number now for whatever the aircraft deliveries are going to be, excluding how you're going to finance it.

And then just kind of a longer-term question for you, József, on ceo. I guess, pre-COVID, there were 2 low-cost ceos that had very -- potentially very lucrative share programs.

And obviously, you were looking out at that time and thinking about profitability and where the business could get driven. And a lot of things, no fault of the airline, but just industry issues, GTF, COVID, Middle East, OEM deliveries, ESG ramping up.

I mean, is that potential, I guess, for shareholders or that ability to generate that kind of profit from your passengers or value creation? Do you still see that outlook being there even if it might -- the path might be different?

Maybe I'll start with this. Look, I mean, I'm positive, and I'm supposed to be because of my job.

But intellectually, I'm positive, too. I mean, what I'm saying is that, I mean, despite anything and everything that is happening in the world, I think one activity remains an important issue for economies, for cultures, for countries with the development of GDP.

So for so long as you assume that GDP will continue to rise, I think that will create vast and spendable income on hands of consumers. And consumers will want to travel.

I mean, we are seeing it with the ports. I mean, I think Poland is very interesting.

When we started flying 20 years ago, basically, that was a one directional traffic. Polish workers came to the U.K.

and as well in Western Europe to do the job. So they migrated for work.

Nowadays, most of the people are actually back in Poland, and they became the leisure travelers of Wizz Air. And these guys are spending money with their families, going city place, going to beaches and those sort of things.

So that is very clear that once you accumulate wealth, that translates into disposable income and travel like airlines. If you look at European air travel, low-cost airlines generate roughly half of the intra-European traffic.

And that will continue to rise. I mean, I'm seeing nothing that would possibly contain that.

And Europe is not United States. And I know the intellectual debate in the United States, low cost airlines versus the majors, I don't think Europe is the same.

I think Europe is very different in many, many ways. So intellectually looking at it, I think I'm positive that there is going to be demand pushing the industry.

And I think the business model remains highly relevant to the situation. The problem we are having is that we are just so much tainted, and all these external issues effectively resulted not only in observing the -- these external factors, but also forced us to suboptimal decision making.

I mean, just think about this. I mean, within the course of 3 years, we had to change 20% of our capacity because of Ukraine.

We had to change, I don't know, like another 10% of capacity because of Israel. We had to change overnight, ground 20% of our capacity because of GTF.

And this is like in no time. So you can imagine the morale of the company.

I mean, everybody is scared of more changes. And there are more changes to be had because you have to address some issues we are facing like hot and harsh, et cetera.

And I don't know how much it is appreciated. I don't know how much it should be appreciated, to be honest, because, I mean, this is our issues.

I mean, we are paid for managing this company and run the business on the basis of whatever is happening to the business. But it's been incredibly challenging over the last few years.

Personally, I think I'm feeling actually that, indeed, we are at a turning point. I mean, you don't really see that through the performance, but you see that through the levers on hand how, as they are put in place, will deliver the improvements, what we need to see.

I mean, a model that is flying the latest technology aircraft with the highest gauge, I mean, there is nothing better to deliver lower cost production than that. That's for sure.

We're seeing Central and Eastern Europe is a lot better market than Western Europe. Western Europe is saturated, bureaucratic, overpriced, overinflated, et cetera.

Central and Eastern Europe is still emerging. Our propensity to [indiscernible] is 1/3 of the Western European levers.

We just need to make sure that we execute properly against that market opportunity. So as far as I'm concerned, I'm absolutely positive.

I'm personally seeing the path to achieve it, but it's been an incredibly rocky road. And a lot of the challenge is totally unprecedented, like the GTF.

I mean, the industry has never seen that. And we can say whatever, but Wizz Air is the only airline affected by that in a magnitude, what we are affected by, vis-a-vis, the rest of the industry.

Some of our companies have no idea what that means. Now I don't want to be a kind of the bad guy, but in a way, I'm actually quite glad to see that the other engine guys are having problems, too.

And our competitors started grounding because of engine unavailability. So they start sensing the flavor of the issues, what we have been going through.

But their affection, I don't know, is 2%, 3% of their capacity. Our affection was like 25% of our capacity.

It's just a different magnitude. But yes, structurally, strategically speaking, I'm positive.

Yes. So there was one question on CapEx.

So I would assume nothing changes because we haven't made that decision yet. I'm building a case.

I've got an exciting model that we're using to solve all sorts of metrics. I need to convince myself, ourselves, our Board and then bring it to you on the research side for you to understand what's going to happen because you're going to appreciate it if I take away sale leaseback gains and on the business that has sale leaseback gains.

Now that's going to be seen as another question mark. I didn't demonstrate what we're going to replace it with.

Thank you.

Thank you very much.