Nov 7, 2020
József Váradi
Good morning, ladies and gentlemen. Welcome to this report.
We are reporting first half fiscal '21, which is the period ending March 2021. I will start by saying that we have been much focused on liquidity.
I think, as previously stated, we are managing this business for cash and liquidity. And as you can see, we've done quite well with [indiscernible], ending the period with €1.6 billion of cash.
And if you look at the relative cash burn, especially compared to the balance of the industry, we've been containing our liquidity very well. We burned €265 million of cash in the first half of our financial year, which compares very favorably with the industry.
And that's been our focus. We did quite well with regard to recovery in the summer period.
In August, we reached around 80% of our last year's capacity level. But clearly, capacity is subject to restrictions prevailing at a time in Europe in our markets.
And here, you see that following the first wave of the pandemic and corresponding restrictions imposed by governments, actually, summer was a better operating environment with less restrictions. But since the end of August, we have seen a new wave of restrictions imposed by governments, significantly undermining demand.
And as a result, we keep adjusting capacity accordingly to market conditions. So it has become a roller coaster.
And you may expect more capacity to be taken out, should more restrictions come into play. But also, likewise, once these restrictions are getting eased, we should be back in the air with capacity.
Demand is incredibly sensitive to our jurisdictions. We are seeing it especially in the U.K.
that once a country is removed from the travel corridor, demand collapses pretty much overnight. And once a market is put back into travel corridor, demand surges incredibly.
We have continued to diversify our business by enhancing our geographical footprint. During this period, we opened 13 new operating bases, launched 260 routes.
We have been incredibly agile, trying to take advantage of the situation of market vacuums, led behind by the carriers and some of the commercial deals that have been made available by airports and attracted us with new capacity. These are strategic investments.
I mean maybe not everyone's initiatives will work out in the end, but I think most of it will. And clearly, that new capacity is also subject to the operating environment restrictions and demand.
So you can see the same kind of roller coaster effect on that. But clearly, once we are back into recovery, we will have a much-enlarged geographical footprint to have a much more robust recovery at a quicker pace than most of the others in the industry.
We are very proud of our investment-grade [Technical Difficulty] following Moody's investment-grade just a few days ago. Fitch Ratings also reaffirmed our investment grade.
We are one of the four airlines in the world with investment-grade credit. I mean, obviously, this is a statement on our prospects going forward.
And you can imagine that these agencies fully scrutinized the current standing of the business as well as assumptions for the future and stress tested each of our assumptions with the adverse case scenario and they confirmed our investment case. So I think this is a great credit that we received from the market.
But as said, restrictions are a part of our life at the moment. And looking ahead, in the second half of the financial year, we're seeing that we will have to live together with these restrictions.
And these restrictions will fundamentally affect capacity planning through demand and our ability to operate. And we follow the news and we are micromanaging the business to a large extent, and we keep adjusting capacity on a day-by-day basis, depending on the state of restrictions.
So I think in this winter period, the fundamental factor driving the business will be restrictions over there. There is a lot of talk around testing to replace restrictions like quarantines or lockdowns where we don't know, we have not seen any commitments made by any government going forward with that regard.
But certainly, we are embracing the concept of testing to replace these hard measures. But we shall see what's going to happen.
I mean, one of the disappointments clearly is affecting the business that after the first wave of managing the pandemic situation by government, we would have hoped that there would be a learning there to seek more European coordination, more orchestration to make the whole system more effective. None of this is happening.
I mean, we are flying to 46 countries, and there are no two countries that would apply the same sets of restriction or measures, which make Europe quite [indiscernible] and quite an ineffective system for the purposes of managing the situation. And you can clearly see that lots of politics have been playing into this now, so it has become very complicated.
All in all, we believe that while a crisis obviously is testing and testifying everyone in Board, and we are not immune from that. Nevertheless, Wizz Air is emerging as a structural winner from the situation given that we are the lowest-cost producer and we have a very resilient financial position to cope with the challenges and the situation.
And post COVID-19, we would certainly be a much stronger and much more formidable competing force coming out of this crisis. Moving on to the next slide.
As you can see, this is sort of giving you a snapshot of where business is at this point in time. I mean what I would really read out of this chart is that we have continued to invest into our future.
As said, we have been diversifying our markets by opening new markets, new countries, new operating bases, launching significant number of new routes. But also, we have continued our aircraft delivery program.
In March 2020, we had a fleet of 121 Aircraft. We are going to close the financial year in March '21 with 137 aircraft-s, so 16 aircraft more.
And in March 2022, we are expecting the fleet to be 159 aircraft, 22 more than a year before, so we continue to invest into our fleet program. This is significant.
I mean, you may think that short term, it doesn't make any sense, and indeed, it is somewhat stressing short term. But it is the right thing for the medium and longer run because new technology will enable us to operate this fleet at much lower cost than our competitors, who have been holding the lines by deferring aircraft deliveries or canceling aircraft orders.
So we have a significant competitive advantage arising from this -- on economics. But also, once the industry gets more measured against sustainability, our fleet will deliver much better against that sustainability agenda, given the much-reduced ecological footprint, than other carriers.
So keeping the long-term in our mind remains an important issue. Nevertheless, we are dealing with the crisis by managing the business day in, day out.
The next slide is showing how agile we have been. And maybe you can argue that we've been agile up and down.
We pushed quite significantly in the summer period when demand was less restricted by restrictions. And you can see that we managed to get up to around 80% capacity level in August.
But since then, we've been adjusting capacity down as more restrictions came into play. And we might actually come below the industry numbers, and I think it's just showing how financially responsible we are.
I mean you can see other airlines reporting that we have contained cash much better and we stay focused on cash much more than most of the other carriers. We think this is the time that we need to be very focused on liquidity, on cash investments, forget that we are not planning on any government bail-outs or anything like that.
We're seeing that we can sufficiently maneuver ourselves through this crisis, but that requires us to be agile going up, but it also requires us to be agile and financially responsible going down when the market becomes restricted. And this is what we are expecting in the next few months.
And with that, headlines, I would like to hand it over to Jourik.
Jourik Hooghe
Thank you, Jo, and good morning, everyone. So on Slide 5, you will see that our half 1 revenue is down 72%, with quarter 2 revenue down 61%.
Our reported loss was EUR 243 million in half 1, whilst the underlying loss for half 1 was EUR 145 million. So the difference between reported and underlying loss was the EUR 98 million exceptional expense, which relates to our discontinued fuel hedges.
You will recall that in FY '20, we recognized discontinued fuel hedges for the month of March, April and May 2020, whereas now in half 1 '21, so the current half 1, we recognized discontinued hedges for the period of June 2020 all the way to March 2021. So it's a different approach, but it's obviously commensurate with the recovery pattern that we're seeing.
On Slide 6, you can see that our costs in half 1, excluding the discontinued fuel hedges, reduced 49%, whereas the ASKs for the same period reduced 57%. So in that strong cost reduction on the total line with strong variability on, obviously, cost of airport handling and on routes, but also distribution costs, marketing costs.
Staff costs declined 38%; maintenance costs, 28%; and as you know, depreciation is mostly fixed, only declining 15%. On the next slide, Slide 7, we're outlining the strength of our ancillary revenue.
When you strip out the items which are more one-off in nature, for example, the cargo flights we operated in April and May, you will see that the underlying ancillary revenue is up EUR 3.8 per passenger in half 1. And equally, the ancillary revenue per passenger in the second quarter was up strongly with EUR 1.7 per passenger increase year-over-year.
So bags, bundles, flexibility products, they drove the strength of the ancillary. And going forward, we continue to be focused on driving more conversion and implementing dynamic pricing.
On Slide 8, a bit of focus, as you know, on cash. All things considered, without the CCFF funding, we have burned €265 million of cash in half 1, which is roughly €44 million per month.
Our operations, including the cost of leases, burned €185 million, and we cash settled on top of that €110 million worth of discontinued hedges in the first half. On the next slide, you will see that, again, we burned €44 million per month in half 1.
In the last quarter, we almost broke even, burning only €9 million per month. This is obviously, as Jo said, a stark contrast with the burn rate of some of our competitors.
Our ramp up, especially over July up until mid-August, drove solid cash contribution, with September, obviously, being a little bit weaker as we had to adjust for restrictions in the environment because of COVID-19. We're pretty much fully current with refunds within this cash balance.
We only have €6 million refunds balance at the end of September. We had, obviously, very strong cost and cash price across all P&L and balance sheet lines.
And beyond cash, as Jo mentioned, we feel very proud to say that our credit rating was affirmed by Fitch and the press release went out last Monday. I'm sure you've seen this.
And as Jo said, we also had discussions with Moody's over the last month, and they're maintaining our investment-grade rating as well. So, we have both on liquidity, resilience, and we have the investment-graded balance sheet, which obviously is very important.
Now on the next slide, Slide 10, shifting gears to the second half of this fiscal year. It's clear that cost and cash remain our top priority, especially with restrictions and lockdowns in an increasing number of our markets, at least in the current period.
We reiterate that in case of full grounding, our average burn rate is around €70 million per month from an operational point of view. Given the seasonality of our business and the restricted operating environment, the cash contribution of our operation may be less significant in the next few months.
And the restricted level of activity could actually further unwind some of the balance sheet positions, like unflown revenue or supplier payables. So, I hope that is sufficient clarity on where we are on the cash side.
In the current context, obviously, it's very difficult to give guidance on profit or loss after tax, or even on capacity for that matter. Our October capacity, as you've seen in the previous slides, was 45% year-on-year.
November will be below, given the restrictions on travel and the lockdowns imposed in the last week. And don't forget, as Jo said, we only target to fly cash positive.
So capacity over the next month is anybody's guess at this point in time, but the principle is very, very clear. As Jo said, our fleet remains our key strategic investment.
Maybe this is not ideal in the short term, but without question, it's widening our competitive edge on cost, on sustainability. And additionally, we're working to build in more flexibility, which will allow us, together with a strongly diverse network, to respond even more swiftly to changes in the external environment.
Jo, back to you.
József Váradi
Thank you, Jourik. I mean, moving on to Page 11.
I think we have demonstrated our agility with regard to leading the business through the crisis situation. We have moved around 20% of our capacity by trimming existing networks and reallocating that capacity for opening new bases, new markets, new route.
Clearly, enhances our geographical footprint in times when other airlines are withdrawing capacity from their markets. And clearly, it gives us significant leverage for the long-term, not only for times when we are effectively revamping capacity but much beyond on a structural basis.
Simply, we're going to be able to get by certain markets, which markets would not have been available to us before. At the same time, I think we've also been somewhat opportunistic, and we've gone by the flow when it comes to consumer demand.
I mean, clearly, the structure of consumer demand has evolved during these times. I mean one of the, I think, remarkable moves, what we have made, is entering domestic markets in Europe, simply because cross-border travel has been locked down or usually restricted, while domestic travel has been more open, less subject to restrictions.
And as a result, we entered two significant European domestic markets: Italy and Norway. But now we are seeing that even the Italian domestic market is now under some pressure, given the new restrictions imposed by the Italian government.
Very importantly, we received AOC for Visa Abu Dhabi. The airline is ready to fly.
It's fully licensed, fully stocked. And now we are on a holding pattern, waiting for lifting restrictions by the Abu Dhabi government.
And once that happens, then we would be putting the airline up in the air. We shall see how the country's going to open up.
Probably it's going to be a phased approach, and we've got sufficient designations now and access to markets that we can flexibly add to our network program in accordance with the opening of the country. Moving on to the next slide.
I mean here you see that this agility led to significant market share gains. We are not in a market share business, but I think this is just demonstrating that should we go agile, should we be seeing demand somewhat unconstrained from the perspective of restrictions, actually, we can achieve quite a lot very quickly.
And if you look at just our Central and East European positions, we had 16% market share in the region prior to COVID-19. That jumped up to 22% in the summer period.
But again, going into winter, we are in different times. I think we have to [launch] this business for financial disciplines for cash contribution positive flying.
But once we are back again into times when demand is less restricted administratively by the government, we simply can ramp up very quickly. And we can certainly repeat what we have done before.
We even achieve more when it comes to taking market positions in various countries. Moving on to the next slide.
This is a summary to demonstrate that we are absolutely ready and well positioned for a swift recovery. And once the market conditions allow us to move quickly, we're going to move very quickly and very robustly.
We are flying the youngest fleet of aircraft in Europe, around 5 years. That is significant from a cost perspective, and it is also significant from an ESG, from a sustainability perspective.
We are the lowest-cost producer in Europe. So this is a commodity business, lowest cost prevails.
So you can't be in much better position than that. Our customer profile is very adequate to the situation.
Wizz Air's customer profile has been quite geared towards VFR traffic and VFR traffic prevails in current times. Today, over 80% of our passengers travel.
So we are certainly benefiting from our passenger profile with that regard. We are well positioned from a financial resilience liquidity perspective, having EUR 1.6 billion on hand.
That will take us through this crisis, no matter how long this is going to drag. We are very well positioned, especially relative to the balance of the industry.
And quite importantly, we fly the youngest passenger compared to other airlines in Europe. That is significant because, again, from a recovery perspective, we're seeing that the younger generations will come back to the franchise quicker than elderly generations once they are less impacted from a health perspective.
And secondly, this is empirical data, especially coming out of crisis situations, younger people tend to be more adventurous and more forthcoming. And certainly, our business will benefit from that as well.
And we have a very appealing engagement platform with our consumers, having or operating one of the largest airline websites in Europe, actually, even globally. So we think we are really good to go, and we are well positioned for recovery.
And once these restrictions fall away, we can have a very strong ride, again, similar to what we achieved last summer, and even more. Moving on to the next slide.
You can see that we are taking advantage of the times and sort of the setback of the industry, and we are investing into our customers. We're seeing that it's not only that you need to manage the business for the short term, but you also need to continue to position yourself for the long run post COVID-19.
And we've talked about the young fleet and being the greenest airline in Europe, but we've actually initiated quite a few other things as well. We launched our voluntary carbon offset program.
So now this is available to customers. So should you want to take personal responsibility for your environmental footprint, then you can offset your footprint.
We launched a unique interactive planner software, which helps you navigate yourself through the zoo of restrictions and COVID measures applied by country. So I think this is a very good planning to understand what is going on in Europe in our network.
So should you want to have a travel plan, you can certainly better enable yourself by using this planning tool. And we deliberately want to have an operating platform as extended as possible within the framework of being financially responsible to provide as many route connections as possible for people who want to unite and need to do essential travel.
So we try to maintain most of our routes, only reducing frequencies so long as this is rational to maintain connectivity in Europe. So we have never grounded the airline entirely.
Obviously, we have taken capacity down quite significantly. The worst period was April this year when we were only operating 3% capacity.
But we intend to operate always a network, a skeleton to make sure that connectivity is resumed. Moving on to the next slide.
This is just to summarize this presentation today. As you can see, we are absolutely geared and focused on cash, and cost liquidity is key.
We are managing this business for cash, and everything else is secondary. We have taken advantage of the situation and expanded our network by diversifying the capacity.
That's been a significant move, and we're seeing that positions us very well for ramping up operations once the market conditions change and giving us a structural competitive advantage in the long run. We remain financially disciplined, agile and focused on long-term issues, not only managing the pandemic on a short-term basis.
And we are building competitive advantages for us through the market diversification, through new aircraft delivery programs and through preserving liquidity to enable ourselves to continue to invest into long-term priorities. And we're seeing that with all of these, we are widening our competitive advantage to win this game structurally and emerge from COVID-19 as a structural winner.
Thank you. And I guess, this is now your turn for questions.
Operator
[Operator instructions] And in fact, our first question is in from Daniel Roeska of Bernstein Research.
Daniel Roeska
Three, if I may. I'll be quick.
Can you talk about the challenges of ramping up to 153 aircraft kind of at the end of next financial year, specifically when we're going through winter with such a skeleton schedule? At what point would you really need to start hiring and increasing your schedule to make that 153 million at the year end?
Or at which point would you need to start talking to Airbus to rejig the deliveries? Number two, you mentioned dynamic pricing on ancillaries, and I was wondering if you could just share a little bit of color on that.
One is a kind of banding ancillaries, as at Ryanair, is it something more sophisticated like a revenue management? And is that homegrown, or is that a tool you're using?
And maybe a short comment, lastly, on the leasing market. Kind of what you're seeing currently in terms of what lessors are willing to offer?
And any color on the terms you have for your financing until November next year?
József Váradi
Maybe I will start with the ramp-up. Well, as said, next March, we're going to have 137 aircraft in our fleet, and a year later, and this is March 2022, 159 aircraft.
So we'll have substantial capacity. Currently, we are crewed for around 100 aircraft.
And this is a balance, what we have been striking, to make sure that we are addressing the current weakness of the market and capacity reduction of the flying program, but at the same time, to maintain capacity for ramping up our operations again once the market reopens. So, we will be very ready to go, be it 100, 120 aircraft.
And obviously, you can stretch your resources to some extent in the initial period. From our perspective, it takes us around 3 months to inject further personal resources needed for ramping capacity up, and we have a plan for that.
And we think that if market conditions permit, we could ramp up our entire capacity for summer. I don't know whether the market is going to be as good as that.
But we don't think that we would be constrained with that regard, either from an asset perspective or a human resources perspective. We are fully financed on our aircraft delivery program until mid-2022, so I think we are in a very good position, and we've got very attractive financing deals.
I mean, again, we are investment-grade credit. I think the financing market has become much more selective, but we are still benefiting from very attractive financing deals there.
With regard to flexibilities with Airbus, of course, we have an inherent degree of flexibilities in the purchase order. And we are looking at ways of possibly deferring aircraft, should the situation be dragging longer.
It may not be as short-term as you may think. But certainly, beyond the industrial lead time, like you're asking, we would have some level of flexibilities.
But we also have flexibilities not only on the supply of new aircraft, but also on the redelivery program because we have actually quite a lot of aircraft due for deliveries in the next two to three years. And of course, lessors want us to retain their aircraft and continue to operate at very effective commercial deals.
But we have a lever on hand that we actually can redeliver quite a few dozens of aircraft, should we wish to. And I think this is the exercise what we are putting ourselves through on a constant basis, and we keep updating our assumptions to see how the market is evolving, how we see demand and what capacity is required to fulfill the demand, and we would take capacity decisions on that basis.
But actually, we have quite significant flexibilities, flexing three top or down in the next two years. Maybe you want to talk about ancillaries.
Jourik Hooghe
Yes. Daniel, on your second question, so you're well aware that on tickets, there are certain parameters that could basically make pricing more dynamic, like the booking window, the day of the week, the routes you fly, the load factor.
We're just reapplying some of that logic, obviously, with different parameters on the ancillary. This is very much a homegrown approach, something that we want to keep close to the airline.
And in our experience, it typically beats some of the third-party vendors in terms of performance. So I hope that's helpful.
József Váradi
And with regard to the leasing market, I think the leasing market is trying to be helpful to the industry, but at a cost. I mean what we are seeing is that lessors are accommodating liquidity requests from airlines, deferring rent payments and those sort of things, but at a significant loss.
So we are not really taking advantage of that. I mean cost remains an important issue for us, and we want to make sure that we don't get indebted in this period, as we are not taking government bailouts or anything like that.
We don't want to go overboard on industry credit at a significant cost either. I mean one of the things that we are clearly seeing is that the leasing community is very eager to retain their aircraft with operators with credit and expectations that they would be a survivor of this situation here.
But again, I think that's our discretion to decide to continue to operate the aircraft or return aircraft after the expiry of the lease, and this is exactly the exercise we are just going through as we speak.
Operator
The next question on the line is Mark Simpson of Goodbody.
Mark Simpson
Just picking up that comment you just made about crewed for about 100 aircraft. I mean, very roughly that's 75% of your fleet.
You're flying currently only about 30% of capacity. So just with a reference to maintenance and flying hours for your fleet and staff, how are you managing those to remain current so that you can deploy capacity quickly as demand recovers?
So managing the existing operation, interested in that. And I wonder if we could have an update on CapEx with regards to progress payments, especially in FY '23, when the bulk of the delivery deferrals are being seen.
József Váradi
Maybe, Mark, I would start with the revamp of capacity. I mean let's not forget that back in April, we operated 3% of our capacity.
And in August, we operated 80% of our capacity. I think we have demonstrated our ability to go incredibly quickly and very robustly on recovery.
And here now, we are in a slightly better position. I mean as we speak, we are operating around 30% of our capacity.
And we shall see how good the market will be. But I think we can move very quickly on this.
And when I say that we have crew for about 100 aircraft, I mean, that resource can also be stretched to some extent. I mean it can probably do more than 100 aircraft with some heavier rostering in the initial period while we are accommodating onboarding of new crew.
So I'm very confident that from a personnel perspective, we don't have limitations here. We keep the aircraft current through the maintenance program.
I mean we maintain aircraft. Maintenance is not as valuable as you would like it to be, to be honest.
But in a way, it is a good thing when it comes to recovery because, essentially, the maintenance arrangements we have in place really keep the aircraft current. And from a technical perspective, they would be ready to be reinducted, should we start flying more aircraft in the coming period.
Jourik Hooghe
With regards to CapEx, so I mean, yes, the F '23 progression is slightly lower than what we previously outlined. But obviously, the fleet growth is still substantial, so you should really think in that way as you look at the CapEx for the predelivery payments.
But this said, I mean, as Jo said, we are trying to bring increased flexibility in the thinking on our fleet, and this includes also the predelivery CapEx.
Mark Simpson
Could you just give us a number in a sense of what CapEx looks like over the next two years?
Jourik Hooghe
I mean, not at this point. As said, I mean, we keep working on this with our partners, so we'll refrain from giving a number here.
Operator
Our next caller is Andrew Lobbenberg from HSBC.
Andrew Lobbenberg
So can I ask you about what you plan to do with the U.K. government funding of the CCFF?
Do you expect to pay it back in March? Or do you expect to roll it over?
Can I ask, there's been some press reports that you guys are operating an A330 in cargo formation for the Hungarian government. Is that right?
And is it getting you any cash? Is it relevant in the accounts at all?
And then can I just ask about the entry to Norway because the trade union environment in Norway is pretty intense. Do you think you can sustain a nonunion operation up there and get engagement with the Norwegian community?
Jourik Hooghe
Thank you, Andrew. So on your first question, we do intend to apply for the rollover of the CCFF fund.
So obviously, given our position in the U.K., we hope to also get a positive answer to that. As you know, it's an attractive program, and we definitely want to be part of it for another year.
József Váradi
With regard to the A330 operation, I mean, please don't look at it like a diversification of the business model. The Hungarian government approached us with the initiative of trying to create capacity for the country for cargo flying, learning from the COVID-19 experience, and we are accommodating them.
And we are able to contract an A330 operation on behalf of the government. So, this is not our own aircraft.
We are just an operator of the aircraft. It is no cash exposure to the business, and it is no P&L exposure to the business.
There is a principal agreement that everything is prepaid by the government and we do it with the margin. So this is more like an ancillary revenue opportunity, but it is a totally sideline, from our perspective.
So please don't get over excited about this. I think we are just getting involved here as an airline to operate on behalf of someone else, and this happens to be the Hungarian government.
But with regard to Norway, yes. I mean, the fact of the matter is that half of the Norwegian workforce actually is nonunionized, and half of it is unionized.
Yes, there is a strong push by unions, and to be honest, I think it is more of a protectionism of the market. So we are the insurgent intruder in Norway, and I think this is the competitive response that we are getting.
This is just an angle to it, but I think this is really a response of competition or not wanting to compete with that. The good news is that we are seeing quite a strong support by consumers.
I mean the take-up is as long as we planned on. So clearly, the market reacted very positively.
And yes, I think that we're going to -- we will sustain our model, our cash flow, our organizational model here. Yes, it is under pressure there, but again, half of the knowledge and work force is nonunionized.
And I think actually, it is not some of the stakeholders' decision about day 1, but it is our people's decision what they want to fully respect the rights and regulations in every country, including Norway, but we would also expect these countries to respect the culture of what we are having, which has been very effective. And I think it has created a lot of well-being for our people and our stakeholders.
Operator
The next caller on the line is Neil Glynn from Credit Suisse.
Neil Glynn
If I could ask two questions, please. The first one, I think, actually, as this call was starting, U.K.
government has suggested it might be about to announce [indiscernible] for the sector. Just interested whether you've had any discussions with the U.K.
beyond the CCFF facility and what your expectations or understandings would be on any forthcoming U.K. government aid, no matter if it applies to you?
And then the second question, just on the level of payables in your accounts in September. The €514 million at period end, is it possible to give us some understanding as to what proportion of that number is indeed delayed or deferred at this point and might be relevant to think about outflows of cash in the next few months?
József Váradi
May I just start with the first question. I mean, if you look at our liquidity, we think we are good to go for two years, even if we don't operate a single flight in the next 2 years.
That's a fairly unreal scenario, but we have very strong liquidity. We have been self-sufficient over the last 7 months, and we think the [indiscernible] remains sufficient going forward.
So we are not betting on any state aid matters. We are not betting on -- actually, we would be deliberately avoiding any bailout programs affecting us.
So with that regard, we are not really interested in state aid. Now obviously, we need to see whether there are trending and general state aid schemes coming into play.
I mean the U.K. was actually quite strong on a furlough scheme, but that was sector-neutral.
So that was not affecting aviation only, but I think it went much beyond that, and we are seeing similar schemes in other countries. So we try to understand each of these schemes, whether they are sector or not and to see if we kind of fold into it.
But if your question is that whether we would indebt ourselves with government money or even include some equity measures, the answer a definite no. If there are genuine schemes available to the industry or all industries, yes, of course, we would look at them, and we would take a position if we would want to subject ourselves to it or not.
The only thing what we have done in the U.K. is really CCFF, and as said, we intend to renew that program.
We think it is a good insurance policy at low cost, and it makes sense to take it. But beyond that, we have no plans in the U.K.
or in any other countries.
Jourik Hooghe
On your second question, Neil, I mean, you rightfully pointed out. So there's some, what we called in the slide, the "other bucket," that helped us €30 million in the first half in terms of cash flow.
Actually, there's a lot of moving pieces, as you point out, the payables and receivables where a positive inflow in PDP was a positive inflow. But there are also a lot of negative outflows: the refunds, currencies, the outflow in revenue.
So all in all, I mean, with a lot of moving pieces, this was led to the €30 million other that you see there. How to think about it looking forward?
I mean, again, difficult to guide, but overall, if there will be lower activity over winter, it would not be unrealistic to expect a further outflow on payables and on revenue over and above the operational cash flow.
Operator
As we move along, the next caller through is Ross Harvey of Davy Research.
Ross Harvey
Three questions for me, if I may. The first is on the network strategy and the increased focus on domestic traffic, and I'm thinking of Italy and Norway.
It's interesting, can you just describe the rationale behind it from a competitive perspective on how it might or might not complement your larger gauge aircraft? Secondly, one for Jourik.
Within the other expenses, you had a €25 million year-on-year swing in terms of sale leaseback gains. You have €5 million swing in terms of OEM competition.
What should we expect for H2 in terms of those items? And will they continue to be a year-on-year tailwind?
And finally, on the hedging side, I'm just wondering what level of H2 capacity was assumed when you calculated the fuel and effectiveness for these active accounts?
József Váradi
With regard to network strategy, I mean, it is fairly clear that in Europe, domestic travel is more resilient than international travel. I think this is the function of the lack of European coordination on the one hand.
And secondly, I mean, obviously, that is a psychological effect on people pretty much played by governments to discourage people from traveling abroad. So as a result, we are seeing a much more resilient domestic market than international market.
And we are very keen to add to our capacity program. I mean I think this is all about adaptability and agility to go with the flow of the consumer.
So if the consumer is flying more domestic -- well, relatively more domestic than before, I think we ought to serve the consumer that way. So I think that's what has made domestic markets more attractive to us.
But let's not forget that we are not coming out of the blue here. I mean if you look at Italy, we have been operating to Italy for 17 years.
We have been operating to Norway for 14 years. We are the largest international airline in Norway already, or we were already prior to COVID-19.
And we are one of the significant players -- airlines in Italy as well. So I think this is a fairly logical next step with regard to enhancing our market presence in these countries.
And this is just a timing matter that this is the right timing because what we are seeing is that there is a shift of consumer preference on the one hand. And secondly, there is a weakness of competitors in the marketplace.
And I think that made us attractive to these markets. So this is a strategic rationale.
This is a technical rationale why this is happening now. But in terms of a strategic consideration, it is a fairly logical next step versus what we have built up in these markets over the last 10 to 20 years.
Jourik Hooghe
On your second question, Ross, so the tailwind that you outlined is going to be much less for the second half. And then on hedging, I mean, this is calculated based on the [spec sheet] that we had guided earlier, which was around 50% for half 2.
So, you're right. I mean, if the restrictions that were recently imposed will continue for the next months, there could be some more [ineffective] hedges going forward through the end of the year.
And obviously, that's also dependent, in the end, the fuel price.
Ross Harvey
And just one more follow-up, if I may. József, you mentioned dozens of lease returns over the coming years.
Can you just specify how many of those are coming up in FY '22 that you have flexibility on?
Jourik Hooghe
I mean between F '21 and F '23, we have, in total, 42 coming up that we could potentially not extend. We have -- the very large majority of those we plan to return.
We still have around, as Jo said, a good dozen to decide on. And most -- they're kind of split mostly between F '22 and F '23.
Operator
The next caller on the line is Carolina Dores of Morgan Stanley.
Carolina Dores
I have three questions. I guess, first one, with the opening of the 13 bases, I was wondering what is the cost -- if the incremental cost is included on your cash burn on the EUR 70 million.
Just trying to get a sense on how much cost cutting you actually managed to achieve versus what you have been investing in growth. Second question is if you could have -- if you give us some color on what kind of deals the airports have been offering you for their new bases, if any?
And the third question is I appreciate the ample liquidity, but what is the minimum cash that you think to need to operate? Meaning -- I believe you don't need to be grounded for two years.
But at what point within those two years of grounding, you would need to tap the markets to raise more cash?
Jourik Hooghe
So on the 13 bases, I mean, the cost for us is relatively limited of opening these new bases because we use several principles. I mean we try to use, for example, crew within our network.
As said, we will operate those flights in the current environment only when they're cash positive. So the investment is rather limited.
And we have some cost of IT investment, et cetera, when you open a new base. But it's nothing too major.
So we are being very disciplined on this one. With regards to the airport deals, I mean, you also read the news, right?
There's -- I think it was -- there was a report out there that there's around 200 regional airports that are on the brink of bankruptcy. So clearly, when we move into new bases, we're trying to do a good deal, and we're trying to do it for a multiyear contract.
And so yes, we are getting some of those good deals when we move into new places. And then on the liquidity question, I mean, we're kind of in the luxury position at this point in time to see what winter will bring and then still be in a very good position in spring.
And we'll see what the environment is like in spring and summer, and then we can have a good discussion amongst ourselves what we need to do. But for the time being, I mean, we're relatively comfortable while also being disciplined on managing the crisis.
Operator
Carrying on our, next question is from Alex Paterson of Peel Hunt.
Alex Paterson
I've just got two questions actually relating to your airports. You were just saying about you're getting good deals at the new places.
Can you say how long those agreements are? Is that a sort of longer-term agreement?
Is it seasonal? And where you were previously flying for, have you also been able to make savings there?
And how long do they last? And then secondly, there's been some press commentary recently about your potential interest of expanding at Gatwick.
Could you just tell us what you're thinking about there? Do you think you need to buy slots?
Or do you think that they're not going to get flowing and that you could be awarded them? What should we expect in that perspective?
József Váradi
Now with regard to airports, I mean, you can imagine that we are not acting on the moment. I mean we are taking advantage of the moment, but the deals are long-lived, I mean, affecting our cost for five years or so.
So we are only entering into structural deals here. And so we are somewhat opportunistic on the time, but we are certainly not opportunistic on the structure and the impact of these deals and our ability to operate in our cost base.
So these are all long-term deals. And you can also imagine that we are reviewing every single contract, what we have, with airports and others, other suppliers to see how to enhance our standing to get better deals out of these suppliers, whether this is cost or payment in terms of managing liquidity.
We are scrutinizing everything what we are doing as to speak. With regard to Gatwick, I think it will be an interesting situation.
As you know, that there is an effective slot waiver out there at the moment until the end of March, and that's the European initiative. It is becoming increasingly clear that this industry as a whole will not be able to recover to 2019 capacity levels anytime soon.
I mean you can debate whether this is going to take 3 years, 4 years or 10, but certainly, this is not going to be imminent. And I think this whole slot question will have to be fundamentally reviewed because I think this is totally against the public interest.
Should the incumbent carriers be protected for years and years with even no intention to operate those slots. So I think we will have to see how the system evolves and what outcomes that evolution will produce.
And we are looking at various options to expand at Gatwick and we have the interest in expanding at Gatwick. We just don't know how the system is going to unfold with that regard.
But my personal expectation is that I think the system is going to be reviewed, and I would be very surprised if we are not seeing some of these slots being occupied today with no intention to be operated would not come back to the market free of charge.
Operator
The next caller through is from Kite Lake Capital. I believe Mr.
Bosky.
Unidentified Analyst
Two from my side. First one, you're saying your operational cash burn is €70 million a month.
Could you just let me know what is not included in there? I assume the fleet investment is not in, but is there anything else that's not in there?
And then the second one is you say the winter cash contribution is minimal. So you're expecting to be roughly cash flow neutral over the next 6 months?
Jourik Hooghe
So on the operational cash burn, what is included is -- or what is not included, rather is, indeed, the investing cash flow elements, like CapEx for predelivery payments but also working capital movements, like if you would have an online for unflown revenue or payables, so that is not included this time around. On the winter cash contribution, I think that you need to take into account -- sometimes people forget, I mean, airlines typically make more than 100% of their profits or their cash for that matter over summer.
So this is going to be even more so in this season, if you overlay that with all the flight restrictions. So we do operate -- the flights that we operate, we do target to operate them cash positive versus the burn rate.
But given the environment we're in with the restrictions, et cetera, that cash contribution is not going to be as much as it was in summer, right? So I think you just need to take that into account, and we wanted to be very transparent on that.
Operator
We have time -- gentlemen, do we have time for one more question?
József Váradi
Yes, maybe last question.
Operator
We have Ms. Savjani from Barclays.
It doesn't seem like she is there. There are no further questions in the queue at the moment.
József Váradi
Okay. Well, thank you very much.
Thank you, ladies and gentlemen, for your interest, for your continued interest, but these are the market conditions we are in: lots of volatility, lots of predictability, but we try to best deal with the situation as we can. So thank you for your interest.
Bye, bye.
Operator
And this now concludes our conference call. Ladies and gentlemen, thank you so much for your attendance.
You may now disconnect your lines.