Jan 30, 2019
Operator
Hello and welcome to the Wizz Air 2019 Third Quarter Results. Throughout this all participants will be listen-only mode and afterwards there will be a question-and-answer session.
And please note that this call is being recorded. So today I’m pleased to present József Váradi, CEO; Iain Wetherall, CFO.
Gentlemen, please begin.
József Váradi
Okay, thank you very much. Good morning, everyone.
Thank you for joining this call. We’ll be reporting the October, December 2018 period.
And let me just take you through the highlights and then we will start deep diving into some of the metrics. In the period, we delivered 15% passenger growth, and 6% higher unit revenue and that’s helped us to offset some of the cost space in the business mostly fuel.
So the 15% passenger growth came with 21% revenue growth and increased load factor – has increased load factor 2 points in this period. As said the revenue performance was very strong.
Revenue per ASK went up 6%. If you measure it on a revenue per seat basis, it went up to 8%.
I mean clearly with that, we outperformed the marketplace. In this period, we successfully introduced the new cabin bag policy.
You recall that we were reporting this to the market that we were unhappy with the performance of the previous cabin bag policy and we changed it and it works out very well, even I would say probably beyond expectations. We continue to develop our network and system.
We opened up 53 new routes in the period and importantly we opened up a base in Krakow in Poland, we have a base in Krakow in Poland. Also very important from a UK perspective that we received UK route license from the government we enable with that UK to operate as the British airline under any circumstances or Brexit.
And with that, I think we are clearly secured our access to markets from a UK standpoint. This is relevant when it comes to flying from the UK to third countries.
And we continue to develop the business and we announced further two aircrafts through India the Wizz UK network and by summer 2019 we will have 11 aircrafts in operation here. And also importantly with that capacity, Wizz Air will become the largest airline in Luton airport and you know whose homeland Luton airport is.
We remain disciplined on managing cost and managing profitability during the period, clearly we had a number of cost issues to encounter. If you look at the fuel it is up over 40%; if you look at labor of course it’s up over 40%.
I mean I think you all understand we are subject to the market with regard to labor of course. It was twofold.
One is that salary inflated India in the period. You can imagine that I had increased the pay to their pilots and workforce by 20%, 25%.
We don’t remain immune to that. And we had to follow through the market forces.
And secondly, we had a number of events requiring us to invest into labor in the form of out of base flying or incremental training capacity. And that was related to the Wizz Air setup and also some heavy software capacity in the network.
These are one-offs, so these coastlines really superior going forward. And also we reacted to the positive by taking capacity down.
I think we have been very vocal about this and we’ve always said that, we would be managing this business for profitability and we started more training supply of capacity in order to make sure that demand will exceed and as a result we see the revenue performance of the business. But on the cost side, obviously utilization came down and unit cost increased.
Again, this was a measure for the period of this winter and we expect that that is through to move away going forward and utilization to go back to normally in the next financial year. So with that regard, this is one of five semesters.
And with that we are confident in delivering via previously announced net profit guidance, which is the range of €270 million to €300 million. I’m sure you will ask there in the range exactly we’re going to be landing, I don’t know.
I think that is one significant uncertainty. And this is how Brexit is going to play out and how it will affect consumer confidence and the booking profile of the market.
The uncertainty will be landing inside the range, but depending how Brexit play, so we will see which part of the range we will actually be at. Going to the next side, this is giving you an overview of the business.
We carried 8.1 million passengers in the period, as we speak, we have 106 aircrafts flying. Actually that fleet is going to head up 212 aircrafts by the end of the financial year and 122 aircrafts by the end of fiscal 2020.
We operate from 144 airports from 25 bases, across for being the latest announcements in the system. And obviously with the growth of the business, we continue to grow our organization as such 4,000 people as to speak.
As said we launched a number of new routes 53 precisely and we make sure that we continue to develop for business across the border, across our base markets and destination markets. Moving on, we became very focused on improving the operational metrics.
We recorded in the previous quarter the European operating environment collapsed pretty much affecting airlines operating performance. We took actions on that and we make sure that we have a more robust, more resilient operating models to benefit the travel in public that and you can see that we captured most of that slide than in the previous year much less than in the previous quarters, and on time performance also improved.
So I think all these adjustments to the operating model are now that improves and we are seeing clear improvement. And it is not only because of the lower utilization, but it is because of the structural changes we made to the operating model.
Looking at the next slide, it’s showing the growth of the network going into summer 2019. It will be a very busy period.
We are launching 104 new routes, 85 of them in markets outside the United Kingdom. And we continue to develop the UK business despite the Brexit issues and we are launching 19 new routes in the UK.
And as you can see that almost 90% of the growth capacity is put in place for increasing frequencies of existing services or joining existing airports. But we continue to pioneer new markets, new airports and 12% of the capacity we allocated for that purposes.
Next slide is showing some of our achievements what we have delivered in the business. Very importantly, we opened up our new training center for our pilots and cabin crew through in Budapest.
This is the state-of-the-art facility. It’s an investment of around €30 million.
And that will enable us to efficiently and effectively paying our crews to make sure that we are here to standards and also to execute at lower costs than previously when we have to buy training capacity in different places. For the first time Wizz Air got rated with seven stars by airline ratings.
I think this is recognition of our safety culture, our safety standards in the companies, so we are very pleased with that one. As already said, in the period we received a UK route license from the UK government enabling us to continue to have access to market under any circumstances of Brexit and that’s an important development step for the business.
And also said that we introduced new bag policy, which seems to be a very effective way of managing ancillary revenues and as a result ancillary revenues are not back on track already and we are expecting further upside to manifest going forward. So with this I will just hand over to Iain, who will take you through the numbers.
Iain Wetherall
Good morning, everybody. So yes, let’s dive a little bit more into some of the details.
Q3 set as three months for the year, the calendar year ended 31st December, so October, November, and December. We delivered record revenues.
So revenues were up 21.2%, unit revenues were up as József highlighted up 6%. And I can’t think of any other airline in Europe delivered such superior growth and also some revenue performance.
But as we’ve highlighted, we don’t grow this business for the sake of growth. If we want to look at Q3 and maybe the context of the previous year, in Q3 to fiscal 2018, Fuel CASK was up 1%, which enabled us to grow 23% ASKs, Fuel CASK was up 22% in the third quarter, which means that the level of growth, which we can push the market, couldn’t be 23%, but I think a 15% growth in ASKs and passenger growth was a very healthy performance.
One of the compromises of slowing that growth down is an impact on cash flow, whilst we’re very pleased with the performance on the revenue, unit revenues. We slightly underperformed on the CASK and as József highlighted that came in the form of two things.
One, the euro utilization, so it’s simply by flying less those fixed costs takes a while for you to get out of the system, but going forward with our adjusted growth rate going into the fourth quarter and also to fiscal 2020, those fixed costs will be able to remove and we’ll be able to get ex-fuel CASK back to normal and our utilization levels back to normal. Moving on to Page 8, and again, this highlights I think the strong performance that we’ve been able to deliver on our revenue.
What’s pleasing, particularly pleasing is the strong performance on ancillary. We’re very happy for the ancillary seats to get higher and higher, if the base fare can get lower and lower.
So ancillary is now again represents 43% of the overall revenue environment. And as you can see, the ticket prices were strong.
That’s a function of the discipline capacity that we put forward in the third quarter, but also the recovery on the 7th of November we reintroduced our paid for cabin bag policy in a slightly different form and we saw a strong recovery from that. And again, that’s from the 7th of November.
So you won’t have seen the full impact of the – this – the recovery of the ancillaries. We come onto a slide later that shows that we’re looking in Q4 to be tracking around about plus €4 per Pax on the ancillary, which is a very strong performance.
And we should have that tailwind going into November next year. So, again, another positive sign for a strong 2000 – fiscal 2020.
Moving on to Slide 9, in terms of the CASK, and again, if we reflect on what actually happened. Fuel CASK was up 22%, so they’re drilling into the numbers.
Total CASK was up €0.3, €0.21 so over 75% of that is actually coming from the fuel. The rest of it €0.06 of it, the majority is coming from your crew costs.
And as Joe highlighted half of that comes from the fact that we raised the average salaries of our pilots from the 1st of April by around about 14% across the network. The other half of it was a combination of two things, one, the utilization and the investments that József highlighted in places like Luton.
The year-on-year effected the salary pay rise from the 1st of April will disappear as we enter fiscal 2020 and the one off investments as we are looking today, there is – there aren’t any of those sorts of large investments going into fiscal 2020. So as we look into fiscal 2020, crew CASK certainly should be starting to see the negative number that we expect from this business.
A321 themselves, you only need an extra cabin crew. You should be seeing a 17% lower unit costs from the crew costs.
So we should start seeing that benefiting certainly on fiscal 2020. So I would expect to see a dramatic recovery of the crew cost performance for the next financial year.
When we look at down all the other line items, that utilization tends to be the bigger driver. Aircraft rentals, you’d be at aircraft, all of our aircraft are leased.
So when you drop utilization 6%, 6.5%, your aircraft rentals will be up accordingly. I think one thing to flag before the questions start coming crew cab, the ex-fuel CASK Q1, Q2, Q3 all slightly positive.
We are maintaining a minus 1% on our ex-fuel CASK for the full year, which means that we need to deliver a very strong performance in that fourth quarter. We know what we need to do.
We have the list of items that we will be delivering to give you a flavor. We always tend to do very well and at the end of the fourth quarter in terms of airport costs, that’s when a lot of our contracts get renegotiated.
So, we’re expecting a strong performance on our airport CASK. When you’re looking at the staff costs, the summer has been particularly challenging for our crew, a lot of disruptions, a lot of out of base flying.
So vacation for the summer has been very challenging. Lowering the utilization in Q3 and Q4 enables us to manage that better.
So our cabin crew had a more relaxed roster for them enabled them to get off and take their vacations. That’ll get rid of a couple of million.
Maintenance, again, while you lower your utilization. Some maintenance events that we were planning in February, March, we’ll be ending up in April.
So some of the maintenance events, and heavy maintenance events will be pushed forward into fiscal 2020. And again, I think that’s generally a flavor of how we’re going to be delivering on a performance for the fourth quarter.
It’s not a scenario of going to the church and praying. We know exactly what we need to do on every item, and we are committed to executing all of those in the fourth quarter.
So moving on to Page 10, again, a slide that’s very close to my heart. I think it is very important as the ULCC business we are, completely committed to the lowest cost in the industry.
If you take your eyes off the cost base, then the business model is compromised. We’ve done a very good job.
Q3 you can see we always tend to – utilization always comes down to the third quarter, because of the seasonality. That’s when you tend to more than the maintenance.
So, you always expect to see a slightly higher CASK performance in the third quarter. But that number needs to be coming down, so we’ll be delivering on the minus 1% for the full year.
What you can see is there has been quite a sharp jump on the fuel, so from 0.94 to 1.15. Moving on to the next slide, I think we’ve been talking up the A321 NEOs for a couple of years now.
There are four things to highlight here. It’s a bigger aircraft.
The price that we’ve secured on this aircraft is industry leading. We were part of the 50 [indiscernible] market and we have an investment grade financing.
So all these four things, we're going to start seeing the benefit from this quarter. And so it was very pleasing that we can finally say that the NEO is going to be entering the space in the fourth quarter.
Going into next year, so this calendar year we'll be taking 10. Those are already very well as also on the financing side.
We can talk about ownership costs and financing maybe in Q&A. But this is a very exciting aircraft.
Next year we'll be giving back three A320 COEs. The difference between an A320 CEO and an A321 NEO was a 20% lower unit costs aircraft.
I mean, it's unbeatable on the market for the narrow bodies and short haul in Europe. Jumping onto Page 12, just to give you a trend set on the ancillaries.
As highlighted in Q3 we were up €1.7 years per Pax. The cabin bag policy change took place on November 7.
So, we saw a very strong performance from them. Q4 will be the first quarter where you'll see the full impact of that.
And we're seeing a very strong performance, József highlighted probably slightly higher than we anticipated. I wouldn't get too carried away.
There tends to be cannibalization. So whilst we are seeing a very strong performance in the fourth quarter ancillaries.
It just means that we can lower our fares a little bit more and stimulate even more traffic. So I think the ancillaries certainly for the next nine months is looking very, very promising.
What I would also flag when you drill into where that performance is coming from. The product mix is changing slightly.
But we are seeing more than €1 per Pax coming from the WIZZ Go, so the bundle packages. We are seeing more than €1 coming from the priority boarding.
Again, there is a baggage related element to that. But we're also seeing strong performance in the allocated seating, the onboard sales commissions as our route mix changes with a little bit more leisure, you're seeing us benefiting from that.
So again, I think a very strong performance from ancillary. And hopefully the next three quarters or so we'll be reporting very similar stories.
Page 13, we're really coming to the anniversary when we got our investment grade. This put us in a very good stance for when we financing aircraft.
We have a very strong balance sheet. We have nearly €1.3 billion of cash and the cash generation is looking very strong, and very robust.
As we – as I mentioned, the aircraft financing for the calendar 2019, is pretty much done and dusted. Coming April, we will be starting to look at kind of the 20.
And again, we're very excited on the opportunities and what we're seeing in the market. I mean the depth and the breadth of the aircraft financing market today, is probably one of the best that we've seen.
So we're very encouraged going into calendar 2020 those for. Maybe on to the last slide, highlighting some of the small tweaks.
So, again, as we highlighted in November fuel CASK, we were pointing to around about plus 22%. So we have seen a nice pullback in fuel prices, which will certainly benefit from going into the first half.
But on the fourth quarter, we are starting to see some of the benefits coming through. So that's why we're able to drop that down to 19%.
But as inevitably in fuel cost effect and the nervousness that we have around Brexit on the yields, or the caution I should say, it gives us a little bit of caution in terms of the RASK, that's also dropped accordingly. But as we've always said, fuel prices always tend to flow through the revenue environment.
We’ve talked about the ex-fuel CASK and how are we going to be delivering that. And that really summarizes up to the unchanged guidance of between €217 million and €300 million for the full year ended 31 March.
And with that, maybe we'll open up for Q&A.
Operator
Thank you. [Operator Instructions] And our first question is over to the line of Jarrod Castle at UBS.
Please go ahead. Your line is now open.
Jarrod Castle
Thanks. Good morning, gentlemen.
If you could just give a bit of color in terms of some of your main market in terms of performance and any early indication of how the summer bookings are looking. Thanks.
József Váradi
Okay. Maybe I should deal with it.
So I think first of all, we need to differentiate between Central Eastern Europe and Western Europe. Central Eastern Europe is still high GDP growth, I mean some of countries reported 4% or 5% GDP growth and expectations of similarly high at 8%, going forward into 2019.
Obviously that GDP performance creates significant underlying consumer demand in the marketplace for discretionary spending like service, so we are actually enjoying the benefits of very robust consumer markets in Central Eastern Europe. Secondly, we are seeing a capacity airline capacity growth moderating in Central Eastern Europe, compared to previous years.
In previous years we saw airlines capacity arising double digit certainly, and that we are more into mid-single digit territory, what we are seeing at the moment. Now, I would caution you to add something to be conclusions on that because airlines may be launching further capacity in the region.
But clearly, I think that is a trend of more capacity discipline playing into the markets now across the board. I think that they're the same for Central Eastern Europe and Western Europe too.
But clearly we would be benefiting from a more benign competitive environment in Central Eastern Europe with that regard. But let's not forget that Easter, this time around falls into the new financial year.
It will be at the end of April. So, Easter too is a booster of demand for flying.
The one uncertainty we are seeing is it on Brexit. I mean, simply we don't – we can’t predict at the moment, how consumers will behave, how they will prove come in, that has enough of both in the media, whether airlines we'll able to fly or not, and how best is going to play out, soft or hard much or not much or ever or never.
So all these uncertainties, I think are affecting the behaviors of customers. But most certainties created, whatever it is, but it becomes certain, I think, people will start measuring themselves against their new terms and we start acting.
The good news is that the peoples tends to be pretty short. So issues can be recovered very quickly.
And that's why we are a little hesitant on the guidance where exactly to guide the market with regard to where he would be landing because of this uncertainty. But other than that, I think the markets are robust.
We are upbeat, will all the opportunities, as you can see, we have continued to grow the business, we are standing 15% capacity growth in fiscal 2020. And we are certainly seeing a number of factors positively affecting the cost of 12 months for the business.
And we think that the demand side of the business is robust too. And when I look at forward bookings, obviously, we have very limited visibility yet, but so far so good.
Jarrod Castle
Okay. Thanks very much.
Operator
We are now over to Mark Simpson at Goodbody. Please go ahead.
Your line is now open.
Mark Simpson
Yes, good morning. To turn on to ask about the utilization rates, obviously that was a 6.6% decline seen in the Q3.
I'm just wondering how do you think that will work through in Q4 and following on from that, if that's not going to improve substantially how you go actually deliver that 11% actual unit cost decline, which is implied by your FY2019 guidance.
Iain Wetherall
Good morning, Mark. I would think it's fair to say that the utilization is going to be a similar level going into fourth quarter.
And again, if you think about airlines tend to lose money November, first two weeks of December, January and February tend to be loss making. So again, in a high fuel price environment, it makes no sense to just grow faster.
What we tend to see is that, if you make a lot of money in the third quarter, you can invest that in the fourth quarter. So the traditional pattern tends to be profit Q3, loss Q4.
What you're seeing now is breakeven in Q3. And again, that's the sort of level we're going to be looking forward into Q4.
So the utilization to your question will be of a similar sort of magnitude. Getting your backup, I think is fairly straightforward.
We have adjusted the capacity schedule, Easter, clearly we're going to be looking to be flying as much as we possibly can in April. And because that schedule is more normalized, and again, if you think back to this time last year we were saying we're going to take 17 aircraft in 17 weeks.
That's a lot of pressure on the business, and also they can impact on utilization. So having a more normalized schedule over couple of months means that you're not putting that pressure.
So we're absolutely convinced that we'll be able to get our utilization backup to the normal levels, certainly from April onwards. But for Q4 it'll be the same thing.
On to your question, I can just repeat what we were talking about earlier. I mean, yes, there is a lot of things we need to do.
We have a strong track record of delivering a strong ex-fuel CASK performance, a number of initiatives that were being planned for the third quarter will now materialize in the fourth quarter. So it does tend to be fairly heavy back loaded effort.
These are initiatives that we've been doing throughout the entire year. A few tend to happen in the fourth quarter.
So as I've highlighted the business as usual, these are all pretty much business as usual, whether it's improvement on the crew side of the equation, the airports, I mean these are contractually linked. Recently, we announced a deal to Scorpion so there was some support for that.
So you can see that, there's a lot in the pipeline. And we are convinced that we're certainly going to be able to deliver definitely a negative performance.
But the challenge is a -1, and that's what we're setting ourselves out to do.
Mark Simpson
And just following-on from that, can you give us the phasing of the A321neo delivers in FY’20?
Iain Wetherall
So we're taking two in March. And then there'll be as 10 for the full year.
Exact, yes. So there’ll be 10 for the full year.
In terms of the phasing you're seeing, I think, it's three of the beginning of summer and then a couple of the backend.
József Váradi
Well, I mean that’s the other thing, which is interesting with 2018 versus fiscal 2019, that fiscal 2019, we were loading order new capacity on aircraft delivery program prior to summer. So we had this scheme of 17 aircraft over 17 weeks.
We won't have that going into fiscal 2020, it’s going to a more spread over aircraft induction which obviously will ease the labor side of the equation. And we're be going to be able to fly post India in the system substantial compared to what we had to go through in fiscal 2019.
But the program is now settled with Airbus. You record this as a renegotiated delivery platform, recognizing and addressing the issues of OEMs including Airbus.
And we believe that we got Airbus is still in the game sufficiently that they will better delivery or if they fail to deliver, it will come with significant financial penalty on them. So I think from our perspective, we're going to be covered, but obviously we have an interest to get the aircraft and we provide capacity as opposed to get the money.
But financially speaking, I've seen the odd 50 of that covered with this in fiscal 2020.
Iain Wetherall
Okay. In terms of specific numbers, Q4 we’re taking six units, there we got 106 and we were going to be able in there for 112.
So another six units in Q4, of which turned the edge. And in Q1, we're taking five additional units.
And to József’s points, I think, we've allowed ourselves a lot more capacity to be able to take those aircraft. So certainly, and the only key thing there in terms of the crew and the recruitment process as well we used to be training and recruiting with about three to four-month lead time, but when you're taking so many aircraft, that's being pushed up to eight months.
So one of the reasons why are seeing inflation on the crew, which will not happen going into fiscal 2020 is that we have a much more normalized delivery schedule.
Mark Simpson
That's great. Very helpful, thanks.
Operator
Okay. So we are now over to Societe Generale, Michael Kuhn.
Please go ahead. Your line is now open.
Michael Kuhn
Good morning. One question also keep in mind that the NEOs are now more and more coming.
You mentioned that you’re encouraged by the current state of the aircraft financing market. What is your latest view on buying versus leasing and what do you have in mind for fiscal 2020 in that context?
Thank you.
Iain Wetherall
Good morning, Michael. I think it's important to reflect that IFRS 16 treats both the same.
So whether you lease or whether you buy, essentially, you are treating them the same on your balance sheet. So it's sort of a little bit of an academic question.
The question then is who's charging you more a bank, or the capital markets or the lessor. So when we look at financing it’s essentially now we can look at on apples-and-apples and say, right, which financier is charging is the lowest possible rate.
As we look today, when you – and also the benefit when you look at leasing is that you're essentially locking your leases in for between nine and 11 years. So with a sort of a risk management hat-on, the ability to lock in 11-year money at rates that are historic lows and pretty close to what you could issue for five-year bond money, the leasing market is incredibly compelling.
So if you were to ask me a year ago when we got investment grade and we say, right, where is the last piece of the jigsaw where we really need to lower our unit cost is ownership. So if you were to ask me a year ago, I would have said the bond market would have been a fairly compelling proposition.
But when you compare that to a lot of money that's still available in the leasing market, it's incredibly compelling. I think what's also very important is when you look out for our delivery schedule, there'll be a couple of years where once you take into account the lease returns, we're going to be taking 25 units, 30 units per year.
So I think it's very important to maintain, for us, we want to maintain and we will maintain the investment grade balance sheet. So if we’re seeing today really compelling pricing from the leasing market, then that's what we're going to be continuing to do.
But that said, we'll have to decide when we come to the decision, so we're now pretty much financed for this calendar year, going into next calendar year, we'll look at all the options and we'll make the decision pretty much on the day to finance.
Michael Kuhn
Okay, great. And just one quick follow-up, just as a reminder, what did you guide last year on the profit contribution of Easter?
Iain Wetherall
It depends where there's always a couple of days. So we have a couple of Easter, the Orthodox and sort of the normal Easter.
And there could be a couple of days on that. $15 million tends to be around about full Easter.
Michael Kuhn
Okay, great. Thank you.
Operator
We are now over to Damian Brewer at RBC Capital Markets. Please go ahead.
Your line is now open.
Damian Brewer
Yes, good morning. Thanks for taking the question.
Can I follow it over time back to a previous thing? I'm still just a little bit mystified by your ex-fuel cash guidance again, particularly if one kept the staff marketing leased D&A costs flat quarter-on-quarter the maintenance cost fell to a level about two years ago, that implies the airport and route card costs have to fall, something like 26% year-on-year in Q4.
So clearly there's something in there I'm still thinking. Could you maybe elaborate a little bit more on what some of the moving parts are please?
Iain Wetherall
Yes we have a number of transactions boarding into Q4 with regard to aircraft and transaction and the business will benefit from those transactions. And they happen to – to happen in Q4.
It is chose by accident. I mean it's difficult because of this, the delivery program what we have.
But this is normal course of business. So we've had that before and we will have it in the future as well.
But this time around it seems that it’s just concentrating in one quarter.
Damian Brewer
Okay. How sizable are those the way though Q4, so it’s in [indiscernible]?
Iain Wetherall
We don't guide to that. I mean there are a number of – I mean the focus should be on the business.
The focus is all about the airport task is going to be virtual informed. I mean on route charges we can certainly and say that Europe route charges are down significantly from January.
So I would see a significant reduction on the en-route charges, navigation charges at top off as I highlighted the airport charge. But in terms of the – just to give you a flavor, with the same technology we have – we sold one or two engines in previous years.
So you would have it seen last year, you would have seen it the year before they tend to happen around about July. And this time they're going to be happening around about in Q4.
So if you want to go back and have a look at sort of maybe on the cash flow statement for second quarter that's something you might want to look at. But I think on the whole, this is just business as usual.
Damian Brewer
Okay. Thank you.
Maybe I'll have to see where that will sort of fly. Thank you.
Operator
Okay. So now over to Numis Securities and Kathryn Leonard.
Please go ahead.
Kathryn Leonard
Hi, morning guys. Just following-up on the financing point on the aircraft, I'm just wondering if you were able to add more guidance the more you expect the cost for that aircraft to do given that favorable leasing terms that you're getting.
And then following on from that same question, what are you going to do with the cash that you've accrued, given that previously you were looking and shift that’s not all the case? What might you do with that?
Iain Wetherall
Well, I think to start with the last question, I mean, it's not a good usage scale to some to use all of that cash to buy aircraft. So if you buy aircraft, yes, you would put probably 20% to 25% of the company's cash, put cash into it and the rest of it would be off on bad debt, whether it's a biological debt or whether it's capital market debt.
So, I think the important thing is that we need to maintain a very strong balance sheet, in order to maintain our investment grade. And the investment grade itself essentially drives significant cost savings, not only through the aircraft financing, but through other line items.
When you go and speak to a supplier with an investment grade rating, you can considerably improve your terms, financial terms, but also maybe some restricted terms. I mean you’re hold back terms.
You don't have those collateral terms, you don't have those. So I think maintaining an investment grade balance sheet is absolutely critical.
And again, I think, those reflect on it. In two years from now you can see off the fleet delivery schedule in 2022.
And we're going to be delivering a quite a number of aircraft back to lessors. We're going to be taking an incremental unit of 33 units.
So we need to make sure that we maintain very strong balance sheet to be able to finance those. And therefore when you go to a financier with an investment grade balance sheet, then you can essentially get the best possible pricing.
So today the leasing market only helps from that perspective. In terms of we're not guiding on the CASK performance for the fiscal 2020 on the aircraft, we have something that we'll keep up until May.
Kathryn Leonard
Okay. Thank you.
Operator
Okay. So now over to HSBC, Andrew Lobbenberg.
Please go ahead.
Andrew Lobbenberg
Hi, József. Hi, Iain.
Can I ask in the balance sheet that you don't want to go buy any airlines, but you'd be interested in buying assets, I think, that might come available as the industry restructures. So, how do you see opportunities lined there at the moment?
And then finally related to that, Indigo are in talks to invest into wow. Do you see opportunities to collaborate with this guy?
Is there any relevance as Indigo considers having a second broadly defined European low cost business.
Iain Wetherall
Let me start with wow. But I mean Indigo is a private equity investment firm with their own objectives and own subjects.
They happen to be an investor in visas, but we are not related through discussions between Indigo and Volvo. And I don't think actually that transaction has been confirmed yet.
But this is a business of Indigo, this is not a business obviously we are not involved, we are not looking at it. With regard to consolidation, I continue to believe that the European market to be, it has to consolidate and will continue to consolidate.
And we are going to be kind of open-minded to look at the opportunities arising from that a consolidation process. Nevertheless, our core strategy is to continue to grow the business organically.
We have become the lowest producer in the industry. We operate from market since then in East Europe and Central East Europe gives us the growth opportunities we need organically, I mean previously we were seeing that, we can deploy 15%, even 20% in certain times, the capacity to continue to stimulate the market in Central East Europe.
So we remain on that part of it. As we have said previously we are not very interested in buying businesses.
We are not necessarily interested in getting involved into M&A activities. But we are certainly interested in capturing market opportunities arising from consolidation airline traders like we did in the UK when Monarch went down we acquired some assets from Monarch and we translated those assets on our operating platform and we operate it under the Wizz operations and Wizz brand.
But these matters tend to be opportunistic. We are not planning on it, but if they had some, we’ll look at them and we will form a view whether or not we want to do anything that, but please don't expect us to start chasing M&A opportunities, going forward.
We remain a very focused business focused on organic growth, focused on further expanding our operating platform under Wizz franchise.
Andrew Lobbenberg
All right. Thanks.
Operator
Okay. So now we go to Davy and Ross Harvey.
Please go ahead. Your line is now open.
Ross Harvey
Hi there. Thanks for taking my question.
I’m just wondering about ex-fuel costs for FY2020 and clearly won’t go into guidance, but we look at a couple of the drivers, a lot of encouragement from higher utilization, strong capacity growth, A320 mix of the fleet, even the comps are benefited from the – where’s UK startup costs, salaries, disruptions, et cetera. Is there anything for us to consider from the perspective of major maintenance events?
Or anything else to flag the way it is considering when we’re beginning to look at that FY2020? Thanks.
József Váradi
No, I think you’ve pretty much nailed it on that. I mean, looking at ex-fuel cash going into next year, I think we should be able to deliver a pretty good performance.
As three aircraft came up vessels, when you’re getting that cost back into condition, we can be talking to the tune of $750,000 or $1 million to get the aircraft back into condition. So that’s something that you’ll start to see three things, but in the grand scheme of things, the A321neo have an extra nine seats.
So you should be seeing improvements coming through on that. So we don’t give any guidance, but there’s nothing – there’s nothing out there that I think we should be seeking only now that I can think of.
One thing is worth flagging and this is – I think to the whole community is, IFRS 16 will have a significant change to our balance sheet and P&L. And what we’ll need to do is once we pretty much bottomed up fiscal 2019 will come out to the investment community and sort of walk you through the impact of that.
But in terms of the CASK performance per se, there’s nothing like and think of maybe just wearing the P&L those line items fall. So it leads to disappear as an example, 100% of our aircrafts are leased.
So by definition, you’ll see a different depreciation number and interest will come on the phase of the P&L. So that’s something that I’ll need to come out.
So we’ll have some – some teachings with you guys further down the line.
Iain Wetherall
But if you look at the Page 10 of the presentation, I think it also gives you a strong suggestion, what you should have expect from this business to deliver with regard CASK ex-fuel. But if you look at the fiscal 2013, fiscal 2018 period essentially CASK ex-fuel was contained within the range up to 25 to 230, let’s say.
And I think this is the range you should expect to happen going forward and A321 rollout and the neo induction, will certainly help us create a tailwind with that regard, but you need a tailwind looks at some of the headwind like inflation pressure there like labor maybe infrastructure, of course, but you should expect this business to remain on track with this regard and it seems consistent over the last six, seven years.
Ross Harvey
Yes. That’s great.
Thanks very much.
Operator
Okay. We now go to the line of Jakub Caithaml, WOOD & Co.
Please go ahead. Your line is now open.
Jakub Caithaml
Hi, thanks. Could you please help me understand what options are on the table for the UK shareholders as the UK venture exits the EU and phase of the EU ownership rules?
And also could you update us on how many shares are held currently upon non-EU shareholders and how many shares are hold by the UK shareholders please?
József Váradi
So in terms of the shareholders, 53% of our opening shares are owned by Europeans and of that 53%, 28%, so 28% of ours is STJ Capital UK.
Iain Wetherall
In terms of the Brexit question, I think what we’ve been saying all along is that we have a contingency plan is in place. It’s been robust and actually it’s the plan that we’ve had in place since IPO.
Our articles allow us to disenfranchise our UK shareholders. But in terms of how it’s going to play out, I think we have to we’ll just have to see what happened.
József Váradi
Yes, I mean, I think we have to be careful here, because I’m not sure who in this country is in a position to say whole Brexit is going to pay out exactly, it looks like it’s changing vis-à-vis in every day. So, we are not trying to completing the outcome of Brexit, but what’s important from our perspective is that to have the point of interest which in place to be activated if needed to make sure that we continue to fly the passengers between the EU and UK and also some countries.
And the UK and make sure that we remain compliance with whatever requirements on ownership and control may come into play, and asking we’ve got those cash on hand, but we don’t know what to activate at this point in time, because we just don’t know how Brexit is going to play out. So once we learn how Brexit is going to play, we can provide certainty about excellence, how we are going to address that.
But I think there is a sequence of excellence here. So, first the UK has to make up its mind of what to do, reliant with EU or not and then we left on that.
Iain Wetherall
I think one thing you can be rest assured is that we are fully engaged with all the relevant authorities, whether it’s the UK CIA, whether it’s the Hungarian CIA, CIAs of the countries that we fly, and also the European Commission. So, I think to József’s point, we have a contingency plan, but that is in very, very daily, almost daily dialogue with the relevant authorities.
So we’ll be able to confirm when Brexit is confirmed.
Operator
Okay. So before taking a follow-up question from Damian Brewer of RBC Capital Markets [Operator Instructions] And Damian, your line is now open.
Damian Brewer
Yes. Good morning.
Just one follow-up on actually it is same as last question about Brexit. Given you don’t have any visibilities, no one in the UK does.
Could you talk a little bit more about in particular UK operations and how quickly you can cancel or combine or reject the UK services of ways outside with that UK operation in the event of maybe how Brexit can consume the slowdown or indeed, if there was some kind of bounce and demand how quickly you can go back and – on their backing capacity?
József Váradi
Okay. First of all, I think we are legally structured for being able to operate within the UK and other market post-Brexit under any Brexit scenario by having Wizz UK license, let’s say UK airline and also Wizz UK having obtained the route license from the UK government.
Operationally speaking, I think we are prepared to be invested in any event. Now, if we have to correct capacity for whatever reasons, it only take five seconds to register an aircraft in the UK and probably takes two days to reregister the same aircraft for Wizz Air Hungary so ultimately the UK airline industries that you fly aircraft and actually aircraft can depart from one place and land on other place, so actually you can move capacity very, very quickly.
And this is all based on capacity discipline what we tend to play here, if you look at demand, if you look at expected profitability of the marketplace and just capacity accordingly. Do we expect a major shook, at this point in time?
No, we don’t, we’re actually seeing the top operation of the airline be remain smooth post-Brexit and personally, I wouldn’t expect a huge market collection on the demand side of the equation following Brexit. I mean, UK has been a very resilient market for reserve through 15, 16 years even if you look at our recent history in the UK, post-Brexit, of course, we are the only airline that has been growing the business 25%, 30% just over the last two years.
So – and obviously, we do it, because the market opportunities give us the profitability what the business requires. So, we remain very, very positive and we remain very obvious, but of course, we are a rationale player and we’re going to be making the assessments on the market.
But it doesn’t take long, to be honest to adjust the capacity. And we went through this exercise in Ukraine when geopolitics affected the business there.
Within days, we removed four aircraft from the market and reallocated that capacity across the balance of the market. So, I think that’s something what we have done we can do, but personally, I don’t expect that to happen here.
Damian Brewer
Okay. Thank you.
Can I just check what’s your legal advice that you’re receiving in terms of, if there is a demand shock and you have to cancel flights, would you still be on the hook that EU261 if it was done with less than two weeks notice or what was your legal advice that EU261 wouldn’t apply to UK, not in the EU. Do you have any comments you can add on that?
József Váradi
I don’t think we can. I mean, to be honest, at the moment it’s EU261 that applies.
I mean I have no idea, but EU261 with remaining force both Brexit. I mean, we are dealing with the situation as the registration requires us to reiterate but I can’t make any further comments on this at this stage.
Damian Brewer
Okay. Thanks very much.
Operator
We are now over to Charles Cartledge of Sloane Robinson. please go ahead.
Your line is now open.
Charles Cartledge
Good morning and thanks for the call. Perhaps everyone knows this already, but I’ll ask it.
Could you give some guidance on your tax rate gain going forward? Thank you.
József Váradi
Yes, I think the tax rate regarding is 3% full this year. The normal run rate is around about 6%.
One thing I would flag is that as our UK business gets bigger. The tax rate in the UK is more around the 18%.
So in terms of guiding what I would be looking to do is probably add 1% per year as the Wizz UK grows.
Charles Cartledge
And where was that sort of level off, do you think, I mean, again, as we suggest it’s strengthened your capacity in the UK. I mean, UK is not going to be growing to 100% capacity.
So, it will level off before we get to 18?
József Váradi
well, as you think about, we will have – by end of the year, we’ll have 11 aircraft based in Wizz UK on a fleet of 122. So do them, so that’s essentially 10%.
So if the business grows at the same pace, if we grow the Wizz UK business faster, it’s suggested we’re making more money in the UK, but I would go that UK, I think we’ve now got sort of the right sort of level. I mean, there are – there is no more capacity in Luton, which is one of the reasons why we’ve been so aggressive in the growth there.
So, in terms of the UK, I would assume that the UK grows at the same pace as Wizz Air Hungary.
Charles Cartledge
So, it is fairly roughly sounds like demand level is fixed about 8%, 9% of your capacity is 18% and that’s all sort of incremental if you like and that might add sort of add two points, three points to your capacity?
Iain Wetherall
So, 6% is not the run rate and I think I highlighted in the last result, so I would add 1% as you go up and that you can model the growth rate and what your assumption is on the UK. By definition, won’t get up to 18%.
József Váradi
Exactly. So, there might be, I’m just guessing 8% or 9%, because the UK had two points.
Iain Wetherall
I think that’s a fair assumption. We will have to see how the UK performs.
Charles Cartledge
Thanks very much.
Operator
Okay. So now we go back to Jarrod Castle of UBS.
Please go ahead, again, your line is open.
Jarrod Castle
Thank you. I’m just looking a little bit at the fuel hedge going into 2020.
It’s gone up from 35% to 53%. So I just want to get any of your views in terms of any changes to the hedging policy and how you’re thinking about fuel cost for 2020.
Thanks.
József Váradi
There are no changes to the policy. I mean, I think it’s proven to be a fairly robust policy, I mean, it works and it’s an insurance policy.
So, there’s no change to that. I think we are, I would say, looking today, fuel prices are $600 per metric ton, fairly well positioned compared to competitors that may have had slightly higher rates, but fuel prices going to move quite quickly.
So, we don’t want to throw stones. So, I think we’re fairly well positioned as we are looking into the first half of next year.
I think one thing I would flag is carbon, is a very unpredictable commodity. When the carbon EU ETS scheme was introduced in 2013, we were paying around about €1.5 million on that scheme, today it’s the close to €25 million.
So that’s pure inflation coming through from the carbon scheme. And the carbon scheme is a bit up in the air.
A little bit of the brexit question as well. The UK came out with a white paper saying that the UK Airlines post-brexit, the price will be £6 to £16.
The European Union came out and said there’ll be – they wouldn’t be issuing any credits to UK Airlines from January as a temporary measure. So, risk managing carbon, which is unpredictable to the best of times, is a bit challenging.
So, in terms of fuel, I think that’s something that we’ll need to keep a close eye on and if we have any change to policy, we’ll certainly communicate it to you.
Jarrod Castle
Thank you.
Operator
Okay. We now got back to Mark Simpson at Goodbody.
Please go ahead, your line is now open.
Mark Simpson
Yes, thanks. A couple of things.
Just want to have your thoughts on, obviously, the two big expansion bases Vienna and Luton in terms of how the markets responding to your increased footprints and how you feel the some of the marketing campaign is going. And then just on routes, I think you mentioned sort of 55, 60 routes were closed in the Q3.
It looks on the days that you’ve closed to about 90 routes plus in the Q4. again, I’m just wondering if you could comment around that fact.
József Váradi
Okay. So, with regard to the performance of Vienna and Luton; let me start with Luton.
I think Luton is a slightly different story from Vienna. So, in Luton, we have been building Wizz UK on the basis of the strengths of Wizz Air Hungary that has been built up over a decade or more than a decade.
If you look at our Luton operation, Wizz UK provides fuel around 25% to 30% of the total capacity and the balance is flown by Wizz Air Hungary. So, Wizz UK comes as part of a logical addition to be the Wizz Air Hungary capacity in Luton.
It seems to me that the Luton is getting maxed out in terms of infrastructure. So, it’s been very important for us to try to grab all opportunities we can have from an infrastructure perspective and ramp up the business very, very, very quickly.
Obviously, that required us to make investment, but I think that those investments work out very vast. So, we are very pleased with what we have experienced in Luton.
So, we ask Luton totally in line with expectation. And should we have further opportunities to continue the growth of the business in Luton asking we would contemplate them for sure.
But it looks like the air force is becoming congested. I think Vienna is slightly different story.
Vienna became very popular, basically for every single airline in Europe. Vienna used to be a closed market.
The airport was protecting the Lufthansa airline monopoly, but they were unable to grow the business of the airline with European peers, as a result they changed their commercial capacity and started accommodating new generation airlines like ours staffs and other low cost carriers. And as a result, the market became overheated, but already we are seeing some of the costs to settle down.
I mean, we are seeing some routes, food, capacity caught by other carriers, and I'm pretty sure that further consolidation of capacity will take place throughout the year in 2019. And probably towards the end of the year, you're going to see a more rational capacity gain being played in Vienna than what it is today.
Now with regard to our position in Vienna, I would make two points. One is Vienna comes as a natural extension of our market position in Central Eastern Europe.
The halo effect is personally benefiting our business in Vienna. I mean, for many of the Czechoslovakia and Hungarian people actually Vienna is a more logical market than their capital cities.
So I think we have a starting brand strength going into Vienna over what it has to be done and further exploit. Secondly, with the AC21 operation in Vienna, we are the lowest cost producer in the marketplace and clearly the market opening in Vienna is commoditizing the industry, in the market similarly to what has been happening in our bases in the whole of Europe.
And in commodities lowest cost producers, lowest cost will always win. And we are the lowest cost producers, so we are seeing that we are very strategically to be in the marketplace.
But, yes, at the moment I think it's an overheated market. It's a bit of about bloodbath.
But we are the lowest cost producer and we benefit from the neighboring markets. I think we are very sufficient to re-emerge of the structure in Vienna and of course we are sticking to it.
Mark Simpson
That's great. And any comments in terms of what looks to be an accelerator program of route cuts in the Q4 versus Q3?
József Váradi
I think this for the business's future, but we look at profitability on the base of actual profitability. So unlike other airlines who tend to skip out everything and they look at things on the based on account of life, we think life is dynamic and you need commercially yourself against the life what it is.
At a point in time and clearly, the change in cost environment has affected our views on the route profitability. So oversee you have a higher – fewer cost to do labor cost where we did.
The threshold is moving up and as a result, we have become maybe a bit more critical on some of the other routes how they performance, but expectations we could have, but I don't think that there’s a change or anything like that. This is the future.
We just manage the business against different standards in a higher cost environment.
Iain Wetherall
Hey, Mark, I mean, one thing I would say on the slide – maybe on the Page 9, it gives you the flavor of the summer. Increasing frequencies really fuels that, the demand that we see.
Traditionally that number is around about 60% but that was round about 36%. So I'm joining into existing apple to 52%.
So that's what it gives you a flavor of dynamically how we're changing the network with the changing field environment. I would imagine that as time goes by that will probably normalize back to the normal sort of levels.
Mark Simpson
Great. Okay, I appreciate that.
Operator
Okay. We've got a follow-up question from Kathryn Leonard at Numis.
Please go ahead, your line is open.
Kathryn Leonard
Hi. Sorry, just on Airbus delivery and the fleet timing that you disclosed, that's enlightening to see currently it’s going to offer is unchanged.
But I just wondered whether you could update whether you are seeing any incremental today this matter. It’s something that's being flat to us received recently by one of your peers and obviously, it’s encouraging to see this unchanged, can you just comment on that, please?
József Váradi
Okay. Again, we have renegotiated the delivery platform for the aircraft deliveries in 2019.
By and large Airbus is sticking to the new platform. They got to that because of the financial penalties involved.
But I would say so far so good, I mean I don't know who you are referring to exactly, but we took a deliberate decision to be proactive on these two and get a new delivery program in place as opposed to just being a victim of industry issues by the OEMs. And I think so far so good and no 30 days they are suffering that as a result.
Kathryn Leonard
Great. Thank you.
Operator
So we've got a final question, which is a follow-up from Andrew Lobbenberg, HSBC. So Andrew, please go ahead with the final question.
Andrew Lobbenberg
Hi. So I will just keep it simple.
The legal challenges to the bag policy change are set and then also how confident are you on the reliability improvement that you saw in the last quarter being sustained into the summer as you built the utilization back up? How scared are you about the operation performance in the summer ahead because it's a big problem in last summer?
József Váradi
I'm not trying to be naive to believe that the European systems ATC, where dramatic improve going into fiscal 2019. So my incoming assumption is that I think it's going to be as bad as last year.
The reason is I think we are going to have is that we will be prepared for that and we will contingencies in place in the operating model to deal with the problems to recover from the dis-functioning of European ATC, bigger and stronger than last year. You know we made systemic changes to the operating model, so we are putting up standby crews for recovery.
We are putting up firebreaks in the [indiscernible] got a bit because we don't want to compromise on utilization. We want to make sure that we fly the same we are in a way extending the flying program, but with more recovery sets in the model.
We'll have an additional spare aircraft. So we will have two to three spare aircraft in summer.
So I think internally we are better prepared to deal with the situation, but to be honest, I don't expect the external circumstances to improve dramatically going into summer 2019.
Iain Wetherall
Andrew, maybe just the flags in terms of utilization these firebreaks, these additional spare aircraft you're talking around about 1% to 2% in terms of utilization. And the cost savings associated with the last three to six months, if you look all the E261, the compensation costs, it more than benefits by losing around about a 1.2 hours on utilization in the summer.
The other thing I would say this like we haven't talked about is that, again, we ramped up with UK and there are a lot of challenges on the whole, the ramping up of the aircraft registration, the training of those pilots, the outer base flying. So we said that the summer disruptions, probably half of it was the environment and half of it was the challenge we put on ourselves, 17 aircraft in 17 weeks with UK.
So the self induced issues will not be there, but to Joe's point, we certainly expect summer to be probably the same for fiscal summer 2019. So with that, thanks everybody for spending the time with us and we'll be back on the line in May with our full year numbers.
Andrew Lobbenberg
Thank you.
Operator
This now concludes today’s call. So thank you all very much for attending and you can now disconnect.