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Edited Transcript of AEGN.AT earnings conference call or presentation 16-Sep-19 12:00pm GMT

Q2 2019 Aegean Airlines SA Earnings Call

145 64, Kifisia Sep 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Aegean Airlines SA earnings conference call or presentation Monday, September 16, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eftichios Theodoros Vassilakis

Aegean Airlines S.A. - Executive Chairman

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Conference Call Participants

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* Achal Kumar

HSBC, Research Division - Analyst

* Jakub Caithaml

Wood & Company Financial Services, a.s., Research Division - Equity Analyst

* Stamatios Draziotis

Eurobank Equities Investment Firm S.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I'm Christantino, your Chorus Call operator. Welcome and thank you for joining the Aegean Airlines Conference Call to present and discuss the first half 2019 financial results. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Eftichios Vassilakis, Chairman. Mr. Vassilakis, you may now proceed.

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [2]

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Hello, good afternoon, everybody, and welcome to our quarter 2 and H1 results for 2019. Let me say at the onset that we think we have just released a very solid set of results for this year, set -- for the first half of the year, set against a backdrop of a slowdown of the European economy; and at the same time for the first time in last 5 years, 6 years, a slowdown in arrivals to Greece -- tourism arrivals to Greece. So within that environment, the company has achieved to produce 14% more revenue using essentially the same fleet of aircraft as last year. So we have no additions to our fleet during the first half of 2019. The reason for this is because as you know, we've entered the agreement to purchase the neo aircraft, and the first of them will arrive in 2020. So this is very much a transition year. A year where we have emphasized trying to increase our amount of activity, especially in the second quarter, basically by flying earlier or building up our schedule earlier to international destinations with the dual objective of extending the tourism season or supporting the extension of the tourism season to Greece, and at the same time, of course, increasing our utilization. This effort has been a successful one. This is the reason that we were able to produce 12% more ASKs in the second quarter, but more importantly on that, 20% more revenue in the second quarter. And through the performance of the second quarter, which was higher in terms of all the important metrics, EBITDAR, earnings before tax and earning after tax, we have managed to turn around the direction of the first 6 months of the year and have a small improvement on the bottom line results of H1 2019, reversing the lag we had in the first quarter and making up for 2 very important, let's say, burdens that we have to overtake. One was that we were hedged for the significantly higher fuel rate this year than we were hedged last year, which had a significant impact on fuel costs. And two, the fact that this was the first year that we had to apply IFRS 16, and therefore, the front loading of interest on our leases has added a EUR 4 million burden to our comparative results, which is why we've mentioned also in the press release that absent that effect, the delta in the results would have been significantly higher. The first -- the second quarter of the year has brought basically all the KPIs of the company back to a positive direction. Revenue per available seat kilometer is trending positively. This is again a very different picture than what we've seen more or less in most European carriers' results due to the slowdown of the economy.

Utilization of aircraft has gone up, load factor of the aircraft has gone up and even yield, which is more difficult than last because it doesn't get positively influenced by load factor, is up despite the fact that we have this year, from the beginning of the year -- essentially the first year since we bought Olympic in Greece in the end of 2013, that we have -- we face competition essentially in all of our domestic network.

At the same time, capacity of foreign carriers, third-party carriers to our country is also up, particularly so in Athens, but also overall. Low-cost carriers continue to increase their capacity to Greece, so we were not at all out of focus in terms of where these carriers have emphasized their presence. And as a result, we believe that the efforts and the outcome of the first 6 months is very positive. A few more details about how that happened. Naturally, all of our investment was once again directed towards our international network. So it is there that you have the most significant increases of activity, traffic and revenue. For the second quarter, indeed the international passenger count was up by 15%; for the first half, up 12%. While at the same time, domestic traffic was more or less constant, bringing the average to -- sorry, 9%?

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Unidentified Company Representative, [3]

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9% [overall].

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [4]

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9% for the first half and 10% for the second quarter. So in terms of what we did within the network, again, Athens was the focus of most of our development effort. We were particularly intent on growing our share and traffic in routes up to 2 hours from Athens, but we also started some of the longer routes, both from Athens and from the regions and converted some of our charter activity to longer routes to increase the utilization as well. So if you try to put things together, what happened in the first half of the year and particularly in the second quarter to bring the improved results? We started flying earlier with the same fleet, no change in aircraft, we started building up our route capacity for international earlier on. So in April and May, instead of mid-June, applicable. This entailed the risk of, yes, of course, increased utilization but possibly fare dilution or revenue dilution, this -- which actually didn't happen. And I think hopefully, we'll see in the third quarter also a benefit from the carryover of starting some of these flights earlier. Now a word of caution. While you see a very significant increase of revenue in the first half and particularly in the second quarter, don't expect that same direction -- not the same direction, those same absolute volumes or same trends in quarter 3. Why? Because simply, our level of utilization every year in quarter 3 is high, the degree to which it could have been further increased is marginal, and therefore, while we have significant increases of revenue due to improved utilization on the fleet in Q2, you should not expect that in Q3 as the improvement in utilization can only be marginal.

Nevertheless, I guess as I said earlier on, against the backdrop of a more difficult year for Greek tourism, these results are quite positive, especially since we have to overcome that cost from the point of view of fuel but on a, let's call it, equal like-for-like operational basis translated to $12 million in H1. So our revenue growth was strong enough to overcome those $12 million of rate-related effects to our results; another EUR 4 million that came from the IFRS 16 application and another EUR 2 million more or less that came from the interest of the bond that we undertook, the EUR 200 million, which is basically -- the proceeds are still sitting very much in our banks. We haven't invested. As you know, we had announced when we launched the bond that effectively the use of these proceeds were PDPs, which start mid-2020 and proceed basically in '21, '22. So against a total hit of about EUR 17 million -- EUR 15 million to EUR 17 million on our statement from things that were basically set at the beginning of the year, the improvement of revenue was strong enough to overcome all that, both in the second quarter and overall in the first half.

I'm going to leave it there and turn it over to you for questions so we can get more specific to the points that I mentioned or within your interest that were not covered in my opening statement.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Draziotis, Stamatios with Eurobank Equities.

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [2]

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Yes, firstly, on the revenue side, you delivered a 6% increase in yields in the second quarter despite having grown your overseas by 9%. You talked about increasing utilization. Just wondering, in the press release, you referred to a positive evaluation of the third quarter, but you talked about marginal improvement of utilization in Q3. Just to be clear, does this mean that the -- in Q3, we should anticipate also improved load factors as in the second quarter, but from a yield perspective, we should anticipate something more moderate, from a yield perspective, please?

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [3]

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Okay.

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [4]

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But that's the first question. I will let you respond. I think it's better, yes.

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [5]

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Okay. So once again, to avoid confusion, the difference between Q2 and Q3 is going to be on how many more ASKs, how many more flights could have been generated, will have been generated, will be generated and the difference is going to be much less. The growth in ASKs and load factor capacity is going to be much less. Why? Because simply, the growth in Q2 does not come from fleet, it comes from utilization. The utilization is so high in summer that you cannot increase utilization very much.

So you should expect more or less half the ASKs that were there as a plus on Q1 and Q2 to be there on Q3. It's going to be something between 4.5% and 6% increase in ASKs if memory serves well. So the delta -- what I mentioned in the revenue was referring to the fact that we would not have 12% increase ASK again to go after a similar increase.

Now without wanting to be too specific about the quarter that is not yet complete, we will not have a shortfall in terms of load factor relative to the last year. We will be more or less at the same levels, maybe some marginal improvements. And we think there will be also marginal changes, left or right, in the yield. So all these 3 things point to a revenue growth that's going to be positive again but lower in terms of nominal numbers simply because the delta in flying and the delta in ASKs is significantly less.

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [6]

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Okay. That was quite clear. And a couple of other questions, if I may, please. On the cost side, just wondering -- there was an uptick in admin costs in Q2. Just wondering whether there was any one-off element in there.

And thirdly, could you just tell us the extent of which your hedging strategy might change in the light of the spike in the oil prices following the Saudi Arabia attack, please?

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [7]

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First, we go at the end because it's simpler. I believe we are 79% or 80% hedged through the remainder of the year?

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Unidentified Company Representative, [8]

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79%.

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [9]

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Yes. For 2019, we are already at 70%, 80%. So the remainder of 2019, September, October, November, December, on average around 80% hedged. So no, we will not rush to change that 80% to 100% simply because we don't think it's prudent to go over 80%.

For next year, I believe we're a little bit over 50% already. 54%, I believe, is the level to which we are hedged on the fuel for next year, and now we will not rush to increase this at the current -- well, at today's increased levels.

I'm not going to make any predictions about oil. We will continue buying, but we always buy when the market is steadier away from big spikes. So obviously, we're not going to increase our position for the next year at these next few days until the market calms down again and settles at whichever levels it chooses to settle.

I think as a personal view, we always hedge fuel because it's prudent to hedge fuel, but I think the least concern that airlines have going forward is really the price of fuel in the sense that there are much more -- many more negatives to point into the direction of fuel in terms of demand, in terms of climate change, in terms of potential, let's say, alternate fuels in -- from different industries, not aviation, not at this stage, but we don't think there's going to be significant pressure coming from there. The challenges, I think for airlines come from the side of demand growth, and this is what has been reflected also, I believe, in this year's results in New York.

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [10]

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That's it. Yes. And I'll just ask technical question about the admin costs in Q2.

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [11]

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I don't know which line you refer to as admin cost. The one -- the line that we published in our condensed, let's say, statement with the press release as other operating expenses.

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Stamatios Draziotis, Eurobank Equities Investment Firm S.A., Research Division - Research Analyst [12]

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Yes, exactly. Which -- yes, what I was...

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [13]

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That's the one. I believe this is -- that's, let's say 2, 3 points higher than the ASK growth. This comes mostly from IT-related investments that we are trying to upgrade different parts of our commercial or technical capacity through software systems. So I think that's what's there. But it's not a significant delta over our ASK, so.

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Operator [14]

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The next question comes from the line of (inaudible) with [Beta Securities].

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Unidentified Analyst, [15]

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I have 2 questions regarding your late deliveries. If there has been any outflow regarding prepayments for the ordering of the new fleet? And my second question relates to the full year effect for 2009 (sic) [2019] of the IFRS 16 implementation. I mean would we expect a similar charge of around -- of the same margin (inaudible) of EUR 4 million in the second half as well? Or we are done with the EUR 4 million of regular cost during the H1?

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [16]

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So I'll go again reverse -- no, no, actually I'll go with natural flow here. We have already incurred $68 million of predelivery payment for the Airbuses, and we are done for this year. This money was paid either last year or this year. Next year, the bill for predelivery payments for Airbus will be $45 million for 2020. So I hope that answers your question with regards to aircraft.

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Unidentified Analyst, [17]

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And there has not been any change on the time schedule of the deliveries?

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [18]

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Marginal ones, yes. I mean there are production changes that we get notified by Airbus for a delay of 1 month or 2 months or things like that. But it does not change the balance of the cash flows or something drastic. What it does is it creates a requirement for us to keep for next year 2, 3 aircraft extra from the old fleet to manage the exact delivery time of the new aircraft. So that is, let's say, some kind of transition cost because while when you're not exactly sure when an aircraft will arrive, you need to have another aircraft around to cover the work. So other than that, there is no significant uncertainty or an effect from that uncertainty.

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Unidentified Company Representative, [19]

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Yes.

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [20]

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With regards to IFRS 16, there are 2 effects possible. One effect is the front loading of the interest and that's proportional to time. So the 4 months -- sorry, the EUR 4 million for 6 months, yes, it will be another EUR 4 million for the other 6 months because this is front loading of interest, it's marginally different in the second 6 months, but it's not important.

The second possibility of effect from IFRS 16 comes from valuing marking to market the dollar-based forward obligations of the leases. There was no such effect in the first 6 months of the year simply because the U.S. dollar at the opening of the year and on the 30th of June was basically at the same level. However, these $400 million more or less that we have exposed or in forward lease obligations do get valued every quarter. So if there is a change -- now gets valued every quarter. So if there is a change between the 30th of June, which was $1.1361, $1.1370. And let's say, for instance, the dollar closes to what it is today, $1.1070, something like that then that will bring a charge from valuation. But this second charge did not exist in the first 6 months simply because there was no valuation delta. Of course that valuation delta can be positive or negative. And in a way, it's not really part of operating results at all because all it does is it sort of, instead of showing the delta in the cost when you pay the lease, you show it when it's valued, so you just bring it in advance. But there's no real change in the net, let's call it, operating results. And it's not a cash flow item, of course, either.

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Operator [21]

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The next question comes from the line of Kumar, Achal with HSBC.

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Achal Kumar, HSBC, Research Division - Analyst [22]

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I just wanted to understand few things. One is about the revenue environment. So generally, I mean you mentioned that of course there is a weakness due to the uncertainty around Germany and other parts of EU. So how that has impacted the demand and how you foresee the demand going ahead and the overall revenue environment? If you could please explain on the -- or cover on that.

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [23]

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Well, the reference that I made were not related to our particular revenue dynamic it's because actually, as you will see, it's not even reflected on the yields or the last of the first 6 months, which are actually positive. So I was making reference more to what we see, left and right, happening in Europe.

In the case of our blended route network, I would say that if I were to take an average for the international network, I would say the trend is somewhere negative, somewhere positive, but overall more or less stable. And where we have improvement, we have improvement because we have shifted from a -- we have shifted capacity towards roots that have shown an improved result and if there is an improved revenue performance, it's not because the average fare has gone up but it's because the mix of fares, the mix of revenues adjusted by where we place our capacity has helped us to improve things. That's number one.

So number two, in the domestic market, we had a situation from basically, I would say September last year until March of this year where fares, yields were dropping month by month. Why relative to the year before? Because the competitor that we mainly compete against now, a small local company, had been entering routes during 2018, and therefore 2018, in the beginning, we were competitive in a few routes and by the end in many routes. So the benchmark for comparison was changing, and this cycle was effectively complete, took -- went full circle by 1 year from March. So from April and on in the domestic network because now we are comparing against, let's say, apples with apples on the same more or less competitive sphere, our yields have shown some improvement. So I would say that from -- if I take Q2, which is the main driver of our results and to some degree, what shows us what's coming forward, the effect in the international network is just rebalancing capacity to more profitable routes without really change of average fare or yield than in the domestic network. While we started the year significantly lower than last year, it has averaged out as competition has stabilized and now we're seeing some pluses. Is that adequate for you?

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Achal Kumar, HSBC, Research Division - Analyst [24]

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Yes. I think that's very clear. While we are discussing about the revenue environment, it would also be helpful if you could please let us know about if the revenue environment or the demand stayed strong in business class and economy class? Or in both the classes, you're finding the demand remains strong? The -- and why -- and this question is generally because I've been getting this bit of response that the corporates are cutting the budgets and if that -- I mean have you seen that impacting the business class demand? Or is that not the case with Aegean?

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [25]

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Well, the difference with Aegean is that this business class is a very, very small percentage of the revenue; unfortunately, very small percentage of the passengers. And if anything, we have a small, very negligible increase in the amount, let's say of penetration of business to the total. That is driven also by some programs that we have for people who are bidding for business class or upgrades are offered with certain discounted rates. But overall, I can clearly tell you there is no negative trend to business. There is a small positive trend driven by first, being in a low level to start with; second, by some of the programs or bidding last minute or upgrading with some cost. But none of these things will have a negligible -- have a significant effect on what we are doing. Unfortunately, as you may recall from previous discussions as well, we are predominantly leisure, and therefore, these are small numbers.

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Achal Kumar, HSBC, Research Division - Analyst [26]

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Right. Perfect. The other thing I wanted to understand about the recent news regarding the airport privatization. Looks like Greek government wants to privatize most -- quite a lot of -- many number of airports, including the Athens one. So how do you see that? Would that impact your cost? And how do you see that the -- impacting the overall demand and the business environment for the airlines?

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [27]

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Well, the Athens Airport has essentially been privatized since day 1, 2001 when it operated. It's always been managed by the 45% of the privately-held part. So Athens Airport today is 55% government owned and 45% privately owned. But as a part of the shareholders agreement, even before the concession began back in 2001, the private side had the management. So in effective terms, it's always been private and it's always been quite expensive, twice as expensive as the other airports of Greece, whether they are now private or still state owned. Therefore, there is low risk of increased cost from Athens Airport. As a matter of fact, we would have expected in the past that the extension that was purchased by Athens Airport could have led to a significant reduction of unitary cost. It did not, there was a marginal only reduction of parking, landing fees. So the overall, let's say, might have gone down from the beginning of June by, let's call it 4%. This is offset by some increases in the regional airports that were originally -- were recently privatized about 2, 3 years ago. And so we have, and we're looking towards more or less a neutral environment with pluses and minuses that are not going to make a big delta on the unit level here in Greece, at least, looking out as far as I can, let's say, until the end of 2020. There is some discount in some places, some in Greece, some the others, but definitely no potential increase from what you refer to as privatization of Athens Airport because what it means is that the government will sell from the remaining 55% another 30%, but effectively, assuming the buyer is not the same consortium who is running it now, then that other the 30% will not have the management. So nothing much will change. The only thing that will change is the Greek government will put some more money on its annual revenues from privatizations.

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Achal Kumar, HSBC, Research Division - Analyst [28]

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Right. And then that applies to the -- and that same applies to the other airports also, as the news says that the government is privatizing (inaudible) the regional...

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [29]

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No, no. It does not. It -- listen, Greece has got 39 airports. Today, 14 plus 1, Athens, 16 are privatized. The only significant airport that is not privatized yet is the airport of Heraklion where the government has agreed and voted into law a contract, that build, operate and transfer contract to build a new airport on the south of prefecture of Heraklion in Kastelli, that airport will probably be operational in 2025, '26. So the change -- any potential change of cost refers then to the 2026 time period more or less. So the other airports, the 23 small airports that have not been privatized have a completely negligible effect on our total cost structure. To give you an idea, Athens, Heraklion and the 14 that have been privatized already would represent 90% plus of our Greek activity.

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Achal Kumar, HSBC, Research Division - Analyst [30]

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Fair enough. The other thing I wanted to understand about the dividend policy given that the recent uncertainty has increased. I mean of course you have been saying that you will maintain the dividend for the next couple of years. But then now given that -- I mean of course there is a lot of uncertainty around the business and generally in Europe and EU. And then you are doing CapEx also. So do you think you will maintain the dividend policy? Or is there any change in the dividend policy do you see?

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [31]

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I think we will maintain the same policy as percent of earnings after-tax distributed. We have no reason to change that, that I can tell you today. Of course that is a percent of earnings after-tax, as I said, so there will always be related to how profitable we are in a given year.

The cash flow situation of the company actually, I would say, right now is much more positive than ever before. We took the risk or the decision to issue a bond, as you know, substantially before we needed the material funds for fleet delivery cost to secure the availability of these funds at the appropriate time and to be able to negotiate with older net financing parties more efficiently. We have sustained the cost of paying interest faster than we should because we certainly did not need the money at the time. But I think the overall cash flow, both in terms of operating cash flow and in terms of cash availability is very, very secure. So the percentage of our earnings that will go out, the dividends will not change. What remains to be seen, of course, like every year is exactly what the earnings will be.

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Achal Kumar, HSBC, Research Division - Analyst [32]

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Okay. Perfect. I have 2 more questions. And I am so sorry for the long list of questions. I had just last 2 questions. One, I wanted to understand about the capacity and fleet plan. I think at the start of the year, you mentioned that in terms of number of seats, you guided to a capacity growth of about 4%. And now in the first half, I think you reported 8% increase in the number of seats. So what sort of capacity growth are you looking at for the full year? And second, I wanted to understand about the cost outlook. So you have mentioned that you are planning to sort of reduce aircraft operating cost, if you could please elaborate on that point. And really sorry for the long questions.

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [33]

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No. No problem at all. Yes, as I said earlier on, you -- we had an increase of 12% of ASKs in the second quarter end of -- it was 9%?

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Unidentified Company Representative, [34]

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Yes.

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [35]

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9% of ASKs in the first half. I said earlier on that Q3 should be more or less at half that growth rate of the second quarter, so around 5% to 6%. And the last quarter, probably it's going to be around 7% or 8% in ASKs. So that should lead to a year that's going to end up somewhere between 6% and 7.5%, I think, in terms of ASKs. And 6% should be probably just a little bit under that because we do have an extension of stays length by 1.5% more or less.

So in terms of capacity, that's the question that I can give you. In terms of other costs, well, as I said, we're pretty much hedged on fuel. We're also around 60% -- 57% hedged on U.S. dollar for this year, yes, 57% hedged on U.S. dollar for the rest of the year. So I don't expect a big difference from there other than the valuation issues that I discussed earlier on. But that is a valuation issue, not an operating cost issue.

I don't see something material changing in our unitary cost level other than to say, of course, in the summer when we fly more, our cost per ASK is lower simply because our utilization is higher, and we can -- and the lease cost, the personnel costs get amortized with more production. But other than that, I don't see any particular movement different than what you have seen already.

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Achal Kumar, HSBC, Research Division - Analyst [36]

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So you have mentioned that you were planning to reduce aircraft operating costs. So what does that point refers to then?

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [37]

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The reduction operating cost will referred to the period of receiving the new aircraft and beyond. You might recall that in our previous call for the year, I said that the improvements from arriving aircraft was first to a very low level start to appear in 2020, but mostly should be from the second half of 2021 and on when we then by that time have at least 14, 15 aircraft in our fleet. Since the first aircraft that we are receiving is coming essentially in 2020, certainly there can be no unitary savings in fuel or maintenance or increased capacity that will lower the cost per seat to be coming from that direction. That is completely related to the new aircraft arrival, and I believe -- I'm certain that this is what I have mentioned as a sort for 2-, 3-, 4-year perspective, and I had actually even given you some expectations when it would start.

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Operator [38]

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The next question comes from the line of Caithaml, Jakub with Wood & Co.

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Jakub Caithaml, Wood & Company Financial Services, a.s., Research Division - Equity Analyst [39]

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This is Jakub Caithaml from Wood. I have 2. Firstly to follow up on Kumar with regards to competition, and if it's possible to kind of present the outlook assistance for the remainder of this year and perhaps the beginning of the next one. Are there kind of more parties looking at Greece? How do you think that the competitive advantage is going to evolve looking forward? And the second question relates to ATC capacity. I mean how are the delays and the EU compensation under -- the compensation under euros comparing with last year so far?

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [40]

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Yes. Thank you. As far as competition goes, I think you know very well that the carrier that has more significantly than everybody else added to competitive capacity in Greece over the last 5, 6 years is Ryanair. Ryanair, again this year, have shown a significant increase of seats towards our country, for international capacity towards Greece has grown, I believe, in excess of 15%. The overall capacity to Greece, including domestic, has grown marginally because basically, they took out capacity from international -- sorry, from domestic and shifted it to international. But since the number of seat count is up and the average [stage] length is up, that means that they are continuing to invest towards our country. easyJet has been more or less constant, with very small increases last few years. Wizz, who made the foray into Greece a couple of years back, took a step back a little bit this year because some of the routes didn't work out. Lufthansa and Air France as groups are growing towards Greece primarily through Transavia and Eurowings, although this year for Lufthansa group less than the year before; Transavia has been more aggressive and Air France have been more aggressive through Transavia. Overall, the competitive environment to Athens and for this winter from the competitive parties seems to be about 5% to 6% increase relative to the year before, which is indeed lower in terms of increase of capacity than what we were seeing for next year for winter, which was more likely to be 15% relative to the year -- to the winter of 2017.

So looking into the winter, it looks like a more benign growth, but it's still growth of capacity. So it's definitely not anybody pulling anything back from the competition. And we aim to get a little market share back. We tend to differentiate our growth rate less than our competitors because we are so Greece focused, and therefore we have a more constant or a more consistent, probably is a better word, policy towards growth.

The competition, while growing at a lower pace than the last 2 years is still growing in international. In domestic, there are today 2 Greek airlines, Sky Express and Astra flying domestically and also Volotea that has joined the Greek domestic market since last year. The capacity that they are putting in is being offset with the capacity that Ryanair has taken out. And so in some routes, we might actually have a reduction in competitive capacity this winter. Overall, for the year, it's going to be round about 0.

Now how is 2020 going to look like? It's too early to tell. But considering that everybody that is significant in Europe, Ryanair, easyJet, Wizz and of course, the 3 large network airline groups, Lufthansa, Air France and BA, IAG are all here. We don't expect any big changes. I would say that the only trends in the last 2, 3 years have been for the large network carriers to also add direct connections to some of the larger island destinations. So the main investment has been from the point of view of network carrier VAT, connecting their hubs to some of the, let's say larger islands, with their proper main line brand, so Lufthansa some cases or BA in some cases or Air France in some cases, and more frequently with their local brands, Eurowings, Vueling and Transavia. These local carriers have been through a policy of expansion to Greece the last 5, 6 years. It's mitigating some, [it has] grown a lot, but it's still there. And domestic is stable to negative in terms of competitive capacity growth.

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Jakub Caithaml, Wood & Company Financial Services, a.s., Research Division - Equity Analyst [41]

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Excellent. And perhaps in terms of the delays and the ATC...

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [42]

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Yes. Sorry, sorry. I apologize. Well, ATC delays have been the biggest problem that we have faced this year. But this time, the origin of the ATC delays was not so much the European airspace, it was more local issues with the capacity of the Athens Approach airspace, which is the area around our hub. There has been a particular problem since -- from mid-June, which was more or less rectified by the second half of August. It's referred to having inadequate capacity at midday between 12:00 and 4:00 for incoming flights, causing a chain of delays and a very negative effect to us as a hub carrier based out of Athens. This is partially due to real staffing and organizational problems through a Greek ATC, and partially due to some, let's call it political maneuvering that takes place by elements of state workers and state agencies when changes of government take place.

In any case, we have been working very hard to push both sides of the government, the workers, the organizational elements to invest in new hires for next year and invest in additional equipment, after all, they're only investing with the money that airlines such as ourselves are paying. This is a very much self-financed process that actually leaves a surplus for the Greek state and they are obliged to invest that surplus in the improvement of the ATC. And this is very much what we have been pushing them to do. Based on the experience of the summer, we see some promising signs in that direction but we'll take some time. From the point of view of costs, yes, maybe we will have about a couple of million of extra cost for the whole year relative to the year before due to hotel overnights, 261 compensations and whatnot. But this cost -- this additional EUR 2 million is minuscule relative to the disturbance and disruption of the actual flow of business, fatigue of our stock, and of course, the decreased satisfaction level of our customers, which for us is a paramount issue and the one on which this airline has been based from day 1.

So we are working very hard, and we have seen some first results from positive response from the state. We will continue to lobby very, very aggressively to ensure that next summer will not have the characteristics that the July and early August period had, which were not only negative for us, but also of course for other carriers flying to Athens, and of course for the perception of the tourism product of Greece.

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Operator [43]

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(Operator Instructions) Ladies and gentlemen, we have no further questions at this time. I will now hand the conference over to Mr. Vassilakis for any closing comments. Thank you.

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Eftichios Theodoros Vassilakis, Aegean Airlines S.A. - Executive Chairman [44]

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Thank you all for attending our first half results conference. As I said, I want to close on a positive note, just like we opened on a positive note, the increase of revenues and the satisfactory increase of utilization and employment stretching our season without costs to our yields have allowed us to overcome the overhang of the additional fuel cost and the IFRS 16 effect is promising for the continuation of the year and which was better than our expectations especially within a year that, as I said, we have slowed down arrivals in Greece. So I look forward to the completion of the third quarter, which is the one that, of course, every year shapes our results to hopefully have this dynamic to some degree, even a lower degree from the point of view of revenue increase, translate to very positive third quarter and full year results. So thank you very much for your attendance and see you soon.

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Operator [45]

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Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a pleasant day.