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Edited Transcript of EZJ.L earnings conference call or presentation 17-May-19 8:30am GMT

Half Year 2019 Easyjet PLC Earnings Call

London May 27, 2019 (Thomson StreetEvents) -- Edited Transcript of easyJet plc earnings conference call or presentation Friday, May 17, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Findlay

easyJet plc - CFO, Chief Information Officer & Executive Director

* Johan Lundgren

easyJet plc - CEO & Director

* Robert Carey

easyJet plc - Chief Commercial & Strategy Officer

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Conference Call Participants

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* Andrew Lobbenberg

HSBC, Research Division - Head of the European Transport Team

* Damian Brewer

RBC Capital Markets, LLC, Research Division - Analyst

* Daniel Roeska

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* Jaime Bann Rowbotham

Deutsche Bank AG, Research Division - Research Analyst

* James Edward Brazier Hollins

Exane BNP Paribas, Research Division - Senior Transport Analyst

* Jarrod Castle

UBS Investment Bank, Research Division - MD, Head of the Travel & Leisure Sector and Co-Head of the Global Transport Sector Team

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Presentation

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Johan Lundgren, easyJet plc - CEO & Director [1]

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First of all, thank you very much for coming here today, and good morning to everyone and to our half year 2019 results update. I'm here together with Andrew Findlay, our CFO; as well as members of the airline management board, who sits here. Also take the opportunity, if you want to speak to any of them after the presentation, I'm sure they will be more than happy to have a discussion with you on anything that you'd like to ask about within the company.

I'm pleased to say that we have delivered the first half that was in line with our previous expectations whilst recognizing that we have incurred a significant loss in the first period. Revenue reflected a number of headwinds, such as the impact of new accounting standards, and the shift of Easter into the second half. However, underlying revenue per seat was positive. We have responded by bringing more focus on delivery of our plans in the second half, accelerating and increasing a number of customer revenue operations and cost initiatives, which now underpin our outlook for the rest of the year.

The progress on the Operational Resilience Programme that we initiated last year is extremely encouraging and is on track to ensure that we deliver our improved cost target for the year, including major cost improvement in the second half despite a worsening ATC environment. In the meantime, we're continuing to invest to deliver a strategy focused around our plan, which through targeted sustainable growth will drive higher profit per seat, returns and cash. Our 3 strategic initiatives are going well, and I will highlight the holidays proposition later in the presentation.

These are all underpinned by our investment in data, which has continued to drive significant benefits and you will see that as we go through the presentation. As a result, our outlook remains unchanged and in line with current market expectations. And with that, I will pass you on to Andrew to go through the numbers.

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Andrew Findlay, easyJet plc - CFO, Chief Information Officer & Executive Director [2]

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Thank you, Johan, and good morning, everyone. Starting off with some key stats. In the half, our capacity growth -- capacity grew broadly in line with plan at 14.5%. Passenger numbers reached 41.6 million, up 13.3%. This results in a load factor of 90.1%, down 1% from the first half of FY '18, which reflects the lower load factor we reported in the first quarter. On a reported basis, first half revenue per seat was down 6.3%, while at constant currency, RPS decreased by 7.4% in line with guidance.

Our headline cost per seat increased by 3.9% in the half while increasing by 2.5% at constant currency. Our constant currency headline cost per seat ex fuel was up 1.3% for the half, which is in line with expectations.

Moving on to the income statement. To be helpful, we have included the impact of IFRS 15 and 16 accounting standards, which are mainly phasing impacts highlighted by the gray shade cells. I'll give you more details of the IFRS adjustments later.

Total reported revenue increased by GBP 160 million for the half, which reflects a combination of our capacity growth and the strengthening euro. Total headline costs, excluding fuel, increased by GBP 276 million, which was mainly driven by our 14.5% capacity increase in the half. I'll provide more details on our cost per seat drivers in a moment.

Fuel cost were up GBP 141 million in the half, which reflects the impact of an increasing fuel price and weaker sterling through the period, which drove a 25% increase in the effective post-hedged fuel price to GBP 493 per metric tonne. As a result, easyJet has delivered a headline loss before tax of GBP 275 million.

In terms of non-headline costs, we invested GBP 4 million in ensuring we are well prepared for any Brexit outcome and the accounting interest associated with the sale and leaseback of 10 A319 aircraft in the period delivered a GBP 2 million profit, which is slightly better than we highlighted at our preclose in the first of April.

Moving on to the detail of our revenue per seat performance. Total revenue per seat decreased by 7.4% at constant currency, in line with expectations. This overall outcome is built up as follows: The movement of Easter into April impacted RPS by 96p or 1.8% on a per seat basis. The one-off benefits we reported last year from the bankruptcy of Monarch and the Ryanair winter schedule cancellations combined to have a 2.8% negative impact on RPS in the half. As expected, significant year-on-year capacity growth in the first half in Berlin Tegel has been RPS dilutive. We reached our first anniversary in January and the schedule is still being optimized. In total, this had a negative 2.3 percentage point impact on RPS for the half but will improve as we go through the summer period.

As a result, underlying revenue per seat increased by 1.8% due to a strong focus on revenue maximization as well as the continued growth in ancillary revenue per seat through the better bag and allocated seat pricing and sales. The introduction of IFRS 15 negatively impacted half 1 revenue per seat by 2.3% as booking and admin fees are now accounted for when flown, not when the booking is made. And finally, when including the positive impact of Forex, easyJet's reported revenue per seat for the half decreased by 6.3%.

So moving on to cost per seat. In summary, headline cost per seat increased by 2.5% at constant currency. This was driven by a 1.3% increase in cost per seat ex fuel, the components of which are shown on the graph. Starting from the left-hand side, there was a net 14p increase in airports and ground handling costs primarily driven by annualized increase in charges at regulated airports and the mix effect of Tegel. These were partially offset by lower-than-expected de-icing cost and continued airport procurement activity.

The increase in crew costs of 43p reflects an inflation linked crew pay deals, investment in resilience ahead of a busy summer period and significantly better crew retention rates than expected, which impacted productivity. Higher depreciation charges due to the new aircraft in the fleet plus the net impact of the introduction of IFRS 16 drove ownership cost up by around GBP 1.15. The first green column highlights the 67p decrease in overheads and other cost per seat. This saving includes a year-on-year reduction in wet leasing cost at Tegel airport, lower disruption cost despite the Gatwick drone incident as well as compensation payments from Airbus due to aircraft delivery delays. The decrease in Europe control fees results in a 30p reduction in navigation charges. And despite an underlying uplift in heavy maintenance cost due to the age of some of our aircraft, overall maintenance costs were down 21p due to the impact of IFRS 16 and movement of cost into depreciation.

The full impact of IFRS 15 and 16 on the income statements is provided in the next slide. Finally, an increasing oil price and weaker sterling drove increasing cost per seat of 81p and 78p, respectively.

This slide runs through the details of the impacts of both IFRS 15 and 16 had on the income statement in the first half. There are a number of allowable methods to adopt these new standards. easyJet has adopted IFRS 15, 16 and 9 on a prospective basis and as such, the prior year income statement has not been restated. IFRS 15 has had a net GBP 51 million adverse impact on half 1 revenue reporting primarily due to the timing of revenue recognition from certain revenue streams, principally admin and change fees now being recognized on the date of flight rather than the date of booking. In addition, we are now required to offset part of the EU 261 compensation against revenue first, which is a movement from the cost line and has no profit impact.

Moving down the slide, the adoption of IFRS 16 means we recognize leased aircraft now as assets on the balance sheet with an associated lease liability. This has seen a movement of expense items mainly from leasing and maintenance to ownership in the form of depreciation. But overall, this has had no material impact on net profit. The total P&L impact from these changes to accounting standards during the first half has been GBP 51 million. As a reminder, all guidance incorporates the anticipated impact of these changes.

Now for more detail on the impact of fuel prices, currency and hedging. The average market price for jet fuel for the half was $650 per metric tonne. After taking into account our commodity and currency hedging, the Sterling cost of fuel per metric tonne was GBP 493, which is GBP 100 or 25% increase compared to half 1 last year. Despite the increased fuel price, we expect to continue to be advantaged compared to a lot of our competitors over the next 12 months based on our current hedge position.

Moving on to foreign exchange. The euro rate fluctuates between EUR 1.10 and EUR 1.17 during the half. Net-net, there was a headline GBP 9 million negative impact from currency movements, which includes those within revenue, fuel and cost lines.

easyJet continues to generate strong sustainable cash flows with operating cash flow reaching GBP 581 million, which funded the return of 233 million to shareholders through the payment to the 2018 ordinary dividend. Our investing and financing activities include the generation of GBP 121 million by the sale and leaseback of 10 A319 aircraft. This contributes towards GBP 465 million of capital investment in the half primarily on new aircraft. Our liquidity is supported by 2 revolving credit facilities, 1 USD 500 million and 1 GBP 250 million facility, both have no covenants or draw stops. Also as a reminder, an innovative policy has been written with Munich Re to provide business interruption insurance of GBP 150 million that cover large, short-term shock events, which also supports our liquidity buffer. Pricing is competitive with other sources of funding and frees up cash for use in the business.

As of 31st of March, our liquidity position was GBP 3.7 million per hundred seats versus our minimum liquidity target of GBP 2.6 million per hundred seats. Our BAA1 and BBB+, we continue to have one of the strongest balance sheets in aviation, which provides resilience, flexibility and access to cheaper unsecured debt. Supporting the strength is our fleet, and at the end of the period, 221 aircraft were unencumbered, which is 69% of the total fleet. Primarily as a result of the introduction of IFRS 16, the shape of the balance sheet has changed. As highlighted earlier, we now recognize operating leased aircraft as assets in the balance sheet with an associated lease liability. Previously, this liability would have been reflected in our adjusted net debt calculation, which should included a 7x multiple of annual lease costs. IFRS 16 requires a more accurate calculation based on a discounted operating lease cash flows and is now reflected on the balance sheet.

This impacts our calculation of return on capital employed, which is now shown on the Appendix on Slide 38. It is worth also mentioning at this point that the economics and cash flows have not changed and our rating agencies have been taken through the changes. As I've described earlier, the P&L impact is that these now have an associated depreciation charge and an element goes through the interest line with no overall impact on income or PBT or cost per seat.

The increase in unearned revenue reflects the timing of Easter, the deferral of admin fee revenue into the second half of the year under IFRS 15 and seat capacity growth.

This slide summarizes our forward jet and currency hedge positions. Although recent increases in fuel price will impact us in the short term, based on the hedging disclosures of our competitors, we expect to be advantaged over the next 12 months as a result of our current hedge position.

Moving on to fleet. Since the last time we provided this information, there have been some changes mainly driven by Airbus delivery delays. However, as you can see, we have retained a significant flexibility in our plan, which allows us to manage any market conditions, more recently adapting to short-term opportunities while continuing to plan for the longer term. You have seen this with our strategic growth over the last couple of years in airports like Berlin, Amsterdam, Basel, Lyon, Luton and Manchester, which all have fit clearly within our strategic framework for establishing and maintaining #1 and #2 positions in primary airports.

We constantly maintain strong capital discipline and are always looking to maximize our returns, [proper seating] cash generation whilst ensuring we have the ability to target growth as and when we need to.

This chart summarize our gross CapEx over the next 4 years and reflects our current fleet plan. Just to note, this graph now includes the impact of IFRS 16 and as you can see in gray, the elements of the graph which now reflects what would have been previously recognized as lease payments. Our policy is to begin hedging aircraft purchases once they become committed. We are currently hedged for circa 88% of the financial year '19 aircraft delivery payments.

Moving on to forward bookings for the remainder of 2019. 72% of our Q3 seats have now been booked, which is 3 percentage points less than same time last year and 34% of our seats in Q4, which is in line with last year. The slide shows the expected capacity growth across the European short-haul network through the summer. As you can see, total short-haul capacity is expected to grow by around 2.4% in the half with easyJet growing around 7%. In terms of competitors on our markets, we are expecting a 3.6% increase in capacity.

In addition to the previous slide, I've added this chart, which gives a breakdown of the 7% easyJet growth of the summer. Starting from the left, 2.3% of growth reflects the annualization of route capacity from financial year '18. The continued investment in building our #1 and #2 positions at primary airports, which Johan will talk about later, as well as expanding our network to airports and routes that deliver margin accretive returns. Up-gauging represents 1.3% uplift. Finally, the strategic investments in Manchester where we are consolidating a strong position following the demise of Monarch, in Nantes where we just recently opened a base to further secure our strong position in regional France. And finally, Tegel where last summer we were still ramping up our operations and is therefore annualizing out.

We are also in the process of finalizing our schedules for the winter. Based on the high levels of winter growth of almost 25% for the last 2 years, we are planning to use the fleet flexibility I highlighted earlier to grow in financial year 2020 at a rate that is the lower end of historic growth rates. This ensures that we continue to concentrate on maximizing profitability whilst continuing to enhance our strong positions in primary airports across Europe.

So moving on to the more detailed line-by-line outlook slide. Before I get to the details, I'd first like to point out that FY '19 PBT expectations haven't changed from where we last updated the market, in line with the consensus of the market from those analysts who have recently updated. 2019 capacity for full year is expected to increase by circa 10%, which is no change from previous guidance. Regarding half 2 revenue per seat, the soft fuel environment has continued and we now expect RPS to be slightly down. As Johan will discuss, we have been delivering initiatives that are helping offset this softness and we'll continue to do so through the summer.

Some of the initiatives we are delivering, a part of our Operational Resilience Programme, have delivered savings that have led to an update of our cost guidance. Full year headline cost per seat, excluding fuel in the constant currency, is now expected to be down subject to normal levels of summer disruption. Moving on to FX and fuel, based on the hedging rates highlighted, we expect a headline GBP 10 million year-on-year positive impact for the full year. Full year unit fuel cost is expected to be GBP 25 million to GBP 60 million year-on-year adverse with an expected total fuel cost of GBP 1.4 billion.

Please note that this includes the impact of ETS carbon scheme prices, which continue to remain high with the current price of circa EUR 25. I'll now hand you back to Johan.

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Johan Lundgren, easyJet plc - CEO & Director [3]

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Thank you very much. With that, based on the update that Andrew just provided, I thought it would be a good opportunity to start off by highlighting the initiatives that the team are currently delivering that are helping us in the short term but also will provide longer-term structural improvements.

These initiatives are improving our customer, revenue, operational and cost performance. For our customers, we have now rolled out Auto Bag Drop to another 5 airports around Europe, making 17 airports in total and representing over 34 million of our passengers, which is 36% of our annual passengers, and we are seeing customer satisfaction scores in those airports outperforming the network average.

We have implemented a new contactless payment system onboard that improves transaction times and available inventory onboard, which will drive increased sales and an improved customer experience. We have invested significantly in our call center with a maximum call wait time -- this Easter was 4.5 minutes, which was a very big improvement compared to Easter last year. We are also processing claims significantly quicker than in the past. So for example, over the peak Easter period, we were processing claims in just 2 days. We're also driving higher customer satisfaction onboard where the customer satisfaction with the crew is at an all-time high but also shorter queuing times and the strong recent brand scores across all the markets where we are operating. In revenue, our programs have improved the revenue management system algorithms, and ancillary offers, we have increased the number of allocated seating bands to increase the customer choice. As a result, we have seen some late-yield benefits in April and ancillary revenues continues to perform well. We will continue to launch programs through the rest of the year, such as a new business bundle and adding further bands to the allocated seating offer. And finally, our Operational Resilience Programme is going very well so far despite a worsening air traffic environment.

Using data to analyze and improve our schedules, airport and route assumption and crew deployment as well as doubling the standby aircraft availability, we have with that delivered one of our best Easter weekends ever with an average on-time performance of 86% despite flying a schedule of over 1,800 flights a day that compares very much to one of our busiest days of last summers. These are all the things that are already delivering benefit this year but will continue to deliver in the long term.

Despite the tougher current trading environment, it's important to note that structural demand for travel is resilient. On the one hand, talking to our customers recently, we have heard that over 30% of them were being influenced in the travel plans by concerns for the Brexit and consumer confidence remains muted across Europe. But the [same service said that the amount] leisure travel was important, and we have seen this reflected also in other studies, such as the annual HSBC consumer study. 63% of customers indicated that travel for leisure was a major priority for them, an increase of 4 percentage points compared to 2017. So in a cyclical market, underlying demand remains high and easyJet is well placed to be the go-to airline for our customers when they do book their flights. This is clearly demonstrated by the 13% customer growth in the first half. In the markets we operate, Europeans say we are the first choice airline more than any other airline. And they also say we offer an experience worth more than the price paid at any other airline. And of course, we are well established as the #1 low-cost carrier in the U.K., France and Switzerland. And again, this was validated in a recent consumer study by UBS where easyJet's rankings against other low cost carriers had widened while also scoring very well compared to legacy airlines.

I'll now take you through some of the initiatives that we expect will underpin the outlook for the remainder of the year. We continue to invest in the business to drive value and have delivered across all parts of our plans in the first half. Our investment in the network means that we are now #1 in Berlin, we opened a new base in Nantes recently and we now have 27 airport with a #1 position, up 9 from 2017. 54% of our capacity is now flown from a #1 slot-constrained airport, an increase of 6 percentage points from full year '17. From the customer perspective, we are the #1 airline in Europe for value and our customers' loyalty remains high at 76%, which represents an increase of 7.5 million customers to 71 million on a rolling 12-month basis. We also won the award for Best Business Airline beating airlines like Singapore Airlines, Lufthansa and Etihad. We have delivered cost savings of GBP 45 million so far this year through our strategic cost program and expect to save GBP 100 million in total this year. The investment in resilience had already seen a 54% fewer cancellations in H1 despite that -- compared to 2018 despite the 43% increase in air traffic delay minutes and the impact of the drones in Gatwick in December. This means that around 250,000 fewer customers were impacted compared to last year. As I mentioned earlier, Easter on-time performance were 86%, one of our best-ever despite flying the most sectors ever.

Our people remain well engaged with easyJet's outstanding crew, driving our best-ever customer feedback and satisfaction, and pilot and crew retention are high at around 5.5%. And finally, our data team is developing well with nearly 40 team members working on projects across the business, and we will now bring this team together with the IT team to drive greater scale and product development speed. Our network of strong positions in primary airport is our biggest asset, in particular with our slots constrained, and we have continue to invest in this during the period. We have ramped up our operations in Berlin, having only started operations there on the 5th of January last year and have now established ourselves as the #1 airline in Europe Europe's second biggest city. We have grown by over 50% in the first 6 months and we now have over 40% market share.

Like in the rest of Europe, we are focused on delivering a great customer experience, which is shown in the good brand scores. Awareness of our brand has driven saliency up 5 percentage points year-on-year. And as customers increasingly get to love easyJet and our brand, that affinity with the brand has grown 3 points compared to H1 2018. Overall, our rate of financial improvements in Berlin is in line with other large-scale investments that we've made in the past, such as slot purchases in Gatwick and organic growth at Schiphol. Elsewhere, we have invested in regional France, recently opening our new base in Nantes and we are now the #1 airline in Lyon, Nice, Bordeaux, Nantes, Grenoble and Lille as well as #2 in Paris and Toulouse. And as stated earlier, we also continue to consolidate our positions around the rest of the network where our market-leading positions gives us the opportunity to strengthen our positions at primary airports while at the same time driving profitability.

With 54% of our capacity, which is over 50 million seats, in slot-constrained airports, this helps to drive our long-term increasing returns, which have increased by 20% over the last 5 years.

Winning our customers' loyalty is an area of continuous investment for easyJet, which is highlighted by the 76% return in customers that we saw in H1 this year. Today, easyJet has a great offer and a great brand that drive customer loyalty, and loyal customers are much more valuable to us with returning customer buying twice as many flight per year as first timers. They are attracted by the network of over 1,000 routes, great value fares compared to our competitors and those primary airports' continual innovation in our offers such the rollout of Auto Bag Drop and the new bag sizer on the app and our great customer service delivering by an amazing group of people.

You see these in our brand scores that show that we are rated the best low cost airline across our key markets in Europe with a number of awards this year that reflects this. Over 2/3 of consumers within key European markets state that they would choose to consider flying easyJet over any other airline while serious consideration in the U.K. market was at an all-time high in Q2. We will continue to invest in evolving the customer experience and leveraging our brand in strong markets with the aim of retaining and growing our customer base and increasing spend per passenger. We'll continue to build on the strong foundations of our core business, leverage our existing customer base and build on our strong brand with investments in holiday, business and loyalty.

As I said at our full year results in November, this gives us a huge opportunity to drive significant returns over the next 5 years. We'll come back to you in November with news on business and loyalty, but for now I would like to give you an update on easyJet Holidays. As I previously said, our objective is to become 6 major player in the European holidays market. Firstly, let me remind you of the opportunity that we have. The total European package holidays market are worth about GBP 60 billion per year, and this is growing by 6% each year. The U.K. alone is a GBP 15 billion market. And as we said previously, around 20 million customers fly with easyJet on our top 29 routes by capacity but only around 500,000 of those books accommodation with us. In fact, our total network will have flown over 100 million seats this year, giving us the scale and the network that differentiates us from all other holiday providers. Therefore, as these customers are already flying with us, it's now our job to get them to book their entire holiday with easyJet. And our feedback says that over 90% of our customers would consider buying a holiday from us.

With our holidays business now being in-house, we will be able to build and price holidays using easyJet seats and direct contracts with Europe's most loved hotels powered by the best-in-class travel technology and through a brand-new easyJet holidays website. Customers will be able to personally customize each of the elements of their holiday with a proposition that is built around our network and with great value. Progress has been very strong. Garry Wilson, our CEO of easyJet Holidays, has put together a highly experienced management team, including external and internal appointment. And I think it says something very powerful about the fact that we're getting very high-profile experienced people to come join us for this opportunity that we have at easyJet, leaving very established players.

Relationships with some of Europe's most desirable hotels are building well and we're expecting to have 500 direct relationships established for summer 2020. We have also pointed ATCORE as our holidays technology provider, giving us the capability as we have started to build, sell and yield managed holidays through the new easyJet Holidays website.

ATCORE's advanced competence is around pricing, contracting and search, will ensure that we're building an industry-leading website on top of the ATCORE platform whilst also giving us the scale we need to grow the holiday business over the coming years. Our current easyjet.com website provider, Valtech, has also been appointed as our holidays website provider, building on their expertise as our partner over many years. In terms of the launch date, we expect to have the summer 2020 for holidays available by the end of this calendar year.

Our next priority is value by efficiency. Our strategic cost savings programs and operational efficiency program continue to drive both short-term efficiencies and longer-term structural cost savings across all areas of the business, leveraging our scale and helping to ensure that the cost advantage versus our main competitors remains. The cost program has been able to deliver large and sustainable savings. GBP 45 million saved in the first half with an expectation of saving over GBP 100 million for the full year. GBP 545 million of savings has been achieved since 2011.

Our Operational Resilience Programme sees easyJet continue to invest in systems and processes that drive operational excellence, supporting reliable decision-making, reducing complexity, using data to make better decisions faster.

I will go into more detail regarding our operational efficiency program in the next slide. In addition, we are also investing in highly efficient next-generation aircraft that will deliver future incremental margin improvement, specifically through up-gauging benefits of around 1% cost per seat per year, flying our customers more efficiently than legacy carriers. 15% fuel savings compared to prior generation aircraft and 50% less noise. easyJet's ambition is to become one of Europe's most sustainable and fuel-efficient airlines, which our business model of high load factor and new generation aircraft would help us to achieve. Our effort to reduce CO2 emissions and reduce noise is recognized by a number of airports and rewarded by our customers. Our current emissions levels of 78.46 grams per passenger kilometer puts us significantly ahead against most European airlines and in particular, the legacy carriers.

As a reminder, our Operational Resilience Programme is focused on 3 strategies: to build, to execute and to recover. Build, being to invest in [talent,] in our schedule, aircraft and crew to deliver more resilient operation; execute, focused on delivering a robust operation through a combination of data-driven predictive tools, including automation and optimization; and recover, focused on improving the customer experience during disruption, minimizing impact and preserving the customer satisfaction. The initiatives we have been investing in so far include modifying schedules to improve overall resilience, including adding breaks during the day and changing schedules to avoid late flights into curfew airports. Proactively splitting the crew pairings to ensure standby crew are in the right place at the right time, doubling the number of standby aircraft compared to last summer while strategically deploying them throughout the network to ensure best impact, introducing a tactical flight planning team to update schedule operations for near-term factors, focusing on the first wave to minimize delay minutes as the day progresses. We built 8 automation and data tools to drive decision-making across all areas of operations, including an on-time performance simulator and an ATC Slot Predictor

The result that the implementation of these initiatives have delivered already are very, very encouraging. For example, winter disruption event volumes were down 33% compared to the same period last year. Year-to-date, summer disruption costs are down 30%. And despite having the busiest Easter ever -- we have ever had, the operation performed very well with 86% on-time performance and no cancellation despite schedules that are our busiest ever.

The Operational Resilience Programme is designed to deliver an approved customer experience as well as reducing cost with an expectation that disruption costs through the summer will be coming down.

Moving on to our people. We are investing significantly in people to make sure we have the right people to take the business forward. In a recent update to our employee listing to Peakon, our employee Net Promotor Score was 25, which is a strong results and which is also reflected in the high customer satisfaction scores that we have onboard our aircraft.

And our 4.2 star Glassdoor rating puts easyJet in the top 50 places to work in the U.K. as voted by our own people and the best airline. We have great employee retention at 6% turnover for the whole business and only 5% and 7% turnover for cabin crew and pilots, respectively, and this compares very well to other airlines. When it comes to recruiting, we're successfully targeting and attracting key skills that we need to take the business forward, such as we have talked about in holidays, data as well as across the rest of the business.

Having the right people is critical to achieve our plan. And finally, the priority that underpins everything that I've been talking to you about so far is innovating with data. We're putting data at the heart of every area of the business. On one hand, it is supporting the customer innovation and revenue initiatives, such as in-flight product availability, development of fare bundles and driving ancillary revenue opportunities. And on the other hand, it's core to many other operational resilience projects, from schedule building, crew rostering to pre-tactical planning and the on-the-day delivery. These has delivered revenue benefits in form of underlying positive passenger and ancillary revenue as well as recent late-yields improvements in April. And it has also delivered cost benefits from the lower disruption costs and better management of the operations in a worsening external air traffic environment.

We continue to recruit into the team and have now decided to bring IT and data together to increase the total resource available and accelerate the delivery of data projects and their customer revenue, operational and cost benefits.

So to summarize, we're responding to the short-term challenges and their acceleration of our initiatives is underpinning our outlook for the rest of the year, which remains unchanged. At the same time, we're confident that the work we are doing through our plan will deliver sustainable shareholder value. Our network is unrivaled across Europe's main markets and through innovation and crew engagement, we are winning our customers' loyalty. We remain incredibly focused on cost, and we are creating value by efficiency. We got great people in this business where we have new skills needed. We are attracting talented and experienced people to come and work for easyJet. And we continue to invest in data, which I've said will drive enormous benefits across the airline. Bringing these together will enable us to drive profit per seat, returns and cash for our shareholders.

So with that, thank you very much for listening today. And we will take questions.

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Questions and Answers

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James Edward Brazier Hollins, Exane BNP Paribas, Research Division - Senior Transport Analyst [1]

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It's James Hollins from Exane. Three questions, please. First one's probably for Robert or for German head is here, it's on Tegel. I'm just wondering if you could perhaps in some detail run through operational issues you faced and perhaps, more importantly, what you think there's still to do going forward in terms of having the right gates, route, network, all those sorts of things, a bit more detail will be very useful. And specifically, where do you think you'll still make losses in full year '20. Secondly, as running for you -- probably Johan, if you had any interest in Thomas Cook, whether it be the U.K. operations, German operations or just your thoughts on that. And the third one, obviously, better cost per seat performance guided today for this year. If we assume capacity's only up about 3% or 4% next year full year '20, I know that's an extraordinary long-term outlook for an airline. But do you think you can do cost per seat ex fuel down next year as well?

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Johan Lundgren, easyJet plc - CEO & Director [2]

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Robert, do you want to talk about Tegel and Berlin?

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Robert Carey, easyJet plc - Chief Commercial & Strategy Officer [3]

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Yes. So on Tegel specifically, I think as we've spoken about before, we're very happy with the development of how Tegel's been coming along. From an operational perspective, we continue to have very strong operational performance, customer satisfaction and customer uptake with our product and reception in the market, seems to be very strong. I think as we've discussed before, it's been a very competitive environment for the last year. On the one hand and as well, I think some of our network improvements have been slightly slower than maybe we initially anticipated coming in. That said, it is, as Johan mentioned earlier, developing exactly in line with typical progression we see for a large-scale new base opening, very much in line with what we've historically seen with any one of our bases, Amsterdam or even large-scale acquisitions in Gatwick. So I think it's progressing very well. We're very excited to have 3 new overnight parking positions that we've really used this summer to reoptimize our product for the local Berlin passenger. And so we expect a continued performance to come from there.

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Johan Lundgren, easyJet plc - CEO & Director [4]

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I think on the question on Thomas Cook, there's nothing really specifically to comment on that. We wouldn't comment on it in any situation when it comes to companies on that. I think it's a -- we have a very strong model, we feel very confident about with the positions we have at the primary airports. The all-time high satisfaction we have with our crew, the ability we have also to now to go into holidays, I think, is actually a great opportunity that this provides us to do with the network and the competitive advantage we have and also with the team we have in place. I think it's a good opportunity for us to do something in that market. Do you want to do the...

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Andrew Findlay, easyJet plc - CFO, Chief Information Officer & Executive Director [5]

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Yes. And so on cost, you're absolutely right. Our guidance, long-term guidance on capacity has been between 3% and 8%. So based on this guidance, we'd be at the lower end of that range. I think it's early doors on giving cost guidance for the [RTAs] at this point in time. We're very focused on this financial year. We want to land this financial year and the drivers of that will be operational resilience and disruption management. We've got a number of other cost initiatives this year to land. And we'll give guidance at the appropriate time for next year.

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Damian Brewer, RBC Capital Markets, LLC, Research Division - Analyst [6]

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Damian Brewer. (inaudible)

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Andrew Findlay, easyJet plc - CFO, Chief Information Officer & Executive Director [7]

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Yes. Thanks, Damian. So yes, our relationship with Airbus is good, very flexible. So as you know, as a result of some of the Airbus delays, delivery delays last year, we negotiated an even more favorable, almost reset the flexibility in our contract. And it's fair to say that we have almost rolling monthly deferral rights on a fair proportion of our fleet. So I think on Slide 14 shows the flexibility we have. The majority of that flexibility is the result of those deferral rights, the fact we can extend the leases or not as the case maybe. I think for the purposes of guidance we've given on CapEx, the uplift that you saw -- you've seen based on previous guidelines has been as a result of the IFRS 16 adjustment. But if you take that away, I think it's fair to say that there's a fair -- there's quite a fair proportion of that CapEx that's still to be determined. I think this is the best guess or best estimate of what we think we're going to do based on our latest plan. And as you said -- as I said, we look at this regularly as a Board and we adjust accordingly based on those deferral rights that we've got. So I think it's fair to say that of the back of the 2 years of growth that we've seen for the 2 years of winter periods of cumulative 25% growth, we definitely won't be seeing anything like that unless something else changes in the market, but we'll -- but we've got no plans on that [this early.] So I think for [indiscernible] view of CapEx, this is our best estimate as we stand. We'll finalize nearer the end of the year exactly what our CapEx will be for the following year and so on, and we'll carry on that -- reviewing that as we go forward.

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Jarrod Castle, UBS Investment Bank, Research Division - MD, Head of the Travel & Leisure Sector and Co-Head of the Global Transport Sector Team [8]

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It's Jarrod Castle from UBS. Three as well. Can you talk a bit about the forward bookings and just I guess in kind of the current quarter, there's a deterioration and you've obviously had Easter. So if you give a bit of color there? But it does look like going into summer, the booking profile is in line with last year? And then just coming back a bit to pricing. Can you give a bit of color in terms of near-term pricing versus the early bookings pricing. If you're seeing any improvement year-over-year in terms of the later bookings? And then lastly, obviously, the shares have been under a lot of pressure. I mean, I guess because of the ownership rules, you can't really do that much. But is there any consideration for potential buybacks or the likes?

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Johan Lundgren, easyJet plc - CEO & Director [9]

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I mean in terms of the forward bookings, you see in the Q3 that we're behind some 3% on the load factor and then we're flat in the Q4 and then 2% behind on the half 2. I think we got to remember also that at that time last year in Q3, we still have the effects of the situation with Monarch had gone bankrupt in the fall of '17, we had Ryanair cancellations as well. So I think that in the winter, so that had a spillover effect, I think, on the bookings that we saw in the Q3. You're right to point out that if you're looking at the Easter, which is then moved in between the Q2 and Q3, we could resell -- well, I should have an uptick on the load factor. But load factor is, as you know, one part of how we manage this. We're looking to trying to get the most out of both the yield and the load factor. And I think that the work we're doing now, particularly within the initiatives within the trading and yield team, we are really trying to optimize that as much as possible. Going forward into the later part of the season, we've actually, for the summer, we booked 3% more passengers than we had versus last year. But it is tougher environment out there when you're looking at the pricing. There's no doubt about that. And like I said, we do mix between the yield and the load factor to try to optimize our results on that. When you're looking at the near-term bookings versus the long-term pricing, I think that the initiatives that we have launched that they were driving through sits at this moment, been quite focused on the near-term pricing. But they are also in there to help improve the performance as we go through the remainder of the year. But we have guided today that there's a -- we look at our best to be slightly down for the year and I think that is a reflection of the overall environment.

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Andrew Findlay, easyJet plc - CFO, Chief Information Officer & Executive Director [10]

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And no, we've got a very clear cash term policy of our dividend. And as you know that we've got a target to get that 50% EU ownership. We're [fortunately now on 0.6,] we're at the cusp of doing that, so we're very clear. We've reviewed exactly what we want to do from the point of view of the returns for shareholders, we're very comfortable with the term policy that we've got.

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Daniel Roeska, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [11]

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It's Danny for Bernstein. Three, if I may. Number one, on the fleet flexibility again, maybe slightly different angle. What conditions in the market would prompt you to decide to go for the minimum level? And I think you already commented on the achievability, so that's probably a mix of leases and deferrals in that way. Number two, on your #1 airport position, [Cath Lynn notes] strategy. This, of course, seems to be implying better yields in those airports where you have a #1 position. Could you discuss a little bit or comment on it whether it's your position or the overall constrained-ness of that individual airport that actually drives yield position? And where you're seeing that, did any of the additional markets you've added to the #1 positions, do you actually see yield uplift happening? And lastly, a little bit off-topic, on the emissions, on the cost side of it. Could you comment on basically your view on the ETS cost for, let's say, the next couple of years? So thinking about your allowances and the cap and trade mechanism. What would you expect ETS cost to do to your fuel bill? And maybe just a short comment on the risk and opportunity balance for easyJet on the back of the discussions for fuel tax. How do you see that?

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Andrew Findlay, easyJet plc - CFO, Chief Information Officer & Executive Director [12]

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Yes. So (inaudible). So in our planning, what we do is very clear. So we're balancing cash flow, [proper] seats and returns and growth and opportunities that we have. And that's affected the fundamental, as you'd know of any kind of good planning. From our perspective, we have triggered some deferrals in the past, as you know, and we've used that -- we've flexed those and back in November last year of the back of the deferrals, and we've got a good deal out of Airbus for doing that. But it's an ongoing process. For us, it's all about getting -- maximizing those returns, making sure we have the flexibility to go in those airports where we can get those returns and balancing off the growth and growing in the appropriate way. So if you look at this financial year, although we've grown significantly, the growth that we've put in place have been very, very specific. You know we've talked Manchester getting in after [model exits,] to really solidify our position there. We've talked about France. And we're now #1 in a large number of those French regional airports. And our post the half year, we've been into Nantes that kind of nicely rounds off our domestic proposition. And as a result of that, you've seen the news from Air France. So I think for us, it really is around making sure that we've got that flexibility both on the up and the down. When it comes to what we would have to see to get to that minimum, I tell you, we haven't got a specific number or a specific target or a specific trigger. We're constantly reviewing as we go along to see exactly what's the best use of our asset. Now things change as you know in this, what is a changing environment and changing capacity environment and changing competitor environment, a the number of airlines that have gone under recently is significant. So we got to make sure we keep that flexibility, and it's important to us. But it's one of the things that we work on with Robert and the strategy team and the fleet team very closely to balance those things out. But it's all about maximizing those returns but making sure we're fleet of foot and with Tegel and what we did there, that proves that we've got the ability to both flex our dry leases, get wet leases and flex owned aircraft at the same time to land that proposition.

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Johan Lundgren, easyJet plc - CEO & Director [13]

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I think just on the point of the position versus the slot-constrained, and you're absolutely right. I mean, you got to take these two things into consideration. I mean, we are very targeted in the growth. I think that's important when you're looking through the growth that we had in the winter, the growth that we're now having in the summer and going forward. It is very much allocated into those positions where we think that, one, we can get into that #1 and #2 position, where mostly and often, most of the time, that gives the [desire to create the great] efficiency in the model. Our model doesn't work really that well when we are #4 or #5 sometimes in there. So one, is getting into that efficiency with the scale that, that #1 and #2 position often gives. The other point is about the slot-constrained airport. It's really about making sure that we are there in the those primary airports when things tighten up because we know that there's a big time delay before some of these airports will then expand their structures. And we want to basically be there, and that is some positive characteristics around that as well. So we're looking at both these things but it's very, very targeted on how we actually allocating our aircraft coming in based on where we can get into those position and also what is slot-constrained.

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Andrew Findlay, easyJet plc - CFO, Chief Information Officer & Executive Director [14]

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So when you said ETS, it's very clear that it has been volatile. We hedge our ETS exposure as you'd expect. But given the new global regime on carbon management and carbon credits is coming in, in 2020, which isn't unclear yet exactly what that's going to look like, we're perfectly lobbying and keeping a close eye within the environment agencies now, obviously the [DoT,] et cetera to ensure that we are -- have clear visibility of what that will look like. Good news is that we are effectively pretty much Brexit ready. So we've switched the -- switch to operate our airline as though we are in a Brexit scenario and we've managed to secure the ETS credits in those 2 ASC jurisdictions. So from that perspective, it's a good place. But as you say there's a lot of discussion around ETS and carbon, and we are having those conversations as you'd expect we would do. I don't know if Johan you want to add anything on.

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Johan Lundgren, easyJet plc - CEO & Director [15]

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No. I mean I think that all the work we did, I think it was pretty clear that we were preparing earlier than most other airlines and more in depth into the details. So 11:00 p.m. on the 29th of March, we were ready for that no-deal Brexit because we knew that they had moved the protection of the traffic rights were legislated within the EU commission that was reciprocated by the U.K. albeit on, I think, just a week before. But so we're today flying with the -- with really as there was a no deal Brexit. I think that the only exemption is that today, we can use the different airlines to cover up in terms of we have disruption to move aircraft and crew around, which we clearly, what it looks like in the new world post-Brexit, we'll not be able to do. But that's why we then have moved over our aircraft and pilot licenses and cabin crew at the stations to the appropriate airlines within the group.

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Jaime Bann Rowbotham, Deutsche Bank AG, Research Division - Research Analyst [16]

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I'm Jaime Rowbotham from Deutsche Bank. Just one on cost in the context of you guiding cost per seat ex fuel down this year. On the operational resilience, I wanted to explore the year-to-date summer disruption costs down 30%. Obviously, I'm conscious it's early in the summer. I'm conscious that there was strikes in France last week. But is that all to do with the having actually been a bit less disruption or is it all thanks to your initiatives? And perhaps there's other stats you could give us like year-to-date summer delay minutes or something like that?

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Johan Lundgren, easyJet plc - CEO & Director [17]

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Yes. No, I mean I'm pleased to say there's a lot of those initiatives that have delivered those savings. I mean, the air traffic management disruption itself was 44% worse during Easter. This is clear that the external environment is getting worse. I think EUROCONTROL predicts it to be 15% worse for the summer? And EUROCONTROL is also doing I think what it can in terms of rerouting some of the flights to avoid the hotspots or [cluster in Maastricht], as an example. But the work we started on in last summer has been really, really focused on getting this in place for the summer. So I completely agree with it, this is early on. But what is good about the Easter is that Easter almost is replicating what summer is. The difference will be that you're coming into the summer, you're going to have the bigger tour operators who's loading on more capacity and putting more strain on that external environment. But it also has given us that opportunity to try and test this. I mean, you take the ATC Slot Predictor, which is an algorithm that we developed ourselves, which basically collects ATC slot data, identifying constraints that have been put on flights historically. So we can use that to identify the hotspots within the network and then when we choose our then route plan in the flight plan, and we can take that into consideration as we would take fuel burn and navigation charges as well. The on-time performance simulator that works really well when we're looking at this from a first wave point of view to simulate on actually what are the changes we should do depending on the performance of the first wave at the later part of the day. You take the firebreaks that we put into the schedule. We've done 54,000 changes to our summer program. And it's actually not so much increasing the amounts of firebreaks. It's actually where you put them. So we've had them in the program but now we have allocated them out through using the data into where it matters. So if you're looking at our summer performance now, and we get a report -- reports on this per day that we are all -- everyone in the team is looking at, whereas previously you could see that, okay, if you were off in the first wave, your chances of recovering throughout the day, I mean, they were slim.

Now you can see that if you're having something that happens from an air traffic control point of view in the first wave, you can actually hold on and actually pick up at the remainder of the day. So it doesn't drive inefficiencies in the program. It's just a much, much smarter way of allocating those firebreaks. Of course, the standby aircraft helps. But once again, it's the way we have decided where to allocate them, making sure we're splitting up the crew[too,] just so we get people available also to fly them. So at the one hand, it is early on. But we said we're going to put in this as the biggest focus from our operation point of view for our customers' sake and also to drive down cost. And so far, it's delivering for us.

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Andrew Lobbenberg, HSBC, Research Division - Head of the European Transport Team [18]

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It's Andrew Lobb from HSBC. I think Daniel asked about the potential taxation of fuel that's out there and equally, we've got the Dutch government who are planning their own aviation tax and pushing for a pan-European aviation tax. And equally, in the U.K., we've got a proposed tax for bankrupts to cover bankruptcies. So how are you guys thinking about that, impacting your business or lobbying against it? Can I ask on the easyJet Holidays side. Obviously, you don't want to talk about guidance for profitability for next year. But how should we be thinking about -- because we've got cost this year but not a material uptick in revenue? Next year, we should have a running functioning business, which is going to be gloriously profitable. So how big an inflection should we be anticipating in that context? And just the last one, if I can be greedy, staying in Berlin. How are you thinking about your planning as potentially you don't want to get overly optimistic but maybe they're going to open that damn airport? You've been given a terminal. How's that impacting your planning in terms of your network and your operations and your customer proposition, which is not optimal. I think at Tegel but it's presumably quite hard to invest in if they're about to close it.

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Johan Lundgren, easyJet plc - CEO & Director [19]

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Right. So on the cost. I mean we are of the view, which we are engaging with local authorities and governments on these as well to say, that's taxation, first of all, taxation has not proven to do anything for the environment. Whether you have called that APD or whatever you called it in this environment, it's been a revenue income for the government. We keep reminding people also that aviation is one of the few means of transport that actually pays for its own infrastructure. Now the fact is that these doesn't shy away from the fact that sustainability is extraordinarily important and the industry needs to take this serious. We are taking that serious by the investments we're doing within our fleet. We're taking it serious in the investments we're doing with the technology, our business model. I think that what needs to happen from both airports and governments that they are also starting to recognize who are the companies here who does and invest in something that has less impact on -- or drives less carbon efficiency. I have no enthusiasm to go out there and defend the industry as a whole when I'm competing against carriers who runs 20-, 22-year-old aircraft with 65%, 70% load factor. It's a choice they've done. We've done a different choice. So I don't want aviation to be caught up that everybody's the same because we're not. And that's a debate that we are having, and I'm having personally with people from the governments, and I think that there's a recognition for that, but I'd like to see that there are incentives for those companies who have chosen to take those decisions.

Longer term, I do think that aviation needs to reinvent itself. I do think that whether that is through like we have in relationship where we're exploring the opportunities around electric and hybrid technology. And you know that is something that will be intensified. And rightly should it. And I think from our point of view, clearly, people will have choices in their means on how they're transporting themselves and so should they. I completely understand and accept that. But if people are flying, they're going to fly easyJet. So that's the approach that we're taking. We're got to do what we can to make sure that we continue to be efficient in terms of this. But taxation, in its own right, I haven't seen any evidence that this will work. I only see damages when this been brought into the picture but I'd like to see more targeted ways for companies such as ours get incentivized for the decisions we take.

Holidays. I mean the cost is not significant. It's mainly about people that we're doing this year. And we have chosen the provider for the systems. So we're not buying or building any system which was sort of part of the alternatives we have. We had also the opportunity to buy companies. We said that this is the route we want to go down to. So we've got to the technology now. We're starting to build up the team. We're not going to give any specific targets on this. We say that we will be a major player in this market, and we know we can to be that because we have the network. We fly to more leisure destinations than any other airline, both on beach and on city. And we do it with a fantastic cost -- cost base. The biggest hurdle for many companies to succeed in this place is actually get their flying sorted out, which I think you've seen recent examples of here in the past weeks. That is something that we already have. And that's something that we're going to build on. So we looking to make a launch out of this later in the calendar year and then we'll come back and continue to update you on the progress in there.

Berlin. I think I mean on the Berlin, look, this remains and is a great opportunity for ourselves. I think we talked about before that the optimization of the schedules that we've had. I think it's fair to say that we're somewhere about 50% done in what we can do. As mentioned earlier, as Robert mentioned earlier, I think it's fair to say that we have been little bit slower in the process but you know what? We have been focusing on getting ourself Brexit ready. We've been focusing on the operational resilience piece to make sure that we can set ourselves up for a good summer. And I think that, that has, to some extent, we use the same resources that we have available to focus on these things. We know we can improve the performance in there and there's nothing that says that this won't deliver in line with the other big-scale investments that we've done in our network. And in terms of the airport, when it's going to open. You were in Berlin 2 weeks ago?

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Andrew Findlay, easyJet plc - CFO, Chief Information Officer & Executive Director [20]

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Yes. So no, I think the -- they are -- as you would expected, they're very confident we've got a working team, it's almost just sponsoring it. So we've got a working team working very closely with them. As you can see, we've been -- the allocation of terminals being confirmed. We pretty much know exactly where we're going to be in that terminal, what our offer looks like, and we're absolutely on it. It's something that we know how to do well, and we've got a good working relationship with the FBB team out of the way to get it landed in a very smooth way when the terminal opens.

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Unidentified Company Representative, [21]

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Last question?

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Unidentified Analyst, [22]

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Two questions, please. Actually just for clarification on the cost per seat outlook being slightly down. In terms of the disruption, are you saying if EUROCONTROL is right and there's a 15% worsening over the summer that you're going to be able to achieve that target because of your firebreaks or you need the market disruption to be the same level as last year or lower than last year? And then secondly, just on the revenue per seat. Obviously, we've seen a slight deterioration in the last 6 to 7 weeks relative to your expectations of the trading in April. Is -- how has that changed over the period? Is it -- it's just steadily undershot what you're looking for? Has it worsened more recently? And why would you be confident that it's not going to change further?

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Johan Lundgren, easyJet plc - CEO & Director [23]

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I think on the cost per seat and also the operational resilience, we have assumed that the environment will get worse, about 15%, but we are targeting to be slightly below the disruption cost that we had last year. That's what is in the numbers.

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Andrew Findlay, easyJet plc - CFO, Chief Information Officer & Executive Director [24]

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I think when we say normal, when you have big adverse one-off of events that's when it's more complex. But if there's a -- we've assumed a general -- a worsening of that, that 15% revenue -- revenue per seat expectation.

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Johan Lundgren, easyJet plc - CEO & Director [25]

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Yes. So look, it's one of the things that we see that the revenue per seat in the market is tougher out there, it has an effect. And whether that is Brexit or [I'm certain] because of macroeconomic factors that sits in there or combination or if it's delay pattern or if it's just all of these together, it is tougher out there. We're optimizing it the way we can, and it's interesting when you're looking at the initiatives that we're driving, the algorithms that we're working on for the [laves,] they do have an effect but in the scheme of things of the overall environment, it is something that makes it more challenging this summer. And that's what others have seen and that's what we have seen. But you know we feel very comfortable about the initiatives that we're driving, and we still have many more things to do. If you think about it, we -- our value for money proposition, the people regard us more than any other airline of delivering value and worth. That gives us also the opportunity to probably do more in terms of how we're optimizing our pricing on the products and offers we have. We've delivered now improved algorithms to -- for our ancillaries, on our bag pricing, as an example. We work with the price in a much more dynamic way. So there's a number of things we can do in there. But we -- it's appropriate at the moment that we have guided in here to take that revenue per seat down slightly from where it was.

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Unidentified Company Representative, [26]

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So thanks very much. We'll all be outside for the next 15, 20 minutes [indiscernible].

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Johan Lundgren, easyJet plc - CEO & Director [27]

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Thank you.