Fly Play hf. (PLAY) Earnings Call Transcript

Good afternoon, and welcome to this presentation where we present our quarter 3 results. My name is Birgir Jonsson, and I'm the CEO of Play. I am going to go through the highlights of the quarter. Then Olafur Thor, our CFO, will present the financial results, and I will then come back and discuss a little bit about the outlook and some things that we are doing at Play these days. If we look at the quarter, it was quite a good quarter, I would say. We operated 10 aircraft, and flew about 540,000 passengers between 33 destinations. Our load factor was 88.4%, which is very satisfactory for us. And our on-time performance was about 85% also. The VIA passengers was about 43%, from passengers, people traveling from Iceland, about 24 of our passenger numbers and the 2 passengers, basically, tourists coming to Iceland were about 33% of our total passenger numbers. What we are especially happy about looking at the data after the quarter, is that even though we are increasing our capacity quite substantially or about 71% from last year, we are seeing 9% increase in revenue or TRASK or the unit revenues. We see 3.4 percentage point higher load factor than last year, and we are delivering our first ever net profit in a quarter. So we are actually quite satisfied about the results of this quarter. And I think it's a good opportunity to especially thank the team at Play for their great contribution and hard work this summer. If we look at the mix of passengers in the quarter, we see especially strong demand from North America. And the VIA market or the flow market between U.S. and Europe was strong this quarter, 43% of our passengers, workflow passengers. Prices have been very high. Demand has been very strong. Utilization quite strong also quite high, about 92% load factor from our North American destinations, 85% from Europe or European destinations. So we see good results from our marketing and distribution activities in North America. And in fact, this seems to be ongoing. There's always some fluctuations in demand, but it looks very good and healthy for the future also. Passenger revenue, 38% coming from North America, 26% from Iceland and 36% from Europe. We are extremely proud of our crew a few weeks ago when it was announced that they were selected as the best crew by the readers of USA TODAY, of course, a major U.S. newspaper. And we were nominated with some world leading airlines, about 20 well-known brands in the global market, and it was a massive surprise, actually an honor for our crew to be -- to win this Readers' Choice Award. And something that gives us great encouragement. And is a great acknowledgment of their hard work and dedication. And we will never stop talking about that, that we are so proud of our great team of people. Here at Play, we basically use HR KPIs on a same level as we do financial KPI. So we are always measuring everything. We're crazy about data. And we wanted to show you the -- how our employee surveys are basically trending over time. And we can see that the pride of us all actually, myself included, of working for Play is very high. And actually, if we measure it and benchmark it against other items of the company, it's one of the highest. We see that engagement basically that we show up for work, and we want to do a good job and we want to get results. That is also quite high and growing and well above our goals. And also job satisfaction is also quite high and also growing. So it gives us an indication that the company culture is healthy. And we will continue on the same track of making sure that Play is a great place to work and that our -- our group of employees are happy. I think we have about -- well, it's about 550 people from about 29 nationalities working at Play. So it's a melting pot of culture and good ideas and absolutely privileged at least for me to be a part of that. Having said that, I want to invite Olafur Thor Johannesson, our CFO, to come here and talk to you about the financial results of the company. Thank you.

Thank you, Birgir. It's a pleasure to be here and present the great results of Play for the third quarter 2023, with a net profit of $5.2 million during the period. And as Birgir mentioned, that is our first quarter in the history, we are delivering profit -- net profit. During the quarter, we had -- it was a record revenue quarter with $110 million in total revenue, $12.9 million in EBIT and the TRASK and the CASK cents at very acceptable levels and cash position of $39 million at the end of the quarter, which is our overall opinion is very healthy. The total revenue were $110 million during the quarter compared to $60 million in the previous year. That is 84% increase. At the same time, the available seat kilometers were up by 71%. And we were operating 10 aircraft during the whole quarter. To the financial performance, the EBIT was almost 10x higher than last year, $12.9 million compared to $1.3 million. And as I mentioned before, this is our first quarterly net profit of $5.2 million. During the quarter, the working capital was unwinding due to seasonality that is very regular in our business. And that research has been decreasing in cash in the third quarter from $54 million to $39 million, and the cash position at the quarter end was $39 million. And as before, we had no external interest in debt on our balance sheet. But of course, we have to comply with IFRS 16 regarding accounting for the right of use of assets and related liabilities. That is our income statement for the third quarter and year-to-date, with key numbers there, the total revenue up by 84%. The ancillary revenue were up by 150% year-to-date. We have a great turnaround in EBIT, both year-to-date and for the quarter. Year-to-date, we had a turnaround of $22 million from previous year. And for the quarter, we were $11.6 million ahead of last year. Due to -- due to 4 more added aircraft during the year, the depreciation and financial expenses were higher this year than last year and for the comparable periods. And that is, of course, affecting the total EBIT and EBT for the periods. But bottom line, net results for the period $5.2 million compared to minus $2.9 million in the previous year. That is a turnaround of $8 million from the same quarter. I want to tell you something about the comprehensive income, the last line here. That number is taken from the net gain of fuel hedges. In the period, we had a net gain of $5.3 million, but we will not recognize that gain or loss depends on the prices in the fuel market until we will use this fuel and close our contracts. But it is affecting the total income by $5.3 million positively in the quarter and impact the -- impact the book value of equity as well. The operating income, we did see a 4% increase in total yield compared to third quarter 2023. The total yield went from $193 to $201. We did see improving load factor and VFS significantly higher than last year, and that affected our TRASK by 9% during -- year-on-year from $5.6 million to $6.1 million. As we have mentioned in our previous announcement, we have been -- we have put a significant emphasis on the ancillary part of the airfare. And it can be seen very clearly in this slide, the ancillary part is increasing from quarter-to-quarter. And it is increasing 14% from the last quarter from [ 51 ] to [ 58 ]. And for year-over-year, it is increasing by 35%, from $43 to $58 per passenger. The operating expenses part, we had total ex fuel CASK $0.034 per available seat kilometer, compared to $0.031 last year. The increase year-on-year can be explained in 2 parts, first to the inflation. And secondly, we had some one-off maintenance items in the quarter that affected the total [ TRASK ]. But for the full year, we are expecting the [ TRASK ] -- the actual CASK to be $0.037 on an annual basis. Here is a bridge that shows you how we -- how the improvement comes from. The improvement, we can say, per available seat kilometer is increasing from $0.01 to $0.07 and it can be divided into 3 parts. Firstly, the revenue part, that the revenue generated positive $0.05 into this picture, the fuel cost, lower fuel cost compared to last year was $0.05, and we have had higher costs that deducted this amount to $0.06 improvement between quarters year-on-year. The balance sheet has changed. Yes, I can say drastically or significantly from year-end 2022. The size of the balance sheet is increasing from $330 million to $494 million at the end of third quarter, '23. And it is mainly due to the 4 new aircraft we added during the period. And it has impacted the balance sheet by around $140 million for the first 9 months of the year. Additionally, we have signed letters of intent for 2 additional airports, the A320neos, which will be delivered in 2025. From the end of second quarter '23, the balance sheet has decreased by $35 million, and it can be related to unwinding of the working capital because the deferred income has decreased by close to $42 million from the end of [indiscernible]. Equity amount increased by the $11 million, as you can see from end of second quarter -- and that can be split into 2, the net profit and the positive impact from the fuel hedge position amounted to $5.3 million during the third quarter. So the shareholders' equity sums up in $25.5 million at the end of September. And as before, there are no external interest in debt on our balance sheet. The cash flow, as I mentioned before, the working capital part of our operation has had a negative impact on our cash flow during the third quarter. It was very positive during our second quarter. But we have a negative cash from operation totaled $11.6 million and total investing activities amounting to $3.7 million. During the third quarter, summing up in a cash position of $39.2 million and thereof are $8.7 million restricted. Cash flow last 12 months. That is very important slide and very important information for us here in Play to show you that like-for-like cash flow from one point to another. And if we exclude and take into -- if you look at the cash position at the end of September, 2022, 1 year ago and the cash position now, it has increased by $9.6 million in total from $29.6 million to $39.2 million, but we have to exclude the share capital increase at the fourth quarter 2022. That was $16 million and aircraft investments that were -- that took place during the same month, during the whole year, $8.9 million. And then we can look at the cash position like-for-like compare the $29.6 million to $32.1 million. And then we can see we have positive net cash flow from operation amounting to $2.5 million during the last 12 months. That is saying us, we have not burned cash during the last 12 months in our history. So -- and one more item there here. The aircraft investments amounting to [ 8.9 ] in the last 12 months, it will not be repeated in 2024. Fuel price development and fuel hedging, the Board of Directors approved extended hedge strategy in the last Board meeting. Therefore, we are allowed to hedge up to 30% of the -- yes, I can say, fourth quarter from now up to 12 months instead of 9. And we are working on, of course, to work on the hedge accordingly to the hedge strategy. But the current status of the hedge strategy, our hedge position is now that we have hedged 51% of estimated fuel consumption in the next quarter at average price of $829. For the first quarter '22, 32% after an average price $826, and [ 15% ] of estimated fuel consumption in the second cluster of 2022 -- '24 at the average price, $873. And as you can see in the picture to the right, prices have been trending up since July. And the current spot yesterday was $948. So that's all for me. And over to you again, Birgir.

Thank you, Olafur. And I should also mention that if there's any questions, they should be sent to ir@flyplay.com, and we will answer them and upload a document with the answer, so everyone can see the answers and questions if there's anything like that, ir@flyplay.com. Going into the outlook and how we see the future develop. What is quite encouraging to see, again, like we have mentioned a few times before, is that even though we are increasing our capacity quite a lot, we still see that we are able to increase our prices and increase our yields. And this is a good testament of the distribution network, the marketing and the revenue management strategy that we are using. And we can see in quarter 4, we are increasing the capacity by 66%, but the RASK is already 5% higher than last year. Going into quarter 1 of next year, 80% higher capacity, a 9% higher RASK than last year, quite positive. We are always talking about ancillary revenue. This is the driver basically, and we have many opportunities that we have already used, but we have still a long list of things that we can do to drive this revenue even further up. But we can still see that we have been able to increase this quite healthily. And in quarter 4, we see 31% increase in ancillary revenue, 22% in the quarter 1 of next year and already a 16% increase in quarter 2. So this is -- gives us confidence that we're going into winter, the low season with a higher capacity, a bigger network than last year, but still a higher revenue, higher unit revenue, which is a good sign. And we are, of course, always doing something to drive this. This doesn't happen by itself. And one of the things that we are implementing now is what we call space seats, which I wish we were going to fly to space, but we will probably announce that a little bit later. Until then, we are creating spaces between basically blocking middle seats in a few of our front rows in a few of our aircraft, which gives us a few benefits. Number one, it's reducing our capacity in the low season. So it's basically cutting down the seats in our larger aircraft, the 321 aircraft from 214 seats to 200 seats, which means that our capacity is reduced, we need fewer crew members because you only need 1 crew member per 50 seats, so we can cut costs by having a smaller crew per aircraft. We are generating ancillary revenue because, of course, some people are traveling along, and they would like to sit along with more space. They were may be working or something during the journey. And this is something that we can easily remove when the demand returns back to the market, and we get closer to spring and Easter, and we can basically take it out and we are back to full capacity. And this is an interesting experiment. And I think it ticks many of the boxes that we are always trying to do here at Play, which is lower our cost and increase our revenue and, of course, give our passengers a better experience. Another thing that is similar to that is the new kind of digital service that we are rolling out on board and testing actually currently, which is a kind of a closed loop let's say, network within our aircraft. So you can order food from your seat using your own personal device. And this is a -- we're in a test phase in a few of our aircraft. So you can basically sit in your seat, and you can decide what you like to eat or drink, and it gives us a possibility of rapidly changing the availability and the variety of the products that we are offering. We can change prices. We can have dynamic prices. If we want to give 10% discount, for example, of all the menu, then that's immediately reflected in the app. And of course, we can also sell other digital vouchers for travel experiences and things like that. There's a moving map. You can see what -- where the aircraft is something that people like to use when you're on a flight. And there's some other entertainment opportunities and options that gives our passengers. This is in a test phase. Early tests indicate that this is driving up sales. You sit in your seat, you don't have to wait for the trolley to come before you order something to eat or drink, some people are shy to push the button and make him basically do it from the phone and a member of a crew comes with selection and the order. Very exciting. And I think a first step in a longer journey for us to enhance our digital service and our digital capabilities and driving up our ancillary revenue even further. We gave a very interesting -- actually end of summer session in September, where we went over how the summer was going and what the outlook was. And we gave some guidance of this year and next year. And we are not changing that outlook. It's still unchanged. We are still aiming for the same cost and revenue and our, let's say, quite optimistic that the market is behaving in a way that we would like it to behave. But of course, we will update it as things change. But at the moment, we keep our guidance unchanged. And to close things off, if we take a few takeaways, we are closing -- this is the first quarter with a net profit. We are increasing our EBIT operational profit tenfold, which is something and something you don't necessarily see very often in a business. We see positive cash flow from our operation for the last 12 months. So we're not burning cash, which is good for a start-up airline. We are seeing increased unit revenue, and we're managing to keep our cost under control and competitive in relation to our main competitors in the market, even though we are functioning in a high cost -- high inflation environment, like most companies are doing these days. We see strong booking flow into the future. And like I just demonstrated increased average revenue, both yields and ancillary revenue. Again, please send your questions to ir@flyplay.com, and we will do our best to answer them and upload the document later tonight. And I really look forward to seeing you again in 3 months' time when we present our next 2 shots. Thank you.