TUI AG (TUI1) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to the TUI AG conference call regarding the Q3 results. [Operator Instructions] Let me now turn the floor over to your host, Friedrich Joussen.

Good morning, everybody. I'm sitting here with Sebastian and Mathias and we are doing a joint act together today coming to Q3 results. It has been a long journey for me. It has been 10 years. I will just do the opening statement and then I hand over for everything concrete to actually the new management and new leadership in the company. It has been a long journey for me 10 years. And it was great. At the same time, I decided to step down and actually move on end of September, and it has been 2 reasons for me to do that and decided freely that actually I will go. And as much as I had fun over the 10 years average and comes to end, and now is the right time. The first reason is the company is out of the crisis. We actually have delivered, and you will see that the numbers in almost breakeven -- a broadly breakeven result. If you take out the operational disruption, primary effects, definitely, we will be significantly profitable for the full year. We see the booking numbers 90%, 118% on prices. So that's great. Liquidity is very high. We have not drawn any lines. Actually prior to the contract, we have handed back lines to the state, particularly plan participation too, which is expensive. So that's all good. We gave a little bit of security for the winter. That's the reason why we have got everything back right now. But liquidity is not an issue anymore. And also, we have made the company leaner, more digital, and we have actually pulled off the EUR 400 million per year savings. So you will see in the summar that will be a very good quarter. So the crisis is over. That was the primary responsibility I've had. It's a good time to hand over to next management. Second, who are the people who take over? Do the company have a strong succession plan in place. I can say that because I know the people very well. I've worked with Sebastian for 10 years right now. And when we joined the company together, it was all the gossip about reverse takeover, you know TUI Travel should take on everything and TUI AG would disappear. Now that was actually shaped in a different form and Sebastian and I remember very well, when we combined the companies, that was good. By the way, at that time, Mathias was already M&A responsible. So also his tenure in the company and I know Mathias. And so then we shaped the company to the vertically integrated shape we have it right now. We invested in the first cruise ships. We invested into more hotels. Before the crisis was 2/3 of profit was actually what we call the experiences business as we invested into Musement. The digitalization of experience is the strongest growth market in tourism, very fragmented and so on. And guess what, when you look at Q3, that's where the profitability comes from. I mean hotels is now already in the quarter doing more than EUR 100 million of profits. So these are the things, the growth factors coming strongly out of the crisis. We've reshaped and that's what Sebastian and I -- I remember Sebastian took the role in Germany, we reshaped the German P&L. German P&L was obviously below 1% EBIT and was a little bit of a problem child. And guess what? Now look at the Q3 results, is the strongest performer right now. So we did a lot. And then the crisis came, 2020, as you know, was strong summer bookings in the funnel and we thought it was -- it would become a record year. Unfortunately, it turned out differently. We couldn't do any business in the company without revenue. So Sebastian and I remember very well, as CFO, CEO couple, we are close and particularly close in that time. So we worked 24 hours to save the company. And there was a trust building and a strong alignment. And we've known each other very well in these crisis moments. And also, I have to say, Mathias -- it was not just as Mathias as well, I mean being responsible for the capital increases over the years to make us capital market ready again after the state support and reduce debt and all these things and financing growth and even the turn off of the crisis and so on. So the people out there and ask myself after the crisis, coming back to a profitable growth, people are ready for succession, what would be better in 3 years. And my conclusion, nothing will be better in 3 years. So we said we will hand over now. This, of course, is not easy for me, 10 years is a long tenure. And particularly, I'd like to welcome the team, particularly the team members who take over right now the responsibility, and it's not that easy. But at the same time, I'm confident the right decision -- it's the right decision for the company. It's the right decision for also I think for me, personally, it's the right decision for actually my successors in place. So that's great. I will actually anyhow miss also all of you, Jamie, just 3 questions. I could obviously bet you were the first with 3 questions. And I will miss it, right? So -- but today, I'm sitting here, I'm listening in, but the questions, the 3 questions of Jamie will be also rather answered by Sebastian and Mathias. So thank you very much for your companionship for your working together with us in a constructive way over the last 10 years. And with that, I would like to hand over to Sebastian and Mathias to lead you through the, I think, very strong quarterly performance.

Thank you very much, Fritz. Also a warm welcome from my side. Yes, Fritz, we had 10 exciting years -- challenging years with the merger, good years, and we expected a record profit year in '20, then Corona stand still. We fought for survival and now the strong recovery. And if companies are at the edge, they fall apart, if management doesn't stick together. If management stick together, then you can survive, and that's what we did. And therefore, through your leadership, we have built a very strong team, and I'm very happy to lead this team. It is not about changing the strategy, it's now about execution. We have a lot of good plans. We broadened the product portfolio for our customers of dynamic packaging accommodation-only and activities. We built the direct access to our customers through our app. So we are now -- the main task is to deliver, to execute what we have built. That is more looking further out, but we had the third quarter, the highlights there. We opened -- the third quarter was still a quarter back to normality. If you look at how April was and how June had been, then you really see that the more we come to the -- into the summer, the better the situation got. And can you make the next slide, please? Okay. We operated in the third quarter roughly 82% of the capacity with customers even above this level. And as said, April was slower than June, and we do see that July has seen a very strong momentum. That is also true for August. For September, it's still something to do because short-term bookings are kicking in. That means we had 5 million customers, which are 4 million more than the year before. I think we can be pretty proud of achieving 92% load factor. Historically, in the best month, we have 95%. So we are getting very close to the historical levels. And that led us to a broad breakeven, as we say, to a minus EUR 20 million loss EBIT. If we wouldn't have had the direct cost impact from additional flight disruptions of EUR 75 million, it would have been even positive. And that doesn't include the effect that for a couple of weeks, we had a slowdown of bookings because with all the announcement, the press, in the news about the congestion at airports people did book slower. When we met last time, we were at 125% booking level compared to the comparable weeks in '19. This came down to 85%. And now the last 2 weeks, we seem to be back at around 100% of '19 levels. So the demand is there. People have trust. And I think what we also do see that the efforts we take to stabilize the systems through standby aircraft to wet lease, the capacity has helped a lot in building further trust into TUI brand. If we look at the different segments, Fritz mentioned Hotels & Resorts, although we were not in the occupancy levels, which we were used, we are above the profitability that is mainly due to -- the reason for that is the ADR development. So a very good development. And you have to keep in mind that we don't have the result from the Riu property company that we also sold a small activity into group hotel. So this is really a very, very strong result. And by also asset light, asset right further building up the number of hotels, there are good prospects there. We are very proud as well for the -- on the result for Cruise and Musement. I didn't expect and most of us didn't expect such a quick recovery for cruise, especially in Germany. Britain is still a little bit slower, but Germany has seen a significant profit, and we are close to the historical levels. If I look at the July, August numbers with a good ADR, that is really amazing. And I think TUI Cruises is probably outperforming the market. Musement, also first time positive not only because they got now the client, the tour operator provide them because without tour operator customers Musement would be half the size, but especially the new areas, where we sell tours and activity to TUI and to third-party customers is growing rapidly and for the first time, contributes to the profitability, although this is a clear area of growth because we think that customers, especially outside of the TUI ecosystem of today, which we gain, will be TUI customers in TUI ecosystem of tomorrow. Therefore, all the initiatives with our app -- with the enlargement of the product portfolio should pay into the acquisition of new customers. So very good in the holiday experience sector on the airline and the tour operator still needed the time to build up and we had the disruption costs, but we are getting closer to normal in the fourth quarter. I have heard a lot of question, what do you think about disruption in this quarter. July was still heavily impacted like the 2 months before with a higher volume. What we do see the last 10 days, and hopefully, this is a trend, which will stay that the numbers are back to historical levels. I just looked today, we only had 10 delays yesterday and only 3 above 3 hours. So it's really getting normally. And we paid a significant price for that because we wanted to make sure that our customers are happy that we don't cancel several thousand flights. We just canceled 200, and that was 200 too many, and that was -- most of it was Manchester where there was no way around. Amsterdam, we've got the cuts, but then we brought the customers to Liège and the customer was happy. So we didn't want to leave the customer alone by canceling. We took the extra mile. We took the additional costs also in the fourth quarter to bring the customers into the well-deserved vacation and to make sure that the TUI brand is strong, and we do see that customer satisfaction index also in the last 2 weeks have been back to normal levels. So a very positive start, but as said by far more to come. We are not yet over and about the future, it's all about execution. And the details of the numbers -- sorry, there's one slide for me. Looking forward, I think for the summer, I gave the asset of the Germany, we are really surprised how well the market now came back. Sustainable is very strong on the agenda for us. This is something we are very much committed to. We believe that it's not only commercial viable to do that, but it is also important and getting more and more important for the customer that he can have a good feeling when he goes on vacation. And he apparently is also ready to pay the EUR 1 or EUR 2 or 1 GBP more for a high sustainable travel. Next slide. If you go into the details, you do see here the capacity we run in the last quarter, close to 90% in the holiday experience field. And with load factors, which were coming also closer to the historical levels. If we look to Markets & Airlines, you do see that the capacity level was around 85%, a very mixed picture. So Central and Germany with lower numbers than the U.K. The U.K., due to the earlier booking standard cycle, had a capacity of close 100%. And by having this, we significantly improved the EBIT compared to last year's third quarter. But as clearly said, we are not there where we had been in '19. If you look into the results, as mentioned, hotels also above '19 with EUR 105 million with a smaller portfolio and the increase you will see in the portfolio in the coming years will be asset light, asset optimized. Cruise for the first time, profitable. Again, with a significant part from TUI cruises, the recovery in Germany was by far stronger. Also TUI Musement back to profitability, not only because of the 5 million guests from the markets, but especially also by own growth through their own distribution enlargement. The Northern region still negative with EUR 90 million, a significant part of the disruption. We're in Northern region because of the infrastructure issues we all know. Germany, and that is really, really good with EUR 25 million or EUR 24 million profit, the measures we have taken really helped us here a lot by rightsizing the aircraft by getting back up capacity when we saw that we couldn't fulfill the time lines for outgoing flights that cost money, but it helped us to become profitable. So a very good way forward. And Western Region, you may ask why the size is smaller, why is the result so negative, you probably have heard all about the main impact in Amsterdam, that was something we could not really overcome because they just cut the capacity we had to do a lot. We brought customers to Liège, to Rotterdam. We took the extra mile to bring the customer there. And second, the long haul business, and that is actually also true for northern region, didn't recover as quickly as the medium and the short haul business. A lot of things I just said to the disruption. To make it very clear that we only canceled 200 flights, these were 200 flights too many, every flight meant 189 people impacted. And you read all about in the press and that is not acceptable, and that's why we took the effort to take care of our customers, even if in most cases, we were not responsible for the cancellations. I think it's good to know that 96% of our customers arrived in the destination without major impact. There were 3%, which had a medium impact, which means a couple of hours, 3, 4, 5 hours delays, and we have less than 1% canceled flights. I think almost all out of Manchester for the reasons you all know, which were less than 1% of the Summer program. As said, 1% too much and we have taken all the actions we can do. We need, of course, the infrastructure to work. Some things we can recover. We went to other airports. We had more standby capacity. But at the end, also the infrastructure has to fix their issues. We had a drop in our NPS and the customer satisfaction index. But what is good to see with all the actions we have taken, we are now back to normal levels in the last 2 weeks. And we are very confident that we are over the period of significant disruptions. Winter should be easier because of less volumes. And next summer, we are well prepared that we shift back to normal. Customer trust in our brand that we do see every day when we look at the bookings, and we want, and it's our clear commitment that TUI remains the best choice for travel and, as said before that why -- was the reason why we didn't cancel the flights, which maybe -- have been commercially sensible to cancel. So we only canceled the flight where there was no alternative because the infrastructure couldn't provide us the service. And that's why besides sustainability, quality is one of my and the management team priority. If I look at the booking development, you do see that we were end of July at 90%. So we gained 5% compared to the last May meeting. We, in a way, had, as I said, the drop when there was the disruption in the press. And -- but we can now say that we are back to '19 levels, again, and that's the reason why we expect for July, August, the 93%, and it will be interesting to see how the development will be in September. When I look at the ASP, 18%, so almost on the level we had been before, holding up very strongly. There are different ingredients in that the customer on average still stays one day longer than compared to '19. He books 1 half star higher than he did before. And the rest, which were not price -- cost increases, which went by customer behavior, yes, when customers stays a day longer, we also have to pay 1 night more, but also had to offset, especially the fuel price cost increases. You may recall that we were only partly hedged because the hedging line only opened after the rebound of the business. So we had a significant impact on fuel increase, which made one or the other would not have in the same magnitude as we had. Looking forward, we are back to the policy that we want to hedge the booking status we have. But this year, the ASP increase was also needed to offset the significant increase of the fuel price. So therefore, knowing this, the strong bookings, the strong pricing, we expect a very good fourth quarter, which should lead, and that's what Mathias will explain later on, a significant profit for the full year of '21 to '22. The model which we have works well, we have -- that is also important to know. Greece has been very strong, quite often taking over Balearics and Canaries. We do see a return of Turkey. That is probably -- and that is important also for the future. People have a budget. And if they are more concerned about the budget, they look where are the good deals because we have seen above 18% price increases in the most wanted destinations like Greece. So then people start to turn around and look where they find good offers. And that's why Turkey has become very strong back because also due to the inflation of the devaluation of the currency, Turkey is a very price attractive to customers. And we would ask what about winter, next winter? We expect that there will be also strong demand, but also with shift in the destination from long haul more to the long or medium haul destinations like Cape Verde or Greece. So we expect a good occupancy and good rates also in Q4. We do see a short-term booking environment that makes predictions a little bit more difficult as also fuel price development, we were able to benefit a little bit from now the lower price, but who knows what will be the price of tomorrow. That's why we are going back to the hedge policy we had before. On Cruise, we are operating all chips. Bookings are strong. Prices are strong. For the next coming months, we are well booked. There is a catch-up still to come a little bit for Marella. But also there, we do see a strong -- we also see strong booking for winter. But, as said, predictability is a little bit more difficult because it's all short term. So we have never seen before the short-term bookings with good prices have such a high share and probably we have to live with that for the long time, but we also see Hapag-Lloyd, our 6-star ships, is almost back to long-term booking pattern because people do see if they wanted to have a cabin -- high-end cabin short term, it was fully booked out. And to Musement, we had issues on the pickup rate. Of course, people were not so sure can we -- is it safe to go into an activity. We are also there. 35% of our customers book activity, and we are back there in the last weeks on historical levels. And as said, especially through the B2B partnerships, we get strong demand, and that helps us to get a really relevant for suppliers. We never had so many suppliers contacting us, they want to be on our platform. And knowing what you don't know yet, what the pipeline is on rolling out on getting direct product-wise, we will see a very good Musement activity. By the way, not only in destinations, but also in the source markets because there's also one clear objective. We want not to be that the customer books every 2 years with us, his 3-week or 2-week vacation, we want him that he books once a month with us. We are not yet there. It's as said, all about execution, but you will see in the next 12 months, what I just tried to describe. Mathias?

Let me do one technical adjustment. I think you can now hear me as well. Thank you. And thanks for having me. And I can also -- can only also thank Fritz for the last 10 years of very intense and very close working together and in particular also for this very structured, very team-oriented handover. And of course, I really look forward to the new role. Allow me 2 minutes of -- 2 words on introduction before I go to the details of the quarter. And I've brought with me my initial thoughts and what you -- the CFO priorities. They're, of course, very closely aligned and linked to the priorities that you just heard from Sebastian. So number one will be for us to return to profitable growth and finance will bring the right tools, monitoring and controlling to that and will be the gatekeeper and continue to be gatekeeper to our resources. Our cash and balance sheet, the discipline, that's something which is, I think, now at the heart of the company, and this will continue to be so and to focus on cash, please ensure that this is one of my highest priorities. And I think the third element is also very important because if you look at the finance team within TUI, I look at that from the internal side, of course. I think the team has really done a great job everywhere. And so this -- to keep this team together and to develop it further, this is, of course, something which is really, really important for me going forward. Now turning into the quarter, and there's one event that I would just -- to recap on before we go into P&L, cash flow and the balance sheet. As you know, we were in a position to return the Silent Participation II. So this hybrid capital of around EUR 670 million to the state end of June, that's something you will see the impact of -- through all these elements in the quarter. I think it's really a great step that we handed that back plus the additional undrawn facilities from KfW of a bit more than EUR 300 million, down to EUR 2.1 billion. Just as a reminder, this is something which we haven't drawn and we haven't drawn that for quite some time. This is a really good step and to see the company and to see that also in the balance sheet later to recover stepwise, that's something that was what we planned for. That was something we expected. But now to see it materialize, this is, of course, a really good step. And also, it was quite encouraging to see the demand that was there when we did the equity raise for TUI, story for the TUI development. And we're, of course, very grateful to our investors who supported us on this issue in a very volatile market environment. Now turning to the quarter. If I start -- may start with the P&L, almost breakeven. So that's within what we planned for. As Sebastian said, this disruption were costly, so not only for the customers and every customer that is effective is one customer, too many. At the same time, this has also translated into quite substantial impact on the quarter with regard to costs. So the EUR 75 million brought us then below the line to something like minus EUR 30 million, overall still effectively breakeven for this quarter. Good, I think, is also due to development on EBITDA because then on the 9 months, we are effectively neutral already accumulated, and this is a very good basis for then the fourth quarter, but also -- and you're aware of that, we will start with our covenant test end of September. And so the profit of Q4 will effectively build a good base for that covenant test. And if you then combine it with the balance sheet that you will see in a minute, you probably can do your own analysis later, and I can only say that we are confident on these covenant tests based on these numbers, and it's probably now you can do your own assumption on that, that's probably helpful. In terms of adjustments, we have a book position accumulated of minus EUR 30 million. We have an assumption for the full year of something like EUR 90 million to EUR 110 million. We will remain that unchanged because we expect some of our restructuring fund realignment program to translate into further expenses there in the fourth quarter. Net interest. You may see the EUR 120 million is higher than in the year before. We already had, and this is something reported last time, one-off noncash impact from returning the bond portion of the bond with warrant, one of these government facilities at that time. Now we have another impact from that, which is linked to the return of the Silent Participation II and it's effectively a noncash interest that we had to book in context of the -- then assumed at a certain point in time, overall return of the scheme to the state, both together we talk about something around EUR 60 million. And if you add that, that's why we expect that we have a slightly higher amount for the full year in our P&L, and we've raised our modeling assumption EUR 450 million to EUR 475 million. Again, the important thing is this is noncash interest, and this is a one-off. So going forward, this will not impact our P&L. We have and kind of the underlying interest cost for next year will not be affected by that. Whenever we turn facilities to the state, we expect some volatility in the lines, which I think is natural. Important, the coupon on the Silent Participation II is not in this income statement because it's from an accounting perspective, below the line. So this is paid as effectively classified as a coupon dividend. So it's -- you can see it in the cash flow, but not here. Tax, maybe as a last comment, also there due to the recovery of the business, you have volatility in the numbers. If I tend to look at the accumulated position with the minus 7%, probably, we will have some further volatility in the fourth quarter because some of our entities will be profitable for the full year be still negative. We will not book kind of the deferred taxes on those. I mean, there's a lot of technical background in the end. The important thing there, again, is that going forward, we want to get back to our underlying tax rate of the past and we aim for this below 20%. We had 18% in the past. Now turning to cash flow. Again, this overview, I think we can skip because it makes clear how we have recovered and you can see the EUR 75 million. On cash flow, you see the EBITDA, you also see, I think, from a structural point of view, this quarter is broadly in line again now is what we would normally see in the quarter. So in '19, probably if you look at these numbers, you see a similar development, strong inflow of working capital because we ramp up in this quarter for the peak summer period. And other than that, I think there are 2 items to highlight plus investments that I would like to touch on. Tax paid. You see a quite significant payment here. This is not related to the -- what we saw on the P&L. This is a deferred tax payment of the past. I must say we are quite happy that we could arrange for these deferred tax agreements in the past. We expected this to become due. And now as you can see here the payment, again, this is a one-off payment, and you will not see an impact over the -- in the future years that you can assume that we go back to this underlying tax rate again. Same on interest, part of this tax was also booked in interest of this one-off payment. And also, you see a little bit more of interest coming from the hedges because we also hedge more. On investment, this is something I also wanted to highlight. We have a range of EUR 120 million to EUR 280 million as our modeling assumption. We already said we are at the upper end of this. We also said that you could expect because it's coming a bit from the mix, how we finance our aircraft that we have less from the asset financing come through. Now accumulated, you see EUR 290 million. We expect in the fourth quarter, a significant portion of PDPs to realize, so this will reduce this number. And also, we will from the financing do aircraft from divestment proceeds coming in that should bring us back to this quarter of the upper end of EUR 280 million. And that's why we leave that modeling assumptions unchanged for the moment. And the rest of the financing cash flow, we see, in particular, how the equity raise went in and we paid back to Silent Participation and reduced the RCF. Now in terms of liquidity and balance sheet, again, on the headroom of our undrawn facilities and available cash. If you look at that, you see, of course, what you've seen in the cash flow statement, so page before, strong ramp-up, but in particular, also the hand back of this EUR 1 billion of facilities to the state. The balance sheet, and that I think we mostly focus here on our financial debt position. Important that you don't see an impact here of the Silent Participation, given that it's recorded as equity. But overall, I think to get back to something like EUR 5 billion of gross debt, EUR 3.3 billion of net debt, that's a really good step into the right direction. Also as Sebastian said, KfW not drawn, RCF effectively down to EUR 200 million of drawings. And that's how we plan for it. And it's -- again, it's very good to see how this materializes. Also because of the interest environment, the net pension obligation went down to something like EUR 400 million. This is also helpful for the gross debt. And as I said in the beginning, we look forward and we are confident on the covenant test and starting as of September. I think overall, therefore, a good quarter. We have seen the ramp up of the company, the recovery of the -- of our earnings. We have a very good basis now for a profitable fourth quarter and deliver then upon our target to have a significantly profitable EBIT for the full year. With that, Sebastian, I would hand over back to you.

Thank you, Mathias. For this year, we deliver what we wanted to deliver and our midterm ambition is, of course, to significantly grow our EBIT, not only to a historical level, but very clearly above historical levels. And especially by top line growth, yes, cost is always an issue and it will be an issue. And at the moment, it's so important to offset cost inflation by reducing cost to, at the end, also have a financial stability and the leverage ratio. We always said the first target we have is a gross leverage factor of 3x, but to further reduce this for the future. How do we want to do it? If you -- if I start with the box on the right side, the global realignment program in a way is executed. I mean, only a very small portion still has to come, but everything has been implemented, and we will see it next year. The growth through asset right financing, the methodologies and methods are available. So if we now want to have a hotel and we are able to acquire, we will fund or through a joint venture company. So the structures are available to grow the business as described earlier. Very, very important is for us the incremental products we are bringing. At the moment, I said we don't want to be the choice for the traditional package once in 2 years. We want to be the choice very often in a year. We see dynamic package has become more and more important. Germany, for example, who is the front-runner on this in our TUI ecosystem, in the last week, did 25% of all sales products dynamic package. We are in the process of rolling that out to the other markets in the next 12 months. And is what is also very important are the component sales. TUI has not been recognized as someone you would have top of the mind when you book a hotel only. We are now have access direct content -- direct access to the content supplier like hotelier, and we bring it directly to the customers through web, through app and, of course, also through retail. Also, the Musement product, tours and activities, we now have several hundred thousand of products, which we can bring to our customers and set not only in the destination, but also there -- but also in the source market. We want to be -- if the customer wants to book a museum ticket that he does it through us. And this only works if we bring these products to the customer, and that's why we have put so much effort in improving our app approach, our mobile-first approach, but also the traditional mobile access to the customers. And there we are making huge steps forward from a company who 5 years ago sold traditional package tickets to a dynamic, agile, full content customers. But that is also very important on the pillar on the key -- on the USP of having exclusive content. Our own brands, exclusive also products when it comes to activity. And this should lead to a significant growth for the foreseeable future and not only growth, but a profitable asset-light growth. That's why we are very confident even in a probably more challenging market, the environment, consumer behavior and so on that we will have great products to be more independent from the general trends we may see. And now we go to the Q&A session, we are very happy to answer your questions.

[Operator Instructions] And the first question comes from Jamie Rollo from Morgan Stanley.

That was predictable. I've got 3 questions, please. First of all, you've obviously repaid a lot of state aid already. Are you still expecting the German government to convert the remaining Silent Participation? Secondly, your gross debt is now down to about EUR 5.5 billion. Do you think you still need to raise more equity, particularly if that's going to go up over the winter, given the normal seasonal losses? And then finally, just an operating question, digging into Markets & Airlines margins in third quarter, your revenues were pretty well back to 2019 levels. If we add back the disruption costs, the margins were sort of negative 2%, and they were positive 2% in the same quarter in 2019, if we add back the MAX losses. So that 400 basis point drop, you talked about cost pressures. Should we expect a similar drop in the fourth quarter and obviously, you normally make a double-digit margin adjusted for disruption costs?

Thank you, Jamie. The good thing now is the first 2 questions, Mathias has to ask, not me anymore. So maybe a few words on the margin. The third quarter was still for Markets & Airlines ramp-up quarter, and you see significant differences between April and June, June more normal than April, where we had still a significant ramp-up costs and less utilization. So we expect month by month, a trend to more normalized margin. What we still have to keep in mind that our hedging position was not there where most likely our competitors has been because we were able to start -- and because our policy is always to hedge at least the booking position and a little bit ahead of that, but this was not possible, that is now more and more possible. And therefore, we haven't had the benefits of hedging earlier, and we had to take the fuel price. And 4 weeks ago, spot price was $1,350 per metric ton jet fuel. So we had to take this price. There also, we see a normalization to it and that we will be in 2 or 3 months on a hedging -- most likely on a hedging level, which is comparable to other touristic company. So the margin has been significantly impacted by fuel prices and by a ramp-up cost in the quarter, but we expect that they should normalize and long term, will be probably a tough winter or a challenging winter. We have been very careful in planning the capacity, but we don't see no reason why margins should not be on historical levels, especially with all the cost measures we have taken. And the more we do also dynamic packaged products, the more we can benefit from good offers from our suppliers. Therefore, the dynamic packaging has been so important to implement that. Mathias, the first 2 questions for you.

Yes. Thank you for those questions. So on the state aid and whether the government would still convert, I think we need to continue to say this is a bit out of our kind of decision and knowledge. In the end, I think there's a strong economic incentive still for the state to do so. But this is effectively also all we know. So this is a bit out of our things. I think what we can say that the state has been very accommodating in the kind of discussions around the Silent Participations II. And this is something we really appreciate. In terms of the balance sheet, I think when I listened to your questions that mirrored how we look at it, I think it's a really good step to get there. And it's really good to see that the company has now stabilized, recovered and then we are back to where we wanted to be as the first step. Now in terms of focus, it's really get the company back operational where it should be. And at the same time, I think we will continue to monitor all kind of opportunities on the capital markets in terms of that's something we just have to be open-minded. I think if we look back over the last 2 years, to be open on that, that has been very helpful. So I think that's a bit our financial strategy.

So just to clarify on that last point, it sounds like you might be considering raising equity, you're not ruling it out. If that is the case, would that be likely to be this year? And also given I think you've now exhausted the non-preemptive equity offer with that raise the other day, can you do a preemptive equity raise if the Russian shareholder is blocked from taking up the rights? In other words, are you actually now limited in your ability to raise equity?

I'll add the same, but yes, there are no plans to raise more equity at the moment. I think that is very clear.

Okay. Great. And Fritz best of luck for the future.

We'll pass it on.

The next question comes from Cristian Nedelcu from UBS.

The first one is on liquidity management. Could you give us a bit of color, how do you plan to refinance the KfW RCF? Is that via own cash generation? Is it economical to replace it with a bank RCF? If you can give us a time line there. Secondly, in Cruise pricing. If we look at Q3, TUI Cruises JV, the pricing in there was down 1% versus 2019 levels. And this is weak considering the current inflation environment as well as the fuel cost almost doubling since 2019. So can you give us a bit more granularity what is happening there? Is there overcapacity? What is causing this weak price development? And the last one, looking at the free cash flow generation in Q4, I believe in Q4 2019, you are generating around EUR 100 million, EUR 200 million of free cash flow -- positive free cash flow. Could you tell us if you expect a positive free cash flow in Q4 this year? Is it better than '19? Or any type of directional steering you could give us at this stage?

Maybe Mathias, if you take the first and third question, I will answer the Cruise question. I mean I'm really amazed about the recovery of Cruise. And being on an occupancy level, which at the moment tends to come to the historical level, on a price level, which had been the price level of '19 is an outstanding result. And if we, for the time being, assume that this trend goes into the fourth quarter and into the future quarter, then the coming back of the Cruise market, especially for TUI Cruises is really strong. So we do see that as a very positive development. Second, when it comes to inflation, the Cruise is probably -- I mean, we always say that inflation or price increases on touristic products should be less and will be less than normal inflation, probably Cruise will have the less impact on inflation because they have a lot of fixed-term contracts. Yes, on fuel, they see the impact, but the order of -- or the possibilities to reduce, and that's what they did the last 12 months, consumption has been significantly by -- going slower, by being more hours, 1 or 2 less hours in the morning in the harbor. So they have done a lot of actions to lower the fuel consumption. So yes, they are also impacted but at a lower level than any other activities. And we are very happy and actually surprised by the strong recovery.

Thanks, Cristian, for the 2 questions that remain. So on liquidity, KfW, I think from, let's say, financing perspective, KfW, as you know, has a term until '24. And we would look at this during the course of next year. I think one is to make sure in terms of that we have sufficient headroom and that we don't return facilities just to return them. But -- so we do that in a very structured and stepwise approach as we did in the summer. And for the overall financing scheme, I think there's nothing to add compared to what I said before, focus is now really on the operational recovery and this will, I would expect, also as opportunities going forward. In terms of free cash flow for the fourth quarter, I think you already brought ingredients in your question. So you're looking at '19, there was -- in the fourth quarter, we start to pay out our lease. We start to see less prepayments from customers because we go from the peak season to the autumn. In '19, it was probably EUR 1 billion of working capital. We may see a little bit more this year because we also have this inflation effect to some extent on the working capital. The other ingredient then for the cash flow in the fourth quarter is then the profit. And that's something I would like to ask you to your own assumption because unfortunately, given where we are, we will not -- we cannot provide more details to that at the moment.