easyJet's (EJTTF) CEO Carolyn McCall on Q3 2016 Results - Earnings Call Transcript

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easyJet plc (OTC:EJTTF)

Q3 2016 Earnings Conference Call

July 21, 2016, 03:00 ET

Executives

Carolyn McCall - CEO

Andrew Findlay - CFO

Analysts

Oliver Sleath - Barclays

Damian Brewer - RBC Capital Markets

Presentation

Carolyn McCall

Right. Thank you all very much. We've got quite a lot of people in the room. The first thing I'd like to say is I'm going to read out the Q3 trading statement. And then what we will do is we will hand over to the room for questions first and then we'll go online and take any questions from people who have dialed in to this. So the first thing to say, of course, thank you for joining us for the trading statement for the Q3. Joining me in the room, as you can see, many of you, is Andrew Findlay, our CFO and our IR team, Michael and Stuart here as well, of course. You would have been sent the slides along with the statement. They're also available on our corporate website and, as I said, questions afterwards. The third quarter has been a difficult one for trading.

The operating environment is extremely challenging, not just for easyJet, but for all airlines. This has been due to air traffic control strikes, other industrial actions, the runway closures at Gatwick and severe weather. Sadly, we have also seen a continuation of major external events through the year, including Brussels and EgyptAir in Q3 and the terrible events in Nice last week and the attempted military coup in Turkey. Following the referendum, the sterling has also weakened by 10%. All these factors combined together had an impact on consumer confidence and industry yields in our peak summer trading period. The continuing low oil price is sustaining inefficient capacity in the market which is also contributing to the weak-yield environment, but that element of this has already been flagged by us.

Despite this, easyJet has carried more passengers and achieved higher load factors than last year. Our business passengers have grown strongly. We've taken immediate action to mitigate the risks in the market. We continue to be strong on cost control. We're on track to deliver our full-year cost guidance, despite extraordinary levels of disruption in Q3. Whilst our focus today is on trading, we're also now implementing our plans to address the outcome of the EU referendum. And we will come back to you, at the full-year results, with an update on our progress on that. So passengers increased by 5.8% to 20.2 million in the quarter, driven by an increase in capacity of 5.5% and the load factor's increase by 0.3 percentage points to 92%. This is despite, as I said, a very high number of cancellations due to disruptions.

Revenue per seat at constant currency is in line with our business statement and declined by 8.3% in the quarter. Non-seat revenues increased by 12% as our customers spent more on an improved in-flight product range. Cost control remained strong despite the impact of £20 million of costs relating to disruptions. Cost per seat at constant currency, including fuel, decreased by 3.8%. And we remain on target to deliver a 1% decline in cost per seat, ex-fuel, at constant currency, for the full year. As I said, it's been a difficult month for operations. We had 1,221 unplanned cancellations in total, that compares to 726 in Q3 2015. Now that excludes the pre-planned cancellations due to the Rome Fiumicino fires. If you remember there were two fires in Fiumicino but we were able to pre-plan those; they were all very well handled and they did not add in any way to cost.

Key drivers have been strikes at 11 ATC days in June alone, runway closures at Gatwick and of course severe weather conditions. These issues have affected the entire industry, with London being a major driver of this disruption. Gatwick experienced a 350% increase in ATC delay minutes in June compared to June last year. So these cancellations, of course, impacted loads and RPS, as passengers from cancelled flights had to be re-booked on other flights and we have therefore foregone revenue, not just from the seat itself, but from the late yields because they tend to go on right at the last minute.

External events, as I mentioned, the events were Sharm el Sheikh, Paris, Brussels, EgyptAir, the wider impact of terrorism on demand across the network, as well as the ATC disruptions I've just mentioned. I think the thing about this is our strength has actually become a bit of a weakness in this regard, because we have such a strong and broad network, that every single one of those events has affected easyJet, because we're very big in France, 54% of our routes fly to France. We're one of the very few low-cost airlines were flying to Sharm el Sheikh, etcetera. So all of those events to date have had a total impact on profit before tax of £125 million; that's year to date.

As shown by our strong load, through the quarter, we continued to be able to stimulate demand with record numbers of passengers flying easyJet. We have sold 65% of seats available in the fourth quarter already. As you are aware, the revenue and year-on-year yield environment have declined sharply in the last few weeks. Until late June, our Q4 booked revenues were above 2015. Since then, Q4 booked revenues have fallen behind last year, despite increased capacity. Historically we've seen year-on-year yields increase significantly in the final quarter, starting just after this Q3 update. Fares are now starting from a lower point and the Q4 RPS trajectory is harder to read.

As a result of the market situation, we've taken immediate action, as you would hope. We've put extra challenges into the cost plan as we've \booked the £8 million incremental costs of unexpected disruption in Q3. We're ensuring we deliver our 2016 guidance of a 1% reduction in cost per seat, ex-fuel, despite the disruption in Q3. We're ensuring - we have an advantaged fleet deal which gives us significant flexibility, both up and down. And we're looking at this in light of the current environment. We're also looking at our financial flexibility, with a strong focus on cash. For example, our RFP for a sale and lease-back program for 25 A319s is generating incredibly strong interest.

We're enhancing end-to-end disruption management so that we increase cost efficiency at these higher levels of disruption and improve our service to our customers at that difficult time. We're stimulating demand through increased marketing in June and July and that has definitely led to an increase in the load factor. And we have launched a low-deposit option for booking with easyJet Holidays for the first time ever, rather than only taking up-front payment. In the longer term, we have a number of initiatives that will create value and deliver shareholder returns. Critical to our future performance is the fleet program. There are three main benefits.

First, the 13% cost per seat improvement from the replacement of 156-seat A319s to 186-seat A320neos. Six have come into the fleet this year and every new aircraft delivery from now on will have that configuration. Secondly, we retrofit 105 of our existing A320s from this winter, with 53 completed by summer 2017. By summer 2018, 141 aircraft will be retrofitted. That delivers a 2% cost per seat improvement. And thirdly, these new higher seat capacity aircraft will procure commercial advantage, being able to make more efficient use of scarce peak time slot capacity in congested airports. As well as fleet we have a number of operational and customer projects such as the opening of Gatwick North in January 2016, consolidated terminal. That will deliver a step change in customer experience, cost and operational improvement.

Finally, we will continue to advance digital with the delivery of our new website at the end of the year. As you can see, easyJet's balance sheet is currently the best in the industry which is on your slide. We've got a significant advantage when compared to the rest of the market. We have 56% of our fleet flying unencumbered aircraft. Our credit ratings from Moody's and S&P are the highest in the industry which has been reiterated since the referendum. And we have £1.5 billion of cash and liquidity. This gives us the flexibility to take advantage of the opportunities that are absolutely inevitable in the current environment. easyJet is committed to increase the dividend payout ratio of 50% of post-tax income.

Moving on to the detail of our hedging positions for fuel, U.S. dollar, euro and Swiss franc, we now have 88% of the second half of this financial year's fuel requirements hedged at $780 per tonne which means that 88% of the full-year 2016 requirement has been hedged at $811 per tonne. For this year, taking into account the hedging currently in place, a $10 movement in the fuel price impacts PBT by $0.8 million and a $0.01 movement in the dollar rate will impact by £0.7 million.

Moving into next year, we have 79% of the full-year's fuel requirement hedged at $622 a tonne. On currency for this financial year we have 84% of our dollar requirement hedged at $1.61 and 95% of our euro surplus hedged at €1.23. For next year we have 71% of our dollar requirement hedged at $1.53; 73% of our euro surplus hedged at €1.32. Outlook, the trading and operating environment remains uncertain as a result of disruption, the consumer confidence and the sterling impact of the EU referendum and recent external events such as Turkey and Nice. This, combined with the market capacity growth,, continues to impact yields at a peak time of the year.

Given this, revenue per seat outlook is of course, hard to read. At present we've booked 65% seats, as I said, for Q4 at an RPS of minus 7.5% at constant currency. Costs continue to be well managed. We remain committed to delivering a 1% decrease, as I said, in cost per sear, ex-fuel, at constant currency in 2016. The result of fuel and currency volatility added £25 million of additional costs as set out in the trading update of June 27. We now have a further £15 million due to further movement in foreign exchange rates since then. easyJet has always used periods of uncertainty, to advance its position. With our strong balance sheet and significant fleet flexibility, we feel confident we can drive long term advantage from the current situation.

So in conclusion, the third quarter has been difficult. We're in an uncertain environment. But despite this, we've flown more passengers and we've achieved higher load factors and we've increased our business passengers. You can see we've taken immediate action to address industry-wide operational and revenue challenges. We have a strong pipeline of longer term initiatives which will drive investment value and shareholder return. easyJet's model is robust. Our fundamentals have not changed to enable us to navigate the current challenges. We're actively focused on the opportunities that we believe will come out of this situation. We're in a strong position because of our network, fleet flexibility, balance sheet and of course, our cost control.

Thank you for listening. I'll hand over to you now for questions. We'll take questions from the room first. Andrew.

Question-and-Answer Session

Q - Unidentified Analyst

Your network talks about the fleet flexibility that you have. I thought that the near term fleet flexibility wasn't that great, but perhaps you're moving to get more. If you can talk a little bit more in detail about the 319 sale-and-leaseback plan and where it was relative to what you were planning before we got in this--?

Andrew Findlay

So with respect to the fleet flexibility, we've got a number of leases in this portfolio that we have the opportunity to extend with. Based on the current five-year plan we assume we would extend those. They come up and more of those - some of those in FY '17, some would be in - a portion of those in FY '18. And clearly we've got the deferral options within our Airbus contract. So between now and FY '18 we've got quite a bit of flexibility around what we can do and the choices we can make. And that's on the up and on the down side, so we've got opportunities both on the upside and the downside.

Unidentified Analyst

But for next year, when the challenges of the operating environment perhaps will be more acute, given what's happened probably in this quarter already, what flexibility do you have end 2017?

Carolyn McCall

We've got flexibility. There are some leases that are coming up that we could do something about. But I think also bear in mind we've talked a lot about how unbelievably congested London air space is. And one of the things we would look to do is not to move any slots as a result of looking at that congestion in a different way.

We need to give ourselves more time break effectively for London air space, because it particularly affects Gatwick and Luton which are two of our biggest - well, obviously Gatwick, but Luton as well - is one of our biggest bases. And, as a result of that, I think what you will see is us being able to manage the program, the flying program in a better way, if that makes sense. So it takes a bit of pressure off if you have a couple of your planes that you can use for standby for more.

So there are other ways Andrew, of looking at this rather. You might see capacity move, but there are different ways you can do it. I think one of the things to stress is that you've already heard Ryan saying they're going to take capacity out of the UK market. And I think it's really interesting that the smaller airlines in the UK are going to be feeling an awful lot of pain at this present moment of time. And that is a fantastic opportunity for an airline as strong as easyJet, because the UK is an incredibly important market.

We make extremely good contribution here. And we will take advantage of those opportunities. So actually, whenever there is a period of uncertainty and turbulence, easyJet can actually perform very, very well. Yes.

Unidentified Analyst

Just a question on the RPS, the trajectory in the fourth quarter. Clearly if you're booked at 65% at minus 7.5%, do you see that as the floor; do you see - of the remainder 35%, how do you stimulate further, because you would expect, with the yield curve increasing close to departure, things would only improve -

Carolyn McCall

You would, yes, you would expect that. Of course we would like to expect that. I think I'll let Andrew answer as well, but I think that we would have actually answered that in the affirmative before Nice and Turkey. Yes, we would expect, sitting here today we would have said, yes, absolutely we would expect that to improve because that's what always happens. It just happens every year. And actually the kick-up - I've had a few of you often say to me, you've kept them up your sleeve. We've never done that.

Actually what happens is that kick-up in Q4, literally a week from now, usually, is much better than we ever expect it to be. This year is not the same as any other year. And I do think, when we heard about Nice, we're the number one airline in Nice, right, we saw an immediate fall-off of bookings. Now it's recovering. It's still down, but it's recovering, Turkey, much greater fall-off. And I think the state of emergency today which is another change, it's very difficult - the only thing we're not - we can't see clearly is the yield.

We can see our passenger numbers - we know our capacity, we know our passenger numbers, we know how to run the operation, we know how to navigate all of this, we know who to talk to get what we need. All of those things we can really - we have visibility on; the only thing is that gap because actually, with Turkey and Nice, it completely [indiscernible] and it's too early. There's no trend yet. I can tell you Nice has recovered and is recovering nicely. But what is that gap going to be? I don't know.

Unidentified Analyst

Okay. And then I have another question in terms of the operating license issue that's been much discussed. Is there an opportunity for the Swiss AOC to operate as part the European network, given Switzerland, if I'm not mistaken, is part of the single aviation.

Carolyn McCall

As part of the agreement; so we've got the agreement - Switzerland is part of the ECAA. Switzerland is also having a vote imminently about whether it remains in that. So look we've been really clear and I just want to be really clear with all of you because I think our first priority is to ensure, just as IAG and Ryanair and every airport in this country wants to ensure, that we remain in whatever you want to call it, but actually effectively we want to have our flight rights as they are today. That is the first order of priority.

And we will all work together to ensure that the government is aware how [Technical Difficulty] that is to consumers, airlines, airports and to the economy. That's the first and we're doing a lot of work on that. Our contingency plan, however, is very well developed, as you would expect. And the contingency plan is about is about the EU AOC. Now Ryanair is an Irish airline, British Airways has a Spanish holding company. And they already have - now, it gives them different issues to this whole thing. It doesn't mean they have no issues. It gives them different issues. But actually our contingency would allow us to keep all our flight rights, okay. That's what a contingency plan is there to do.

So whichever way you look at it, it has to be protected and that's what we're doing. Now we run an AOC already. We work incredibly well with the Swiss regulator as well as the UK CAA. So we have no worries about being able to operate an EU AOC, none at all. And if anyone would speak to the CAA, they would say there are absolutely no issues about easyJet being able to do that. It's a very straightforward thing to do.

Unidentified Analyst

I guess my question is though, if it's a straightforward thing to do now, because the UK is part of the EU and the single-aviation market, if it were the case, one question I've got is why would an airline from an outside-EU jurisdiction be allowed to set up a license in the EU.

Carolyn McCall

Because it would be anti-competitive for them not to.

Unidentified Analyst

So why don't they have the Middle Eastern airlines setting up an EU AOC? That's the root of the--

Carolyn McCall

For that to - I can't - they have ownership rules around global airlines. The Middle Eastern airlines in particular they have a lot of lobbying by [indiscernible] and Air France against the Middle Eastern airlines. From our point of view, there is no question at the moment that we can set up an EU AOC. And we will be doing that soon. And we will have that in place so that if we were to leave and we weren't able to get the outcome, the negotiated outcome, we would then trigger it. But we will get that in place. In a very planned and measured way, that will be in place because [Technical Difficulty]. Can I just say, 43% of our passengers don't touch the UK. We're already - I've flagged this as we're a pan-European airline. We're the UK's largest airline and we have already been - we have always been very committed to the UK, but we're a pan-European airline. And all the governments know that.

Oliver and then Mitch - sorry , you need to come in Damian, sorry. Oliver and Damian.

Oliver Sleath

Just got a - on your winter planning, I imagine you're probably looking quite carefully at your network and everything in the winter season.

Carolyn McCall

Yes.

Oliver Sleath

My worry is could there be a risk that with the big shift in currency in the UK consumers, perhaps they'll still go away in summer but some of the discretionary rates right now they're suddenly 15% more expensive when you get going. Are you looking at increase in this winter or at least financially speaking. So do you have some flexibility there and -

Carolyn McCall

We have to look at that very carefully, I think. I do think the exchange rate issue will start normalizing for consumers. Now we can't bank on that; you're absolutely right. But if you look at the foreign exchange swing, for consumers it has been worse in the past. It's not one to one. There was a period a few years ago where it was nearly one to one. That was much worse. So I do think what happens is consumers start thinking, well, this is quite a normal state of affairs and then they start planning with that in mind. So we need to look at the winter capacity. We need to look at other people's winter capacity it's a bit early to tell that, but we'll be certainly looking at what we do in light of the current operating environment.

Oliver Sleath

Sure. And the other question is just on the French ATC strikes. They seem to have died down now in summer at least. Do you [Technical Difficulty] strike in July and August, do you have any view -

Carolyn McCall

They were on holiday. I think that my view is I think that it was very opportunistic because of the Euros. And I think the reason you had such an intensity of pressure, ATC strike action in that one plus - because the Euros were on and it got maximum publicity around the whole Europe and in France. And that was why I feel this year was extraordinary in terms of the French ATC. We've seen a - we've never seen a - we've seen a French strike before but we've never seen them to this level of intensity.

And so I think there was an opportunistic element to it. I'm not going to predict whether there is another one or not because I would never be completely right so there's no point in predicting. But the most important thing, I think one of the really important things I said which I should stress to you, is if you just assume that levels of disruption may remain high and then it's a bonus if they don't, then actually, end to end disruption, we're way ahead of other airlines in the way we manage disruption already.

But we can improve that quite a lot and that's good. We're looking at software that will help us to do that. We're looking at a crack team that will do that. There's a whole range of things we're putting in place, including automation and self-help so if you are disrupted, don't go and queue up - don't go and queue anywhere. You can just do it in the palm of your hand. You can re-book your flight, etcetera. So there are a lot of ways we can make this cost efficient, but also better for passengers. That's quite a big thing for us. Damian and then Vin [ph].

Damian Brewer

I had a question, I guess coming back to the fleet and the supply environment. Clearly the entire industry got it wrong this summer, even before the events given the amount of seat growth. And I think that everyone seems to think they've got time unique advantage that allows them to help grow the market. When you think about your positioning within that for the coming year, where are you thinking it will fall? You do have, for the most part, a structural cost advantage in the industry. Do you use that to continue to outgrow the industry and take a profit hit in the short term - because in the end you'll be positive in the long term? Or do you even actually cut back? How are you thinking about -

Carolyn McCall

I think it's the fundamental question actually for the next 18 months to two years particularly. But the only thing I disagree with, Damian, is that we were all wrong about the summer capacity, okay. And the reason I disagree with that is it started in November which is kind of too late to really do very much about your capacity. When you looked at October of this financial year, it was fantastic. I mean honestly we were - it was an amazing month.

November was Sharm. Now Sharm affected easyJet because we have a lot of seats going into Sharm in winter, but actually it's also quite a good summer destination for us. Believe it or not, even at 45 degrees heat, a lot of Britons go to Sharm in summer and in winter. But actually it's a much, more important destination for tour ops and it's closed. So it's not about getting it wrong, it was simply that Sharm is closed. No British airline or tour operator is flying to Sharm. All of that capacity has moved into the Western Med, all of it. That's the first thing.

Also North Africa, the tour operators took a lot of their capacity out of Tunisia, in fact all of it out of Tunisia because of the crisis - the attack there. They took quite a lot out of other parts of North Africa bordering Tunisia. And quite a lot of people, tour ops as well, trimmed Turkey. They didn't do quite as much in Turkey because there have been alerts about Turkey for some time in terms of security. So you've got a huge amount of capacity that was not intended for Western Europe coming into Western Europe this summer.

Damian Brewer

[Microphone Inaccessible].

Carolyn McCall

This summer? I think the tour ops would have really, really struggled because if you look at our capacity this summer, every single plane is making money. It's just making less money year on year. That's the important thing to remember. And the tour ops, if they don't fly that capacity this summer, they won't make any money at all because it's the only time they make money.

So I think it's not about getting the capacity assumptions wrong at the start of the financial year. It's as events unfolded, a lot of that capacity had to go into - if you look at TUI now, TUI are now developing other resorts to put that capacity into. They won't put it all into the Western Med next year, they will put it into Cape Verde and other places because they're developing hotels and resorts in order to replace Egypt. So that will start becoming much more rational because you need to have some time to plan that. Egypt, Sharm came out of the blue. So that's what I'd say. And then to your second point, I think your second point is highly strategic in that from our perspective, we have to make sure that where we can advance our market position in places we're already strong and could be stronger which will give us even more return, we mustn't take our foot off the accelerator.

So it's incredibly - and we can afford to do that because of our structural cost advantage as you point out at primary airports and because of our balance sheet. So you've heard Lufthansa, they're taking out slots - they're going to be taking capacity down. You've heard what Wizz and Ryanair are doing in the UK, you've heard [Technical Difficulty]. Already people are indicating what they're going to be doing. For easyJet what's critical is we will look at our route portfolio and things that don't look - make any sense in the current environment, we just won't do. We're not like a legacy carrier where we have to do certain routes because the government wants us to do it, etcetera. We don't have any of that. We can just take a purely rational economic view and we will.

So we will be very disciplined, but at the same time we will have to take some sound long term decisions to take advantage of a very weak market. I'll just give you an anecdote. This is not for - but anecdotally, when I got to easyJet in 2010, they'd been through quite a difficult 2008-2009 with the oil spike. Nothing else was going on, it was all about oil. You'll remember Andrew that there was a big discussion at easyJet about what to do at that time and actually they - shock, they actually kind of retrenched quite a lot. And at that time there was a view that Scandinavia was quite open.

It was all about SAS then and there was no Norwegian to speak of. And there was a view at easyJet that was the time to move into Scandinavia and once you didn't do it at the time when everybody else was kind of floundering, you missed that boat. So it's just - I only give it to you as an anecdote, I don't know if that's right or wrong actually. I don't know. But the fact is it's quite interesting that there were opportunities. Now, I don't think those opportunities exist in that way anymore but I do think there are real opportunities to strengthen our position in certain areas.

Unidentified Analyst

Can I just follow up on Damian's question actually before I ask my two questions if I can. But you're talking about maybe TUI now very focused on the Western Med and maybe looking for new destinations. But one of the big issues in the next year surely will be that Turkey is going to be much smaller for the tour ops. Sharm was relatively small for them, but Turkey took 20% of Thomas Cook's capacity. That's surely going to come down and things are not going to get any easier soon.

So that suggests to me that the pressure in the Western Med is still going to be very high next year. But my other couple of questions was just on what you're seeing at the moment in revenue per seat and the sort of regional differences. How much is this a UK issue, particularly post-Brexit? How much are you seeing those yield pressures or RPS pressures across the rest of Europe? And then the other question, you made clear that Q4 revenue booked fell off a cliff really after Brexit. 65% booked now at minus 7.5% revenue per seat.

Can you give us some indication of how much was booked pre-Brexit and what the revenue per seat was on that? And then post-Brexit what's happened to the revenue per seat on those post-Brexit bookings which maybe gives us a better flavor for what happens for the rest of Q4?

Carolyn McCall

It may, yes. I'll - your first point and hand over to Andrew for the regional differences in the yield. I think you're right about Turkey. The only thing I would say is that Thomas Cook are going to have to really rethink what they do and how they do it to be honest with you because this is really a major, major problem for them.

And we'll have to wait and see what that actually means. We're very, very strong on Western Med and we will remain very, very strong on Western Med. And we will be prepared price wise. So the thing that happened this year as a result of all these external events I've talked you about particularly the rebooking taking out late yields because you're rebooking late passengers that have been disrupted, that completely screwed up the yield for us.

It depends on what happens next year but I think it has extraordinary number and you don't ever see that number in any given year. If there is pressure on pricing, we'll know about it and we know how to deal with that. If a tour ops in the Western Med is looking stable, we'll still be able to carry volumes and we will still do well.

Unidentified Analyst

Yes, but your revenue per seat--

Carolyn McCall

So we have plans for the capacity environment and because there's low fuel and much higher capacity because of low fuel. Fuel is slightly going up so there's upward trajectory, but even if - we have plans for that capacity environment. So we would say that around 2% to 3% of yields are because of oil and capacity. The remainder of that RPS has been because of the disruptions, the cancellations, the rebooking and the late yield and the currency devaluation. So I think if it's the capacity/oil correlation that's something that is just kind of normal state of affairs in terms of trading for easyJet.

Andrew Findlay

So going back in time, so - well, just Q4 as a whole. So the majority of our - a fair proportion of our revenues in Q4 are related to beach. Beginning of Q4 it started the booking curve, our yields in those are very, very strong. At the half year we were very confident around where we were. When we got to the time of Brexit, that softened. We booked around 45%to 50% worth or around 45% of our seats booked at that time.

We were still around the mi- single-digit mark. I think for us, [indiscernible] year on year around here, but as we said in every year in the last four or five years, we've seen a significant ramp in those yields in the later market. And it's just at the time around one to two weeks after that Q3 period. Since then we've seen a softening, so at a point in time our revenues booked for Q4 were above the revenues booked for Q4 last year. So since that point in time, we've seen a softening and some of that has been - a fair proportion of that has been in beach so a big softening in that.

We believe that's around exchange rate movements. But as we're today, at 7.5%, since that announcement we've seen Turkey and Nice; hence, the reason for the uncertainty around where we're going forward. But as we said, we, now given that the pattern we've seen in the previous years around that uplift in yields, frankly we [indiscernible] this year. Hence, the reason for the uncertainty around where we're.

Unidentified Analyst

So the revenue per seat on that 20%-odd of passengers that booked for Q4 since Brexit must be down into double digit.

Andrew Findlay

So some of the yields are, yes, some of the routes, but we've done a very good job on ancillary to mitigate some of that, so we have done very well in the quarter and in-flight revenues. For some reason we have seen that trajectory.

Unidentified Analyst

And it's also to Gatwick, obviously operational issues last year, I think largely around ground handling.

Carolyn McCall

Baggage, yes.

Unidentified Analyst

Operational issues this year. Should we view Gatwick as sort of terminally ill or ways to do--?

Carolyn McCall

I think you always have ground handling issues in Gatwick. The year before that was [indiscernible] but I think that we have had - our issue [indiscernible]. We have a very transparent way of looking at their reporting numbers and so we're we do it on a day to day basis. So we're kind of very practical. So you shouldn't expect a kind of repeat of the ground handling issue for easyJet. I think the issue, we're on top of the issue I suppose in terms of trying to influence change with the congestion, so a lot of their issues are air space congestion. You saw the 350% increase in slot delays, that's just congestion.

So we're working with the CAA to ensure that Gatwick doesn't get any further movements. So they just - this is their model, they just keep adding movements, so they're adding movements on to an already congested air space. So CAA, Go and easyJet and indeed actually the other airlines of Gatwick are all working to constrain if you like further capacity for Go because I think that is one of the only ways - I remember working in the London area air space scheme to ensure that we're doing as much to influence how we can mitigate that. So I don't think you should - I think our move into North Terminal will be very significantly better because it's much, much easier to organize yourself efficiently around one terminal.

Your passengers know there's only one terminal they're coming in and out of. You have one ground handler in that place with the same equipment. It's very modern, a lot of auto bag drop. The auto bag drop is working amazingly well. You can get - can bring the bags in, the queue time is three minutes, three to five minutes as opposed to 20 minutes, 25 minutes. So it's an amazing change. So actually all of those things will make Gatwick a much easier airport going forward for passengers.

Unidentified Analyst

Does that sort of congestion data improve the - does it give you any legal basis by which you can say, you're not allowed to do any more movements or is it just--

Carolyn McCall

I think the CAA have been very worried about it and I think that the CAA are now looking at an independent audit of that, so that they can make some change, really heavily recommend some changes.

Unidentified Analyst

And just one more for me, you say you've done a lot of marketing since Brexit. Is that for want of a better phrase working or is it really just down to--?

Carolyn McCall

No, it's working very well. No, no, it's working very well because look at our load factors. They're higher than they were last year and we're carrying 6% more passengers than last year. So actually when you look at our passenger numbers, our load factors, marketing is working very, very well. They're stimulating demand incredibly effectively.

Unidentified Analyst

Two from me, one, you're obviously doing quite well on [indiscernible] and you seem to be accelerating. Does it change the profile of the medium term guidance which is kind of flattish, I guess? Or could we see again in 2017 and 2018 that situation back? And then secondly, the new digital - can you just talk a little bit about the new digital [indiscernible] in terms of shared content on your website or what is your thinking in terms of using your website?

Andrew Findlay

So about costs. So yes, we're very focused on costs for FY 2016, so we've done a good job when on ground, so we've managed to mitigate a lot of the inflation there. Productivity on crew, navigation and marketing and then distribution costs and overheads have been very well controlled. With respect to the profile, we still anticipate flat for FY 2019 versus 2015, but the profile of that as we indicated earlier will be lumpier.

So 2017 we do anticipate a marginal uplift in that, we'll give more guidance nearer the end of the year. But we're still sticking for the year to the flat guidance based on all the things that we're doing, with respect to maintenance, the upgauging and all the focus on this that we disclosed at the half year. So that's where we're.

Carolyn McCall

And now on digital, I'll give you a little bit of a flavor, but I think we'll do a lot more on this at the full year and then maybe when we'll do a deep dive on it. But look, you shouldn't really compare. It's not about Ryanair and easyJet because easyJet is genuinely so far ahead, not just of Ryanair but of airlines. And we don't benchmark ourselves digitally against airlines, we benchmark ourselves against e-commerce sites and that's how we will continue to develop. So when you look at our website you'll find it'll have much more intuition, it'll be much more intuitive to use. It's very much about the user, it's very much about making it easy to navigate, being able to very easily buy more.

So whatever form of ancillary revenue whether it's hotels or [indiscernible], insurance, whether it's cars, it will become [Technical Difficulty]. At the moment you have to do a two or three step process, it'll become much, much easier and you'll be able to do that by mobile as well as on screen. So that is a big thing. And there'll be a lot of personalization. We already do quite a lot of personalization, but the whole area of personalization will become deeper.

So it is very much about being an e-commerce site and ensuring that we're making it as easy as possible for our customers to buy from us. So that it's one click, it's easy, it's convenient and you can do it from anywhere. So that's where we're going with the new website and we'll give you much more information on that over time.

Unidentified Analyst

[Microphone Inaccessible].

Carolyn McCall

We're really, really very strong on that. It's under the radar and so it's a little bit harder to copy and replicate because we do it in a certain way and we have a very - we've got 23 million user emails, 23 million which is a huge database, a massive asset.

Unidentified Analyst

Can I ask about return on capital? You've hinted in the past that you thought the 20% plus levels that we've seen in recent years were unsustainable and you talked about self-dilution on certain routes for instance. Would you say that the level of return that we're seeing this year is going to be a more reliable guide to what's achievable over the long run in future?

Andrew Findlay

I think for us it's [indiscernible] versus last year. I think for us - we're making money on it every year. And for us, if we can make a contribution during the period, where we're taking up opportunities for that period, I think we've got to focus on the longer term. So it might be a period in the shorter term [indiscernible] where we see a reduction of those normal levels of 20% plus but I think for us we've got to look at the longer term prize.

And as you come out of this, particular look at the other side and how we come out, ideally, you want to come out stronger and obviously excellent opportunity to grow from that point onwards. So I think for us it's - we've made - decided to invest in that just to come out the other side stronger than we've gone in. I think if we can ensure that we get a return on those aircraft, the model return might dilute but in the long term we know based on the contributions we see in building a better market share that pays back returns over a long period of time.

Carolyn McCall

Because of the [indiscernible] the revenue would have come down anyway. So the underlying revenue would have to come down because we can take slightly as CapEx. And also just around those were important in terms of coming in because of cost efficiency as driver, so I think we've got a lot of leases. And if we do anything about capacity, it will be around leases would be our preferred option not around [indiscernible] option, because actually getting those A-320s in the fleet are a critical part for us in terms of cost efficiency.

Unidentified Analyst

Does the trading environment lead to a heated debate on dividends at Board level or is that nonnegotiable?

Carolyn McCall

No, I mean I think we don't have a heated debate. We just look at the balance sheet and we did a balance sheet review very recently, incredibly rigorous and [indiscernible] about it. And we've looked at every which way and every angle in many different scenarios including a worse scenario than today. So we raised it from 40% to 50% as we believe that that is absolutely our commitment is that we've been doing that for the last half.

Unidentified Analyst

[Technical Difficulty]. What are they actually saying to you [indiscernible]?

Carolyn McCall

Yes, it's really interesting because when I was talking to Heathrow and BA as well, they've seen a real pre-Brexit and then post-Brexit, they've seen a real decline in business passenger demand particularly U.S. so their numbers are really down. Whereas our numbers are up, so we've actually seen underlying because it's the move - for these move and all that, we've seen a 6% increase in business passengers and we've signed 23 more corporate deals.

So I think actually in a time of kind of uncertainty or difficulty where people are saying maybe £ is going to stay down for a bit, there's always that slight value - people come to us because we're great value and we have - and I think that would increase actually. That happened last time around we gave us a fantastic opportunity for people who had never flown easyJet to reappraise easyJet and fly on business with easyJet and I think actually that is probably likely to happen again.

Damian Brewer

[Microphone Inaccessible].

Carolyn McCall

No, we don't need to. We don't need to do I, Damian, because actually our whole plan has been to increase our frequency that we have on the main business routes. So if you look at our London Amsterdam we do about 25 flights a day. If you look at some of the key French routes, for instance, the Paris-Nice, the Paris-Toulouse, they've already got high - we've already done that. A lot of the work on frequency was done already between 2012 and 2015. So I don't think we actually have to change the network much. We'll clearly continue to tweak, we would always do that, but there's nothing fundamental that we need to change for business.

Any other questions? No? Good. Thank you all very much. Thanks for coming. Are there any questions online?

Operator

At the current time we have no questions coming through.

Carolyn McCall

Good. Thanks very much, everybody. Bye.