easyJet's (EJTTF) CEO Carolyn McCall on Q4 2016 Results - Earnings Call Transcript

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easyJet Plc (OTC:EJTTF) Q4 2016 Earnings Conference Call November 15, 2016 5:00 AM ET


Carolyn McCall – Chief Executive Officer

Andrew Findlay – Chief Financial Officer

Sophie Dekkers – Commercial Manager

Peter Duffy – Chief Commercial Officer


Jarrod Castle – UBS

James Hollins – Exane

Oliver Sleath – Barclays

Andrew Light – Citi

Neil Glynn – Credit Suisse

Damian Brewer – RBC

Andrew Lobbenburg – HSBC

Alexia Dogani – Goldman Sachs

Gerald Khoo – Liberum

Jack Diskin – Goodbody

Carolyn McCall

Good morning, everyone. You feel a bit spaced out in here because it's a much bigger auditorium than the one we're used to. Welcome to easyJet's Full Year Results 2016. As usual, I'm joined by Andrew Findlay who you all know, our CFO, as well as other members of the easyJet team, including our country directors. Again, you know all of them I think quite well. I'd like to – I'm really, really pleased actually to introduce to you Chris Browne, our Chief Operating Officer. Where are you Chris? She's sitting right in the back over there.

easyJet has delivered another strong performance in the year, generating over £0.5 billion of pre-tax profit at constant currency, reflecting the strength of our business model. Through disciplined capacity deployment, which has deepened our market-leading position, and a range of revenue initiatives that have driven RPS while maintaining high load factors, we have delivered revenue of over £4.6 billion, and we've grown passengers by 6.6%, carrying 73.1 million passengers this year.

This has been delivered despite the effect of several well-documented and significant external events which have had a major impact on passenger demand at key moments of the year. Cost control has been strong. Our cost per seat ex fuel at constant currency has come down by 1.1% for the year, an area where we will continue to be tough. For shareholders, as we announced earlier in the year after our capital structure review, the ordinary annual dividend payout ratio has increased to 50% of net income, which again underlines our confidence in the business.

Over to Andrew now for the financial review.

Andrew Findlay

Thanks, Carolyn. Good morning, everybody. Moving straight into the numbers, total reported revenue was broadly flat year on year at £4.669 billion, which was a decrease of 0.9% at constant currency and reflects a solid trading performance considering the impact from the incidents and disruption we experienced throughout the year.

Fuel cost decreased by £85 million on a reported basis, reflecting an effective post-hedge fuel price of £479 per metric ton, and costs excluding fuel increased by 5.3% at constant currency, which is a strong performance for the year, which I'll give further detail later in the presentation.

easyJet has delivered a pre-tax profit of £4.9 million – £490 million, with profit of £576 million at constant currency, with the difference primarily driven by the weakening of sterling against euro. Around 35% of this exchange rate impact was incurred after June 23. Basic EPS fell 30.7p but the proposed dividend at 53.8p per share reflects the increased dividend payout ratio of 50%. At today's share price that represents a yield of around 5%.

Now moving into more detail, starting with revenue. In 2016 our capacity grew slightly less than planned at 6.5%, with a load factor of 91.6% for the year. Passenger numbers for the year reached 73.1 million, up 6.6%. On a reported basis, revenue per seat was down 6.4%, while at constant currency decreasing 6.9%.

We estimate that over one-third of this overall decline in RPS is represented by the impact on demand and yield immediately following the events in Sharm, Paris, Brussels, Nice and Turkey. The remainder of the decline has been driven by a combination of increased capacity in the market and a softer yield environment.

Moving onto costs. Total cost per seat at constant currency was down 4.6%, and excluding fuel was down 1.1%, which is a great achievement by the team this year. In terms of the detail, I'll start on the left-hand side of the graph, with the cost drivers that are primarily outside of our control.

The first bar reflects the impact of doing business at large regulated airports, which underpins our network differentiation. We experienced increases at Rome Fiumicino where, due to the high cost, we decided to stop basing aircraft while still carrying around 2.5 million passengers in and out of the airport.

Moving along, we incurred a significant increase in disruption cost with the number of cancellations in 2016 increasing by 24% in the year. With two-thirds of our flights flying over France, the French ATC strikes in March and June had a negative impact. The cessation of flights to Sharm El Sheikh routes also contributed to an increased disruption cost, plus we saw a significant increase in EU 261 claim rates, which continues to impact the industry as a whole. All of these factors combined drove costs 83p per seat higher in the year. Also in this section, you see the impact of underlying inflation was circa 1.1%, adding a further 59p to cost per seat.

Moving onto the right-hand side of the graph and the cost drivers within our control, the increased mix of A320 aircraft in the fleet delivered a saving of 40p per seat during the year as we added a further 20 new A320s to our mix compared to 2015. This benefit will continue as the current percentage of A320 aircraft in the fleet is expected to increase from 44% today to circa 70% by 2022, with the added benefit of adding six seats to the current A320 configuration.

2016 saw continued focus on delivering sustainable savings through the reinvigorated lean program. The next column represents the cost reductions delivered in 2016. We have a strong pipeline of cost saving measures in place which will drive efficiency and maintain our position as one of the low-cost leaders in the industry. This includes savings via improved terms with our airports, reflecting our increasing scale and importance. Our new engineering contract and maintenance contract, lean base openings and reduction in overhead costs also contributed.

Finally, fuel cost decreased by £1.96 due to the lower effective price of fuel, and the impact of foreign exchange increased cost per seat by £1.32 due to the weakness in the pound. This slide summarizes the impact of fuel prices, currency and hedging. The market price for jet fuel traded between $283 and $527 per ton during the year. After taking our hedging into account, the sterling cost of fuel per metric ton was £479, which is a £74 decrease compared to 2015. This unit reduction benefited our cost base by some £166 million.

Despite the sharp decline in oil prices, the tenor and layering of our hedge profile has meant that we haven't been able to take full advantage of the market prices, unlike some of the other airlines. This will also be the case in FY 2017 as the layered hedge position starts to roll off. As you know, all our hedging policies – as you all know, our hedging policy is reviewed on a regular basis, and we are committed to the current policy as it delivers certainty around cash flow which we believe is very important.

Moving onto exchange, which had a major impact on financials post the UK referendum, euro rate has fluctuated between EUR1.43 and EUR1.10 during the year. As you all know, revenue is accounted for at the rate prevailing when the booking is made, whereas costs are recorded or accounted for at the rate when they're incurred, generally at the time the passenger flies, creating revenue-cost variations.

Net-net, including the impact of balance sheet revaluations, the impact on our results was an £88 million negative from currency movement. As I said earlier, £30 million of this reflects the impact of exchange rates post the UK referendum. easyJet continues to generate strong sustainable cash flows with operating cash flow reaching £724 million in 2016, which funded the return of £219 million to shareholders through the payment of the 2015 ordinary dividend.

During the year, we issued a EUR500 million 1.75% coupon bond and surrendered four higher interest rate mortgage deals, resulting in a net £139 million increase in debt. This contributed towards £586 million of capital investment, primarily on new aircraft. This capital expenditure also includes engineering and maintenance investment, plus some investments in systems, with a particular focus on our commercial platform. Net cash decreased by £222 million to £213 million.

You'll have seen that since our year-end we have issued a further EUR500 million bond with a coupon of 1.125%, taking advantage of the current low interest rates. We have a strong balance sheet that provides resilience, flexibility and access to cheap unsecured debt. Intangible assets grew £25 million, reflecting investment in IT software and development. Fixed assets increased by £375 million, principally representing the investment in new aircraft. At the year-end, 75% of our aircraft were on balance sheet with 80% of those being completely unencumbered.

You will notice the significant £395 million movement in derivative financial instruments. The balance sheet now reflects our net in the money position on our hedges, with the dollar hedge now more than offsetting the still out of the money jet. Looking again at cash, easyJet ended the year with £969 million in cash and money market deposits, and borrowings of £756 million, resulting in £213 million of net cash. Our liquidity is also supported by the $500 million revolving credit facility that has no financial covenants or draw-stops.

This slide summarizes our gross capital investment plans over the coming years and includes an extended view to 2019 to help give more clarity. You will note that a significant proportion of the expenditure is being invested in replacing the older aircraft and retrofits that will result in increased gauging for the existing A320s to 186 seats. This provides capacity growth of around 0.5% per annum and a benefit to a cost per seat metrics. The growth expenditure supports our fleet plan of up to 9% capacity growth per annum. This expenditure peaks in FY 2018 and will be funded by underlying cash flows and an increase in debt.

As you know, we retain flexibility in our fleet plan and we review the plan in light of market conditions on a regular basis to ensure the projected growth underpins maximum long-term shareholder value. These figures exclude any receipts for sale and leasebacks that we'll be undertaking as part of our A319 residual value management and exit program over the coming years.

As a reminder, this slide highlights the current flexibility we have in our fleet plan, which gives us the ability to change our capacity growth in response to changes in the external environment. Recent negotiations have added a greater level of flexibility in our fleet deal with our deferred notice periods reduced to 18 months. Together with a number of lease termination opportunities in FY 2018, the Airbus contract and the short-term flexibility it provides continues to be a source of real competitive advantage.

With that I'll now hand you back to Carolyn.

Carolyn McCall

Thanks, Andrew. So easyJet continues to be well placed to succeed in all market conditions. Our network strategy and differentiated proposition provides passengers with a primary airport network and schedule that no other European airline can compare with or replicate. This, combined with our friendly service and our digital leadership, has delivered another record year of passenger numbers and load factors.

We have recently completed a deep dive analysis to ensure we're allocating future capacity purposefully, targeting the opportunities that best build on our strengths and advantage us versus the competition. Combined with robust capital discipline, strong cost advantage against the airport competitors we are up against and a strong balance sheet, as you heard from Andrew, you can see why easyJet is one of the structural winners from the current market turbulence.

So the recent analysis I mentioned shows that over the next five years overall European short-haul passenger growth will be around 3.5%. We expect market growth and market share increases to come primarily from the low-cost carriers, 40% from ourselves and Ryanair in the next five years, the structural winners of the industry.

easyJet has a leading position in the UK, Switzerland and France, and a city-focused strategy in Italy, Germany and the Netherlands. We deliver our lean basing initiatives out of Spain and Portugal. 70% of our passengers currently depart from our three core and very valuable markets, the UK, Switzerland and France, where we expect future passenger growth to be strong.

easyJet's proven network strategy continues to deliver strong returns. What we saw in our deep dive is that the current market environment can provide opportunities to support profitable growth of up to 9% per year in the medium term. And as I just mentioned, we see the opportunity in being more purposeful and targeted in our allocation of that capacity.

So just to be clear, when I talk about a purposeful growth strategy, what I mean is four things. Firstly, to build and strengthen our strong number one positions in primary airports, such as those we have in the UK and Switzerland. Think Gatwick, Geneva, but also Luton, Basel, Bristol.

Secondly, where we can take advantage of growth opportunities such as the ones we see in France where we compete against a weak legacy incumbent. Thirdly, to attract – to target valuable city catchment areas, such as Amsterdam through Schiphol and Milan and Venice, creating the strong position we now have in northern Italy. Fourthly, we will develop further, as I said, our lean bases, like Barcelona, Palma and Porto, which allow us to access markets cost effectively.

Our portfolio management approach to the network involves allocating aircraft and churning routes to maximize returns. For example, this year we've closed the Rome Fiumicino base, reallocating the eight aircraft to Venice, Naples and Malpensa, where returns are higher. We have aggressively churned routes; we've added 106 new routes from key airports in Amsterdam, Bristol, Luton, Lyon and Malpensa, and we've dropped 38 routes.

Our strategy of building strong number one positions at primary airports is very clear. Where we have a number one position in an airport we make a significantly higher RPS return. A number one position isn't just about being the volume number one at the airport, it's also about being the airline with both the broadest range and the thickest routes from that airport, and most importantly, the airline with the best peak slot portfolio so we can fly at those times when customers want to travel and are prepared to pay a bit more for it.

We currently have 16 number one positions, eight number 2 positions and one number 3 and 4 position in our based network. As this chart shows, returns are driven by the combination of these three positions, a significant proportion the benefit of being number one, the opportunity of being a strong number two behind a weak legacy carrier, and other opportunities around either cost efficiency or development opportunities. This approach helps us attract higher-yielding passengers, which in turn has a proven ability to drive higher returns.

We also have an incredibly clear focus on where we will allocate our growth. Looking at this pie chart, you will see that 98% of our 2016 capacity touched an airport where we make the highest return that is where we have a number one or number two position. The remainder of our positions are either, as I said, where we are increasing capacity because of our lean bases, or we are monitoring and evaluating future potential.

New capacity growth in 2017 will be specifically targeted at delivering the strategic objectives I outlined, those four objectives, with an additional 5.5 million seats or 60% being based where we are number one or number two at those airports.

Another dimension to our competitive advantage is our strong positions when an airport is slot constrained, as you can see from this slide. These positions have been built up over a considerable period of time and they are difficult to replicate. We also have a specific opportunity to use our fleet up-gauging to add capacity to these valuable positions, switching from a 319 to a 320, a capacity increase of 30%.

Now you will be familiar with the pie chart on the left, which highlights the split of capacity at easyJet's top 20 airports. You can see from this chart that over one-third of the short-haul capacity at those airports is still not flown by a low-cost carrier, some 77 million seats. When splitting those 77 million seats into the airports where we already hold number one or number two positions, you can see we have a significant opportunity, 63 million seats, that is still there to be taken.

We are therefore allocating easyJet growth in 2017 to capture that opportunity for 63 million seats by targeting our primary slot-constrained airports in core markets, 8% in the UK, 10% in Switzerland, 11% in France, 8% in the Netherlands, 7% in Germany, 7% in Italy.

So the confidence we have in our network strategy and future growth plan is based on our track record of driving strong returns. You will also be familiar with this slide, which highlights returns by route across easyJet. As you all know, we have a portfolio management approach to our route planning. By developing and deepening our positions in line with the purposeful network strategy, we continue to prove that we can deliver strong returns. This is shown by the fact that a significant proportion of our routes are currently above our WACC of 7.9%, which is a market-leading statistic.

Now one other point about this slide which is very important, if you look at our 2016 list of 803 routes, over half of the most profitable 25% were not part of that list in 2012. It's the development of strong positions in number one and number two airports on key routes and with valuable slots, combined with a ruthless approach to capital discipline are proven to deliver strong returns for easyJet, and we will continue to do so.

Supporting our market-leading European network, we have created a differentiated proposition that resonates with our customers. In three core markets that I've already mentioned, the UK, France and Switzerland, where we collectively hold number one and number two leading positions in 16 airports, easyJet is the first choice LCC airline. Over 70% of our customers are based in these markets where over the year we were ranked number one for value perception, we were either the most or second-most searched for airline, and we were judged to have the top-ranking airline app.

Where we take a more city-based approach, the brand is still strong, but it's stronger in the city than at the country level, as you would expect. Take Berlin for example. These statistics come from independent external sources, such as Millward Brown, Google and Apple, and highlight the fact that easyJet is the first-choice airline for a growing and loyal customer base in our most valuable markets.

easyJet's digital offering is one of the driving forces behind our strong passenger volume and load performance. We have a digital distribution strategy that is built on three commercially mature channels. The first of these is easyjet.com, where over three-quarters of our sales are made, and which has over 350 million web visits per year. We invest heavily in the site, which has enjoyed another year of improving conversion rates, up by a further 9.6%, and 92% of customers tell us that they are satisfied with it.

Next, we have our mobile app which is widely acknowledged to be the leading app in the airline industry. Customers on Apple give it a 4.5 star rating versus Ryanair's rating of 1.5 stars. The app got 168 million visits last year and delivered improved year-on-year sales of 38%.

The third channel is our GDS aggregator and direct API capability. 12.5% of total Group sales are now sold through these channels. This is a particularly important route to market for our business customers. Last year we enjoyed a year-on-year growth of 22% for B2B customers on GDS and 15% on corporate booking tools.

As well as driving seat sales, our digital offering is enabling us to sell more broadly into the customer travel value chain, and we call it colloquially from click to curb, and this is driving strong growth in ancillary revenue. easyJet.com continues to deliver strong and improving cross-selling, although I'm pleased to say that we actually make more partner sales from our data-driven post-booking program than we do actually in the booking process itself.

We have recently added the opportunity to buy ancillaries on mobile and at check-in, introduced this year and still to fully roll out, but already delivering year-on-year sales growth of 43%. All in all, this means that our investment in digital and data gives us the platform to leverage easyJet's strong market position and brand to target more and more of Europe's most valuable travelling customers with the relevant and bespoke appropriate offer.

This approach has improved our non-ticket RPS by 1.4% in 2016 and we obviously see further opportunities in this area. Inflight revenue increased 31% against full year 2015. You can now buy a voucher to spend on board in advance of flying. Our Flexi customers get £5 to spend on bistro wrapped into their seat price, and we will be rolling out pre-ordering of food in the next few weeks. Ancillary product revenue increased by 9%, which includes seats and bags, and partner ancillaries grew by 6% year on year. A lot of the gains in ancillary revenue are being driven by a clearer understanding of our customers. Data mining is delivering deeper insights, which are then delivered through the digital platforms to provide greater customer loyalty.

Just some summary observations about our 73.5 million [sic 73.1 million] customers. 55% of our passengers originate from outside the UK, 20% travel for business, 51% for occasional travel, 17% are high frequency leisure travelers. The average age is 42, up from 40.5 five years ago, reflecting the increase in business customers. 50% of easyJet's customers are in the socioeconomic group AB, which is extremely high, and our most frequent and valuable customers come from the highest socioeconomic groups in Europe. They are managers, professionals, high earners and big internet and smartphone users.

However, the reason for doing all of this customer analytics and digital delivery work is because with over 26 million contactable customers we can drive higher returns. Again, a few examples. We launched an invitation-only recognition program, Flight Club, targeting our most regular passengers. In our first year, this not only has been well received but has increased retention by 14% and satisfaction by 32% amongst our most valuable cohort of passengers.

easyJet Plus cardholders have increased by 23% year on year. The percentage of returning customers has increased by 60% from 2010 to today, an increase of 21 million passengers. And we see that our award-winning e-mail program not only drives nearly 30% more bookings from customers, they generate 50% more flight revenue and over 45% more ancillary revenue. So you can see why this area is so important.

Now in talking about customers, I must touch on business, which remains one of our main strategic initiatives. With an average fare saving of almost 40% on business routes, we are an option that corporate travel managers are taking advantage of in increasing numbers. Business goes from strength to strength and we've seen a 14% increase this year in our dedicated business fares through our successful TMC partnership, Travel Management Company partnership. We've re-signed our three GDS contracts and additionally now have over 300 corporate agreements. Business passengers have increased to 12.5 million.

All of this puts us on track to achieve our target to increase the number of passengers travelling with us on business by 25% by 2020. So our advanced digital capability looks to constantly improve our customer and commercial platform. This slide summarizes the initiatives which we've gone – they've either gone live already or are imminently about to go live. It's a small step away from the kind of returns and functionality we will be able to deliver from our future commercial platform.

Our capability to appropriately target customers using data and e-mail, which I've just talked about, can't be replicated online yet. No airline globally is remotely close to the sort of retailing capability we see in other industries. So we have agreed to be Hybris's first e-commerce platform in the airline sector, platform partner.

Hybris technology powers some of the leading e-commerce sites in the world and will be a step change in our capability to target and cross-sell ancillary products. This system will take our customers' data and our predictive algorithms and increasingly personalize the user journey, based on the individual and their requirements. The new frontend of the system is currently rolling out; functionality will be released in stages over the next year. In terms of timing, the program is on track for delivery in the first half of 2018.

Now to cost. easyJet's low cost position is all about maintaining a sizeable cost advantage versus our main competitors, the legacy carriers, while ensuring that we continue to deliver sustainable cost savings that keep us competitive with all airlines on an airport-to-airport basis. Our seat adjusted CASK ex fuel has been an average of 3.5p since 2011, almost half that of IAG, 60% lower than Air France KLM, and almost 65% better than the Lufthansa Group.

Against other low-cost carriers in the last five years, we've also demonstrated superior cost control with average annual cost per seat kilometer growth of only 1.4%, which is clearly better than our main competitors. We've delivered this strong cost performance through a successful lean program that has saved over £250 million in the last five years. This has been and will continue to be supported by our fleet up-gauging program. Our average seat plane of 167 seats reflecting the mix of 319s and 180 seat A320 aircraft, giving us future advantage, as we are now buying 186-seat A320s with the Neos coming from summer 2017 and the retrofit program. This will drive both unit cost savings and narrow the gap.

As a result, we are firmly committed to our target of flat cost per seat ex fuel and at constant currency in 2019 versus 2015. In 2017 we expect our lean program to save around 2% cost per seat at constant currency, which will offset inflationary increases in airports, ground handling and crew. We continue to have an active lean program, as you would expect. It's taking substantial cost out of the business and, looking forward, lean initiatives will deliver that flat cost per seat target. We're investing in resilience to ensure we deliver a sustainable operational performance and long-term benefits in efficiency.

As you know, it's been a tough year operationally for the industry with the amount of external shocks, congestion in air space, etc. Primary airport congestion has got worse over the last two years. European short-haul capacity has increased by 100 million seats; London traffic has increased by 15 million seats, clearly putting pressure on the infrastructure. Delays due to London airspace congestion tripled from just 2015 to 2016.

Additionally, airlines have had to deal with multiple ATC strikes across Europe that disproportionately affect easyJet because of the number that occurred in France, the fact that two-thirds of our flying program flies over French airspace.

So given our primary airport to airport network, we're planning on the basis that the current operating environment is unlikely to improve significantly in the short term. We are proactively taking steps to counteract these external factors. Our priority is to invest in schedule and crew resilience, to deliver an evermore efficient flying program. This approach to sustainable forward planning and resilience will help with union agreements and give us crew stability.

Our aim is to offset over time any costs associated with this work through savings from our lean program. We will keep you updated as this progresses. Initiatives already being delivered include leasing a King Air jet, which deliver engineers and parts wherever they are needed, allowing us to get tech aircraft back to work as quickly as possible and passengers on their way as quickly as possible.

We have also invested in data science which we have concentrated on predictive maintenance, which will begin to reduce parts failures and increase reliability even further in the future. Finally, turning to our planning around the UK's departure from the EU, we've had constructive talks with the UK Government, those of other European countries and the European Commission. We welcome the statement made yesterday by David Davis that he wants to make sure UK airlines continue to have liberal access to European aviation markets.

Whilst this is encouraging and we are confident there will be a UK-EU aviation agreement, we cannot be certain that it will fully reflect the current arrangements, which is why we need to establish an EU operating company. This will secure our flying rights across Europe. We've undertaken an extensive review to find the best location for this, and this process is close to completion. We expect to make a formal application in early 2017. The new operating company will ensure we can fly between EU countries and domestically within another EU country exactly as we do today. And of course, our UK and our Swiss AOCs mean that, as this slide shows, we are confident that after the UK leaves the EU in 2019 we continue to operate all our flights across our network. In this new structure, I can confirm that our HQ remains in the UK.

I'm now going to pass over to Andrew for the outlook.

Andrew Findlay

So looking at the outlook for FY 2017, we expect to grow capacity in the first half measured in seats flown by 9% with forward bookings for the period currently in line with the same period as last year. This will be done with purposefully investing in markets and routes that strengthen our market-leading network, and for the full year we currently plan to grow by around 9%.

Revenue per seat is expected to decrease in the first six months by mid to high single-digits, as previously guided. This takes into account the strong October prior year comparison, the movement of Easter into the second half and our growth in the period, plus competitor capacity growth supported by the sustained low price of oil.

For the full year, we are targeting a decrease in cost per seat at constant currency including fuel of around 3%. Cost per seat excluding fuel and at constant currency is expected to increase by around 1% at normal levels of disruption. This particularly reflects our investment to build operational resilience, primarily in scheduling and rostering. Whilst we have only recently started this process, we expect to generate a sustained benefit from this investment. We may make further investments during the year if we believe the benefits from doing so are sure to deliver stronger, more efficient operations.

This also excludes the specific non-headline items outlined in our statement. As a reminder, these were as follows: a non-cash one-off £20 million charge as a result of the planned sale and leaseback of 10 A319 aircraft in December. This charge reflects a maintenance provision catch-up and accounting loss due to the construct of the transaction. We expect the transaction to result in a cash inflow of circa $140 million.

It also excludes one-off costs related to the set-up of an EU AOC, which are expected to be around £5 million in financial year 2017 and around £10 million in total, mostly driven by the cost to reregister aircraft.

The one-off costs associated with our organizational review, which we expect to result in a simpler, more efficient organization and which will deliver meaningful annualized savings when implemented. We'll provide further details in due course; however, any costs associated with this program will be targeting a six to nine-month payback.

Currency movements that primarily reflect the fall of sterling against the U.S. dollar are expected to be around £70 million adverse for the first six months and £90 million for the full year. We expect a full-year fuel benefit for the year of between £245 million and £275 million, based on a fuel price of between $400 and $520 per metric ton. Full details of our hedging positions are provided in the appendix on page 39 of the slide deck.

I'll now hand you back to Carolyn.

Carolyn McCall

Okay, so to summarize. In light of the changed environment, we have tested and analyzed our network strategy in depth, and as a result, we've gained more fleet flexibility to remain agile about growth going forward. For full year 2017 we will implement a much sharper focus on securing number one positions in primary airports and number two positions where we are second to a weak legacy incumbent.

There remains a 63-million-seat opportunity in our core markets, point-to-point routes currently flown by non-LCCs in airports where we already have a number one or number two position. So we will grow very purposefully at 9% approximately this year.

We remain rational and disciplined and will continually review our plans, aided by the recently improved fleet flexibility. We continue to offer customers what they want: great value fares to and from the airports they want to fly to, helpful and friendly service and excellent and innovative digital services. That's why customer loyalty continues to grow so strongly. 54 million passengers flew with us again last year, 21 million more than five years ago.

We have a detailed cost plan, as you've heard, to deliver flat CPS ex fuel by 2019. This year we're investing in resilience and that will deliver returns. We retain a very strong balance sheet, as you've heard from Andrew. As an outcome of all of this, it means we maintain a highly attractive dividend policy, returning 50% of post-tax profit to our shareholders.

Over to you for questions.

Question-and-Answer Session

Q - Jarrod Castle

Thanks. It's Jarrod Castle from UBS. Sorry about that. I just want to explore a little bit on return on capital employed. It's obviously come down from 22% down to 15%. And then you kind of give your fleet flexibility on page 12. What levels of returns would you be comfortable with before you actually went to call it the contracted minimum case? What should the stepping stones be as you move towards 8% let's say or 10%? And then just secondly, is there any further color you can give in terms of some of the measures we'd see with regards to the organization reorg? And also, sorry, just lastly, what levels of gearing you'd be comfortable going to, just given the CapEx program? Thanks.

Andrew Findlay

Okay, I'll take the first and last. I think we've been very consistent in this business that our hurdle rate internally has always been 12% return on capital employed when we're allocating out. So that won't change. I think it's very clear that the 22.2% that we delivered a year or so ago was a benefit of obviously the fact that we've had a holiday on CapEx with respect to the A320 Neos waiting to come in, and also the hedge position that we had on the balance sheet. But I think it's very clear that our focus and our hurdle rate for making decisions remains at that 12% hurdle rate that we've been consistent at.

I think for us, when it comes to what levels of return we would expect if we decided to pull back, I think we'll continually review that. I think we're clear that that's the target number that we want to get to and it's clear that that's got – we've got a 4% gap between our WACC and our target number there, so we've got some capacity there. But it's very clear that we won't go below that WACC number but our target hurdle rate is at 12% that we want to deliver.

With respect go gearing we don't – we haven't got a gearing target measure that we measure. We moved away from that when we did the capital structure review. We've got a rating of BBB+, which is the top of the league in the airline industry. They're very – Moody's and S&P have been very supportive of our position, they recognize the strength of our balance sheet.

Remember, we've got a significant proportion of our aircraft on balance sheet completely unencumbered, which gives added value to our balance sheet. We've gone to the market with very cheap rates to bolster our liquidity. We've got good access to forms of debt. And I think from the purposes of gearing we've been very clear that our dividend is supported by operational cash flows. And we will increase our debt to invest in the long-term future of this business.

Carolyn McCall

On the design of the organization this was just an opportunity, and we've been working on this for a little while actually, which is just to step back and say we are now an airline of some scale. And it was about really looking at 300-plus aircraft, so we are about 250 at the moment, and saying what are the things we could do differently and what are the things we could redesign to make us more efficient and more effective.

Because I think when you've been growing at the rate you've been growing over the last eight years actually, maybe nine, you don't really have a chance to step back and look at your systems, your processes and your structure to actually take the benefit of scale. And that's what this is all about. So there will inevitably as an outcome be cost savings to this, but it is about working more effectively and becoming a much more efficient organization. And we will update you a bit more on that probably at the Capital Markets Day.

James Hollins

It's James Hollins from Exane. Three questions please. The first one is can you just give some guidance on what we might think as a best assumption on annualized EU261 costs? I'm not sure if you stripped it out or what we should be thinking in terms of that impact. The second one is just how you're actually planning to increase your capacity. Clearly, it's now up at 9%. It is less retirements. Is it actually leasing more aircraft in? And the third one is just how you assess the potential mid-term impact of the IFRS operating lease accounting changes, how you look at that. Does it impact your growth or ownership strategy in any way so far?

Andrew Findlay

Yes, so I'll take all those. So let's work backwards, IFRS, yes, as you said I think from the purposes of looking at our balance sheet Moody's and S&P have already baked that into their numbers. They – effectively Moody's multiply by five, S&P do a full discounted cash flow and our BBB rating is off the back of that so it shouldn't change, fundamentally change the strength of our balance sheet. It may change the way it's presented in the accounts, but as far as we are concerned, it doesn't change our investment decisions.

With respect to capacity, we've been very clear on what we are investing on over the next few years. We do have an assumption in FY 2018 of extension of leases, around 12 leases in FY 2018 that gives us added flexibilities as we've talked earlier around what we can do with expected capacity. But I think the majority of that is around increased capacity that we are buying from Airbus, plus the extension of those leases. But, again, we've got some flexibility there.

On EU261, we don't disclose, but it's fair to say it's a material part of our cost base. And one of the things that we are looking to do is invest in better managing our resilience and schedule investment at rosters to better improve the management of our exposure to that EU261 claim. I think it's fair to say that we've landed a 1.1% cost per seat reduction despite all the events we saw last year, which obviously would have attracted higher rates of EU261 claims. So I think FY 2016 has been a good result from a cost perspective but we are looking to invest in FY 2017 to better manage that cost going forward, hence the reason why we see there can be significant returns if we can do that better.

Oliver Sleath

Thanks. It's Oliver Sleath from Barclays. Three questions please, firstly on the UK consumer, I'm not sure if Sophie]is around, but I'm just interested to know as you're running through the winter how have you seen the UK consumer booking shaping up in light of obviously the big depreciation in the sterling. Appetite for ski breaks, things like that. Are people still travelling? Are they taking shorter trip durations? Any color there would be helpful please.

Secondly, on Germany and specifically Frankfurt, I guess in some ways that would have ticked a lot of boxes in respect of attractive primary airport market. I just wondered did you look at that at all. Or could it still be the case that you might be able to go in there at some point? And finally, just on the EU A0C and Brexit, it's good to hear the progress on the AOC. Have you done any contingency planning around ownership rules? And would you need to potentially get the majority of your shareholder base domiciled in Continental Europe, and then assume that the UK takes a more relaxed view on ownership? Thanks.

Carolyn McCall

Okay. On the UK consumer, Sophie is here so perhaps it's an opportunity for Sophie to give some color on that. Go on Sophie.

Sophie Dekkers

Yes, hi Oliver. From a UK consumer perspective at the moment, we haven't seen a significant change in consumer behavior in terms of the profile of the consumer of their booking duration yet. It's still quite early days for the ski season to really see a significant difference. We've got strong bookings for February half term, which we would expect to have at this time of year. And actually, the good news is there was snow last weekend, so actually, that's really positive for us and we didn't have that benefit last year actually for last winter.

And in terms of forward bookings for summer, it's all very early days but we are pretty much line with plans. So we are not seeing a significant step change at the moment. I think one of the things Brexit won't change is the UK weather, so people will still want to change – to travel abroad next summer. So we are not seeing a big significant change in that yet.

Carolyn McCall

Thanks Sophie. On Frankfurt, Oliver, clearly Frankfurt has been in talking to us for years. It's not on our list of potential bases. And that's for a multiple of reasons. We actually see that there are quite a few other places that we would get much better returns than we would do in Frankfurt, and so we would prioritize those over Frankfurt, so no plans on Frankfurt.

And on the EU AOC, we would only have to look at those rules if there was no agreement that kept the Liberal Aviation Agreement alive in some way. And so that's really right at the end of this process and, of course, we have – we would have to plan for that. But it is quite a long way away. As we currently stand, 49% of our shareholder base would be seen as EU. So we are in a very different position to some of the other airlines who have been grappling with this issue today. So we are nearly at the target that they would require.

Andrew Light

Andrew Light from Citi. Three questions. First of all, on digital obviously doing a lot of initiatives there. Have you attempted in your deep dive to actually quantify what the opportunity could be? And roughly of that opportunity how far are you advanced what percentage would you say you've done so far or have implemented?

Secondly, on your slot-constrained airports or your key airports rather. I noticed that Malpensa and Charles de Gaulle have availability. Do you feel that you're somewhat exposed there? And as a result, is that really, where you want to grow the most to make them constrained? And then thirdly on the sale or leaseback of the A319's you've done 10 so far, I think you've got another 15 to go. Just wondered what the timing of those other 15 would be.

Carolyn McCall

Cheers, yes, that's fine. So on the digital opportunity until we get future commercial platform we can't really maximize the full opportunity that we have and we see lots of potential for that. So, I can draw Peter in on this and say what – where are we. It feels to me we are kind of the third – a third of the way there, but we are nowhere near where we could be in the next two or three years with FCP coming on stream. Peter, do you want to say anything.

Peter Duffy

[Indiscernible] So I presume that's very much something that will come in FY 2018 moving forward.

Carolyn McCall

And on digital opportunity you'll have read that we've done something with Founders Factory, and that is also an opportunity because it is putting much more disruptive thinking at the center of our digital heart. And we see ourselves as a digital company, so that kind of thinking is very important to continue to keep fresh and to continue to innovate. So I see that as quite an important element of the future digital output.

On slot-constrained airports, Malpensa has got capacity because Alitalia pulled out and moved to Rome, so it's always had a lot of capacity. And what I would say is that we are very strong in Malpensa, we are very clear number one in Malpensa, we've got about 22, 23 aircraft there. Most other airlines are very small in comparison to that. But Malpensa make no secret of the fact they need to fill that capacity.

So I think the key thing is to be a strong number one not to say you're the only number one – you're not the only airline in an airport. But it's the ecology of the airport that is important to us, which is to be a strong number one in Malpensa, continues to be important. Same with Charles de Gaulle where we are a strong number two to a legacy incumbent, we overlap with Air France KLM to the tune of about 31%. That's good for us, so that's what we mean by that. SLBs?

Andrew Findlay

Yes, the SLBs so this time goes back to where we were for them in May with the capital structure review, so there's a number of reasons we are doing it. Number one is managing our fleet. It's all about an extra strategy and making sure, we line up a very good exit plan. So we are going to tick the box doing that.

With respect to – also it solidifies our residual values well before we need to exit those aircraft. We anticipate doing 10 in December. And we anticipate doing a further 10 as we – each year as we get to a point where we've got to a good place on exiting our A319s. I think it's a balancing act between making sure we retain flexibility in those aircraft as well as ensuring we sustain that exit plan that we've developed with the lessors that we are going to go into partnership with.

Neil Glynn

Hi. Neil Glynn from Credit Suisse. If I could ask, two please. The first one back on the digital development, can you talk a little bit about your decision in terms of outsourcing and using a partner in Hybris versus the alternative of perhaps doing that in-house and hiring people to do that. What extra it gives you in terms of quality of what you produce.

And then the second question back to the CapEx and returns. Obviously half of the, or I think more than half of 2019 or 2018 and 2019 CapEx is replacement, which is a big proportion. And globally aircraft useful economic life debates are continuing to develop. Can you tell us where you are with respect to that and have you given any thought for running aircraft longer given sterling, given the macro environment at the moment?

Carolyn McCall

Okay. So on digital development, I'll take that and get Andrew to talk about CapEx. The entire – there is no – I just don't think there would be any way you'd want to do this level of e-commerce development yourself. Because it is a specialist skill, it's moving all the time, the technology is upgrading all the time and it's moving so fast you blink and something else has happened.

So, never mind the fact that the UK has a digital skills gap, which it does and that you'd be in competition with Google for developers and Facebook, you just – even despite that you just wouldn't want to go anywhere near doing this kind of significant digital e-commerce development without a partner.

And we work very closely with them; we work very well with them. And they are – this is all they do is e-commerce, so they know it inside out. And actually their experience of other sectors, retail for instance – we are their first airline partner, but their experience of that retail sector is invaluable to us and you'd not really be able to get that at the scale internally. Peter, anything to add?

Peter Duffy

This is a platform that runs 240 plus retail [indiscernible], so it involves rebuilding retail capability and it just makes more sense to [indiscernible].

Andrew Findlay

Okay, on the CapEx, I think it's very clear that there are clear benefits between A319 156 seater and the Neos that we are buying in from both the cost per seat perspective but also gives us access to slot-constrained airports where we need to get more capacity in.

I think the CPS benefits are proven. Even at this level of fuel, they are significant. And I think it's clear to say that it also has a maintenance benefit from a point of view of moving out of those older aircraft into newer aircraft. Something that we are very committed to is moving to the A320 Neos. And it has a noise benefit as well, which is very important in some of our regulated airports that we need to deliver on.

Carolyn McCall

So it's a 56% reduction in noise the 320 Neo engine, and it's a massive fuel saving at any price actually, so, yes, it makes a difference.

Damian Brewer

Damian Brewer, RBC. Three questions please. First of all, with a summer of Barcelona under your belt, Palma and also Porto could you give us a feel of what the ex-fuel unit cost base of those operations looks like relative to the average, or some other way of looking at it?

Secondly, with the change in the fleet mix to the – more of the A320 or if you like the inflation offset on the ex-fuel cost per seat, how much comes from that and is still looking at flat given the benefits you get from A320s, actually quite a conservative outlook.

And then very finally on the fleet, you're still growing the fleet by about 100 aircraft between now and 2020. Given 98% of your airports, you're number one or number two anyway where do those go if the – where we are talking about slot-constrained airports like Gatwick or Linate or terminal-capacity-constrained places like Geneva. Where do those 100 aircraft go? Thank you.

Andrew Findlay

Yes, so on a lean basis we have – a material saving in those is in the taxes and the social taxes associated with employing individuals at those locations. So we get around 25% employee cost benefit in those lean bases versus the network average. And that's where the substantial saving will be as we expand in those areas.

With respect to the fleet mix, you're right we do have a benefit. That's been baked into our projections. Obviously, we've got – if you remember we've got quite a significant uplift expected in inflationary costs from our regulated and non-regulatory airports. And we see that the CPS benefits of A320 is helping to alleviate that, hence the target of flat.

Now beyond that, hopefully we'll – we haven't extended beyond 2019, but as the fleet of mix into A320s increases beyond 2019 we should see that incremental benefit being even greater than we've got planned during that period of time.

Carolyn McCall

So on the fleet and 100, first thing to say about the 9% is that we are not wedded to a figure of 9%. It's important to just state that, which is we will keep that continually under review, we'll look at what's happening in the market. And because of that renegotiation of the fleet flexibility, we've got a much shorter window within which to make those decisions, which might give us a bit more visibility. So that's the first thing to say.

The second thing to say is if you put that to one side and assume that we continue to grow and the 100 aircraft some of that will be for replacement, as we've just discussed. But when you look at the growth, the growth will be organic. So, yes, we are in slot-constrained airports, but when you're already in those positions, you get the opportunity to get more slots in slot-constrained airports. So you're in a much stronger position to get those slots than you would be if you weren't in those airports at all, so we would expect to.

An example of that is France, as a country, low-cost airlines in France are still – the penetration of low-cost airlines are still very low, it's under a third. So the opportunity for easyJet as the number one low-cost airline in France is to grow that. If you look at Amsterdam, it is slot constrained, but we are still putting a ninth aircraft in there next year.

So there are opportunities – Manchester is a good example where it is slot constrained at peak time but we will continue to grow in Manchester. We will continue to grow in Luton where you can't get any slot availability, so where you've got positions already as a number one or a number two you can either strengthen your number two position or you can continue to incrementally gain advantage on slots.

And that's what this is really about. It's not about new geographies. The Netherlands has been a new geography in which we've – we haven't – other than the last 18 months we haven't based aircraft there, so we've seen a 29% increase in capacity in Amsterdam in Schiphol, which has been absolutely the right thing to do. So it won't have had a very pretty effect on returns in the very short term but actually, there's no question that will come good over the two to three years.

It's a bit like buying those Flybe slots in Gatwick. That's a really good example of how we strengthen our position at Gatwick. And now we've recycled through a lot of those slots, because that was two summers ago, and we've been able to churn some of those routes and just make them more profitable. But because we are there churning those routes, we can get more slots that are a bit better. Does that make sense?

Damian Brewer

Yes. Just to clarify, so it's building on the position you've got in terms of taking slots from available maybe off-peak.

Carolyn McCall

Off-peak yes.

Damian Brewer

But then none of that 9% is contingent on buying slots or any aircraft or airline failing?

Carolyn McCall

No. That excludes any kind of slot swapping or slot buying.

Damian Brewer

Gatwick is relatively full effectively, the growth would pivot away from Gatwick to other busier airports in terms of the incremental growth.

Carolyn McCall

So it wouldn't necessarily pivot away. It's that we will continue to grow in Gatwick wherever we can take slot availability that is right for us, but probably the levels of increase in growth won't be as you've seen us develop. Because with the Flybe slot acquisition, overnight we increased our capacity growth in Gatwick significantly, so it's kind of evening that out.

Andrew Findlay

I think it's also fair to say we've got a benefit from the up-gauge as we talked about just now with Neil is the 156 seats to 186 seats is a material up – in a proportion of that 9% uplift.

Carolyn McCall

Of that 9%.

Andrew Findlay

Which is why it's so important for us, particularly at the slot-constrained airports getting that incremental capacity per slot into those airports.

Carolyn McCall

And about – I think about half of that growth will also be about volume deals we already have that we are committed to delivering because they're right on the strategy.

Unidentified Analyst


Carolyn McCall

Yes, given everything we've said up-gauging plus growth plus replacement, yes.

Andrew Lobbenburg

Hi. It's Andrew from HSBC. 321s are they dead and buried or are we still thinking about them? With the pre-close statement and the qualification on cost at that time you mentioned, I think, the potential for additional costs from the union agreements, since when we've had agreements I think with VALPRO and with the Dutch. How happy are we? Obviously, you're going to be constrained on what you can say, but how confident are you that they're not adding to the cost or that they were getting a benefit from better resilience?

And then on M&A what are you thinking about the consolidation of the industry at this time? Clearly large parts of your story seems to be focusing on strength areas, but what's your attitude towards M&A in the industry now on your side and otherwise what other people might do?

Carolyn McCall

321 is still on the agenda. We'll keep our union agreements private. And as that, we said crew and schedule resilience was something we were looking at anyway, and we would absorb whatever we were doing into that. There is a cost to resilience; it's an investment not a cost. It is actually something that will be very important to the long-term effectiveness of the airline. And the entire operating environment has changed fundamentally in the last two to three years in terms of congestion, slot delays all sorts of other things, the ATC environment.

So we will come back to you when we are further down the work of resilience. But it absorbs those union agreements, so it's one piece of work not three or four different pieces or work.

On M&A, everyone talks about M&A. Very little actually gets done. Everyone talks to everybody, so I think it's just that kind of environment at the moment where there will probably be consolidation in some way or another, but who knows how and where.

Alexia Dogani

Thank you. It's Alexia Dogani from Goldman Sachs. I had two questions please. Just firstly, can you remind us of your revenue management principals and how you trade off price versus load factor and in particular with regards to the weak performance in September and October?

And I guess related to that, depending if you are willing to chase a little bit more price because you are seeing underlying cost inflation higher in parts of your network, does that limit your ability actually to leverage airport deals harder because clearly they can benefit from more volume growth.

And then the second question is just a clarification on the gearing metrics. Obviously, you no longer have an adjusted net gearing target but my understanding is with the credit rating, the BBB+ has a gross debt gearing target. Is that still at 2.5%? And should we assume that you will want to maintain the rating as it is, and therefore that's our max threshold you would go to? Thanks.

Andrew Findlay

Yes, okay. So the gearing you're absolutely right, 2.5%, it's very clearly disclosed and given by S&P. And that's exactly right we'd want to stay within that. We are very committed to that, maintain a very strong credit rating and obviously gives us access to some good sources of debt. And that's why we are looking to maintain a very strong balance sheet throughout the period that we are looking forward into.

With respect to revenue management, this is all around maximizing revenue per seat so it's a combination of yield and load. And we've talked at length during the year around how we look to use loads to drive – yield to drive demand in the short term to build load and then we build our yield on the back of that.

I think the system takes into consideration the deals that you talk about, the volume deals. So we have a marginal cost per passenger that we bake into our decision-making in the pricing model. So if there is a benefit from a marginal – a marginal benefit from an airport deal, that's baked in. And typically, what we look to do is generate revenue per passenger that is better than or equal to the marginal cost associated with that passenger.

We might make decisions where we want to chase load in the short term to deliver a better profit for that aircraft flight. And that's what the system is able to do with the pricing managers and that's what we actively do. It's something that we were very active last year, as you can imagine as a result of all the disruption, but that's the process we look.

And we are constantly changing algorithms and updating things to figure out how we can optimize that even better. And they are things the team are continually testing and trialing within the revenue management systems to drive that. So where we believe that we can generate incremental RPS via management of yield or load, we'll do so, and that's actually what the team's day-to-day job is.

Carolyn McCall

And just remember October last year was just unbelievably buoyant, so we are up against unbelievably difficult comps there. And we were never going to chase loads because it would have had a negative effect on the revenue per seat. So that's the kind of judgment we will make. We won't just go out and chase load for the optics, because actually it's much more important to us that we are maximizing the revenue per seat.

Gerald Khoo

Morning. Gerald Khoo from Liberum. Three questions, firstly on sale and leasebacks, should we be factoring in any cost drag from a move on the incremental aircraft from ownership to leases?

Secondly, on forward bookings you talked about the RPS impact of the external disruption last year, now that we are past the anniversary of the Paris attacks and approaching the Sharm anniversary what does RPS look like now that you're lapping those comparatives?

And finally on the Hybris e-commerce deal, do you have any sort of exclusivity on that? You talked about being their first airline partner. That rather suggest that there might be others following behind. Are there any protections that you have on that front?

Andrew Findlay

On the SLBs there will be a small cost drag baked into our expectation – in our cost expectations and it's relatively small, because the fundamental deal that we've got, the IRR within that deal is comparable to what our underlying cost of debt is. So I think we talked about doing 25 SLBs over time. We've used that as a method to really get a fantastic price on those SLBs and we've taken a number of months to do that.

So there will be an element of an insurance cost in there to maintain those residual values and lock in those residual values, but it's relatively small because obviously we'll have the depreciation upside versus the lease downside. So with respect to – yes, obviously we'll bake in some – that will be – that has been baked into our ongoing expectations for FY 2019 onwards.

Carolyn McCall

Your second question was about forward bookings.

Andrew Findlay

Forward bookings, yes.

Gerald Khoo

Yes, how they – how are they back – on RPS [indiscernible].

Carolyn McCall

Well, they're in line, forward bookings are in line with H1 as you've seen from the pack. We've given guidance as to what we think will happen on RPS, which is mid to high-single digit. So I think there are lots of other factors going on at the moment, which will – actually, we'll still see pricing under pressure.

Andrew Findlay

I think it's fair to say you're right, we are – we have annualized up against that and these next few months will be key to see what our comp will be against that softer comp since that Paris attack. We have baked in an assumption that we'll see a comparative uplift based on the softer comps in the second half of this quarter.

Carolyn McCall

That's included.

Andrew Findlay

And that's absolutely baked into what our expected outturn will be for the quarter and the half.

Carolyn McCall

And then you asked about Hybris. Now since you've signed the contract I'm pretty sure it's not exclusive, I don't know what I can say and what I can't say.

Unidentified Company Representative

No it's not exclusive and we wouldn't want it to be. They're talking to other airlines. I think they've got another airline deal pretty close in the bag now. But where we get the advantage is this system takes our data and then enables us to being to use our data to personalize the experience. So whilst the capability could be shared by other airlines actually the customer experience will be specific and exclusive to easyJet and that's what makes a difference.

Just on your final question, I think the one before as well just on comping, just to say we are on day three of comping versus Paris so it is only just happening now so we have just past that moment.

Jack Diskin

Hi, it's Jack Diskin from Goodbody. Just one from me, I'm wondering about the momentum in the lean program as we move beyond FY 2017 and start thinking about fiscal 2018 and 2019. And just given the timing of deliveries of the Neo's whether we should expect more momentum in one year versus the other and as a result better cost per seat performance in one year relative to the other. Thanks.

Andrew Findlay

Yes, I think as far as we are concerned we are committed to that flat 2019 versus 2015. We expect some momentum in lean. As you can see in FY 2016, we've done a fantastic job considering all the disruption and the events that we saw. We've got a clear plan for FY 2017. We've got – it's all effectively clearly allocated by area around what we are targeting and what we are delivering.

And we have a hopper of ideas that we are developing for 2019/2020 and onwards. So there's a number of – so we've done it both from the top down with some big ideas where we need the investment. And we've done it from the bottom up, so we've got ideas that are coming from cabin crew around how we can make it more efficient to turn aircraft around.

So that's the approach we've taken. We've got lean leaders within the business and champions within the business that think lean and think how we can take cost out. So it's alive within the business and it's something that we are absolutely focused on over the coming years. So clear plan for 2017, hopper in place for 2018 and 2019 and beyond. And based on what we've done in 2016 the momentum is good. Are we done?

Carolyn McCall

If there are no more questions, thanks very much indeed.

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