SAS AB

STO:SAS

Earnings Call Transcript

[Rickard Gustafson, President & CEO]

Thank you so much, and welcome, everyone, to this morning's call and our first quarter interim report. And we plan to follow our normal procedures, which means that I will start to give you the overview of the -- our quarter and give you some further insights into our strategic initiatives while then Torbjørn will follow and give you more financial insights from the quarter. And I hope that you can follow us online on the pages as we go through them, and we'll try to prompt you clearly to the pages that we speak to. So with no further ado, I think we'll dig into this, and I'll ask you then to flip to Page 2, highlights of the first quarter. I guess there's no surprise that the first quarter is seasonally the -- our weakest quarter, and we do report a rather significant loss, but I'd like to stress that is in line with our guidance from the fourth quarter. We report a loss on earnings before tax at SEK 576 million, which is roughly SEK 300 million worse than the same period last year, and the negative deviation is driven by 2 concrete things. Firstly, the price for jet fuel is up this quarter versus the same quarter last year. And then also, we've seen a deterioration in the Swedish krona versus the U.S. dollar, which is also worse than if you compare this quarter with the same quarter last year. But more of this will Torbjørn refer to when he gets onto this presentation in a few more minutes. On the positive side though, I'd like to stress that we are pleased to we see that we have been able to increase our unit revenue and our total revenue line, this with unchanged capacity and in a market that is actually characterized by high capacity growth. And I think that is a rather significant achievement in itself during this quarter. We also continue with our constant strive to further drive our efficiencies. And as you know, we have a target for this year to deliver SEK 900 million in efficiency gains for the full year. And during the first quarter, we delivered SEK 200 million out of these SEK 900 million, which gives us some comfort that we have a path towards the full year target. On the other side on the -- some potential opportunities. So also that we have been through this quarter with a rather high capacity growth as anticipated and expected, and we also -- when we started this year, so that, that capacity growth will continue throughout the year. Now we have seen a number of our European competitors has announced that they plan to reduce their growth somewhat. We still need to remember that they are still coming from a rather high capacity market and there's still growth but rather maybe at a lower pace than previously anticipated and that -- potentially, if that becomes reality, that can of course have potentially upside or opportunity for SAS. On the challenging side though, we will come back to that as we move into our forecast, but we do see a continuous weakening of the Swedish krona versus the U.S. dollar, and there are also a number of uncertainties regarding the GDP development in a number of our key markets. Again, nothing has materialized yet, but we watch this closely. And of course, we can't ignore the ongoing geopolitical uncertainties around the world and especially at the moment regarding the development around Brexit in the U.K. Torbjørn will also refer to the details on that. We do have -- carry a rather significant positive nonrecurring item in this quarter that relates to a provision for retroactive Chinese VAT, but I'll let Torbjørn take you through that in more detail in more detail shortly. So those were the highlights.I'll then ask you to flip to the next page. I like to reinforce and make it clear to the call that our strategy remains firm that we have now for a number of years being very focused on 3 strategic pillars. And you probably -- those of you who follow us, you know them by heart by now. It's a big effort on making sure that we provide the best possible offering that we can for those who travel frequently to, from and within Scandinavia. We constantly strive to create an efficient and sustainable operating model, and we are in the people industry, and we need to ensure that we always have the right capabilities and skills onboard on our journey going forward. So those strategic pillars remain firm. And I like to, in this presentation, give you some updates on 5 particular things where we have moved the needle in our strategic direction, and you can see also where the strategies alignment from this. I will talk about sustainability, which I believe cuts across all our strategic pillars. I will talk about what we've done recently in our operating model which, of course, have an impact on our customers but also in our operational efficiency. You probably noticed that we are embarking on testing a new market, a new long-haul market based on the Airbus aircraft, Airbus A321 long range, which will, of course, also impact customers and our operating model. I will give an update on where we stand in the customer offering, what we've done in the quarter and also a specific thing that the board is now putting forward to the AGM where we ask for their approval to introduce an employee-based profit sharing scheme, and I will take you through that as well. So if we move then to Page 4 and starting by talking about sustainability. And given the media attention and the public debate in the Scandinavian countries, which has been very, very focused on the importance of moving towards a more sustainable aviation industry, which I fully support but sometimes lack to also reflect about the enormous value that aviation actually creates for the society. The wealth that we enjoy in this part of the world has partly been created due to the fact that we have been blessed with great connectivity where aviation also plays an important role. And I highlighted some, some significant numbers here on the left hand side of the page on the contribution to the Scandinavian society that aviation actually brings to the table. A significant part of GDP is pegged to aviation. Close to 0.5 million jobs are created both direct and indirectly with -- through aviation in Scandinavia. And on an annual basis, 90 million passengers need to travel to, from and within Scandinavia which is, of course, a significant need being fulfilled through aviation. And SAS has during our 72 years contributed to this infrastructure and played a vital part in this infrastructure, with our 30 million annual passengers that we actually delivered last year and around more than 10,000 jobs that we hold within SAS. But of course, we also pay a significant share of the infrastructure. SEK 8.3 billion last year was paid to kind of -- paid for the infrastructure i.e. airport, passenger charges, aviation -- other type of aviation charges. And there are also a number, a significant number of passenger-related taxes that we collect and pay. And last year, that amounted to roughly SEK 1.6 billion. So again, I'm just trying to put this in the context that sustainability is absolutely important, but we also need to understand and recognize that aviation also has an important place and role to play in society. But moving on to the next page then and talk about what we do then in order to maintain our presence and ensure that we can continue to fly and that current businesses and this generation, the next generation of Scandinavian citizens can continue to explore the world. And in order for that to happen, we need to radically move our -- the needle in terms of reducing our negative climate footprint. At SAS, we have put some tangible and stretched targets and ambitions where we say by 2030, we will lower our emissions, not in relative terms but in real terms by 25% by 2030. And by 2030, we will also operate -- all our domestic traffic will be based on bio-based jet fuel. But it's important not just to paint a picture into the future but also explain what are we doing here and now to reduce our carbon footprint and our negative environmental footprint. And on that kind of time line, I highlight a few things that we are doing as we speak. And of course, our significant investment in new aircraft is a cornerstone in this strategy. The new aircraft, as you're aware of, they will reduce the emissions by 60% to 70% versus those aircraft they replace. We are upgrading the cabin interior in our entire fleet to ensure not just the comfort for our customers but also that we take out seats that weigh more and replace them with lightweight seats, which will reduce the total emissions of the aircraft. We are actively driving and working hard to provide for a large-scale production of bio-based jet fuel in Scandinavia. Bio fuels are the most concrete and tangible technology available today that can significantly reduce our emissions. And we should use that as we wait for the next generation of aircraft that I'm sure will come in the next 15 to 20 years that probably will have 0 emissions. But we can't wait for that so we need to do something here and now and, of course biofuels is an important bridge towards that future. We are also reconsidering our logistics flows and trying to encourage more and more passengers to preorder their food and drink on board so that we don't load unnecessary weight on the aircraft and also create unnecessary waste. So all of these things are important under a broad portfolio of initiatives that we do that actually reduces our emissions here and out. But there are still kind of an engine on the aircraft, and we still produce CO2 emissions. And in order to compensate for that, we have as of 1st of February also said that we will compensate -- the CO2 compensate for all our EuroBonus passengers. And by the way, it's an easy process to enroll for EuroBonus. There are just a few online clicks and it's free of charge. So if consumers want, they can enroll and then thereby ensure that their travel, both their own and their full families, will be carbon offset by SAS. If I leave the sustainability issue and move on to the second strategic update I want to give you related to our operating model, and you find that on the following page. You probably recognize the model that we built, where we have a core production unit, which is that -- what we know as SAS Scandinavia. It is the backbone on our operation, and it's being complemented by regional production that external partners operate for us on our behalf on a wet lease setup. And then we also have the complementing Irish business, our SAS Ireland, that as you know, operates now 9 aircraft, 7 out of Heathrow and 2 out of Malaga as a complement to SAS Scandinavia. That journey has continued and you can see the results for this quarter in terms of the passengers. Our 6.1 million passengers in the quarter is actually 4.8 million of them flew within -- with SAS Scandinavia. Close to 1 million were part of our regional production and many of those passengers are also transfer passengers that feed into SAS Scandinavia. And we have 300,000 passengers that came in through SAS Ireland, and those passengers we still have the relationship with and we checked in for their needs as well during the quarter. But the main update I like to draw your attention to is actually the numbers under the heading Regularity, where you see very strong and robust regularity across all platforms, which has been an important effort for us during the fall of last year to reassure and rebuild a real and true robust operation. And we've taken a number of steps to do that, and I'm pleased to see that they seem to pay dividend. And one concrete example in the quarter is related to our regional production where we as of December last year have a spare aircraft at -- to our disposal to redeploy or to deploy where the need occur somewhere in our network and that also will help to strengthen the robustness of regional operation as well. Moving on to the next exciting topic, which is on the -- our decision to start to try out the new long-haul market based on Airbus' platform A321 long range. And the idea here is that we are testing this in a rather small scale to start with to see what type of response do we get from the market. As you know, we are keen to drive profitable growth, rather than growth for the sake of growth, and that's why you also start in the rather small scale here by getting access to 3 aircraft starting ourselves summer next year. These aircraft, they will, of course, have lower emissions versus a classic 321 aircraft, Airbus A321 aircraft. There are 3 things that we believe that this aircraft can do for as a complement to our long-haul operation. It can either provide us to take for new intercontinental destinations. This aircraft reaches from Scandinavia. It will reach the North American East Coast. And eastbound, it will reach through India and the Middle East. So there are destinations that -- new destinations that might emerge on our road map due to this. Another opportunity is more -- maybe to cater for more direct long-haul connectivity from Scandinavia. And the idea then would be to connect maybe some secondary cities in Scandinavia to primary cities in our network, long-haul network. Not a decision, but as an example, I like to mention a Gothenburg-New York or Bergen-New York or [ Voorhees ] New York. Those could be examples of what we're looking for and that we're assessing at the moment. And thirdly, we also see that the 321 long-range aircraft could help us to further adopt our long-haul operation to the seasonality that we see in demand. Again, and not a decision but to give you an example what this could look like and how we think about this is to mention Boston. We know that we can operate Boston with a widebody aircraft from Scandinavia. The demand is there during the summer season, but it's not economical to do that during the winter season. But with the combination of widebodies and narrow-body 321 long range, we could see a scenario where we operate Boston full year with the widebody during the summer season and the narrow-body during the winter season. So that's another kind of use that we see for the aircraft. I like to stress that it will be a full long-haul service concept that we're going for here. There will be a 3-class cabin with a full business class cabin with a fold-flat seats. As you'll expect on our long-haul aircraft, there will be a first class and a SAS Go cabin. And of course, since this aircraft is also a part of the Airbus family, this will also further help us to further strengthen our one-type fleet as we move into the future. So again, we have made a decision to take on board 3 of these aircraft as a starting point of its test bench. And given the response in the market we will then further evaluate to either scale up or scale down what we do here, and we will come back later this year or this spring with more concrete examples how we plan to deploy these first aircraft into our network. Moving on then to the next page with the customer offering, I like to draw your attention to some of the key investments that we have been on for awhile and the status on those. As you can see, we have now installed HiFi, WiFi on 57% of our fleet, and we are rapidly moving towards 100%. The new cabin interior, I mentioned also during the reflection on the sustainability discussion I had a few minutes ago, you see we're almost completed there. More than 90% of the fleet is now actually upgraded, and we believe that this would be completed during 2019. And with the big Airbus fleet order that we actually put last year with the 50 additional Airbus 320neo will take us to a one size or one-type fleet in South Scandinavia, and as you can see right now, we are close to 50% Airbus versus Boeing. And we are then by 2023, we will reach 100% Airbus in our fleet. I'm also pleased to announce that we, in the quarter, we are the first player ever to enter into a partnership with all 3 National Olympics Committees of Scandinavia, the committees of Denmark, Norway and Sweden, where we have a partnership that stretches through the Summer Games in Tokyo 2020 and the Winter Games in Beijing by 2022, and we're excited about that. We continue to improve our EuroBonus offering. I also like to stress that we added another fast-track capability into our network and this time in Strömsund where we have a number of frequent passengers that hopefully enjoy that new service that is available to them. Finally, then moving on to this stock-based incentive program. And I am very pleased that the board is supporting this proposal towards the AGM later in this -- in March this year, on March 13, when we have our AGM. And the dynamics and rationale for this actually is driven by the dynamics of our industry. Aviation is a very capital-intensive industry. We know that, but it's also a rather labor-intensive industry since we're a service industry. And there are not that many industries that actually are both capital and labor intensive at the same time, so that makes this industry rather unique. And they need then to ensure that interest of both the investors and the employees are fully aligned. I think it's absolutely vital for an airline. Therefore, the idea is to introduce a stock-based incentive program with a full idea that it will only actually be in the money, so to speak, if we deliver return on invested capital that exceeds our weighted average cost of capital and that if the shareholder gets dividends then we pay also part -- some payments or the stock-based incentive program will also then be in the money. If there's no dividend, there would be no payout to the employees. So again, we have fully aligned the interests of the investors with our employees. And internally the benefits that I see from such a program is of course that it will further help us to -- give us another tool to drive employee engagement within SAS, it will provide another tool to retain our qualified staff, it will help us to further attract common talent, future talent in all aspects of our business and I also think it would be important priority to move our culture forward and change our culture to be more commercial, in general, within our business. So I'm excited about this, and I hope that the shareholders then vote yes on the -- at the AGM, so we can actually put this into reality. So with that update, I like to hand over and hand back to Torbjørn to give you some more insight on the numbers of the quarter. So Torbjørn, over to you, please.

[Torbjørn Wist, Executive VP & CFO]

Thank you, Rickard. Now let me start on Page 11 by giving you a high-level summary of the quarterly results. Looking at the top line, this increased with over 6% while our OpEx increased with nearly 10%, and I'll come back to what has been driving the various components. All in all, this reduced our earnings before tax compared with the same period last year, which is in line with our expectations on the guidance we made in conjunction with our quarterly results in Q4. The main reasons, as Rickard touched on, are of course the unfavorable currency, Swedish versus dollar as well as the fuel price movements. In total, the currency negatively affected earnings before tax by a net amount of SEK 169 million, and I'll come back to the effect on other line items. The quarter was positively affected by positive nonrecurring items of some SEK 148 million. This related mainly due to a release provision for Chinese VAT whereas last year was a gain due to some capital gain on aircraft sales. If you remember a couple years ago, it was in Q4 2016, we made a provision to meet future payments of Chinese VAT of retroactive nature, and we made a provision of SEK 219 million. Now we have finally managed to agree a solution, which means that we can release SEK 172 million of that provision, which has a positive effect on the results, and that's been negatively affected by some other minor one-offs. I'll take you through some of the details, but before moving on, I'd like to highlight a couple of things. First of all, in a quarter where we saw a capacity reduction of 0.6% versus last year, we managed to get a good uptick on both cabin factor and yield. As we all know, Q1 in our business is always the weakest in terms of demand, but we were pleased to see that we had an increase in traffic by 0.1% and an increase in the cabin factor of some 0.5 percentage points. The combination of lower capacity, higher traffic as well as the cabin factor resulted in an increase in unit revenue of some 1.7 percentage points. Our unit cost excluding fuel increased just shy of 1%, mainly due to underlying cost inflation. This is, of course, excluding the currency effect. Turning to Page 12, we have the revenue development. Year-over-year, our revenues increased with some SEK 556 million. If you adjust for the one-off -- sorry, the currency effect of SEK 356 million, our underlying revenues increased with SEK 200 million compared with last year. As I just mentioned, the load factor and yield contributed positively to the revenue increase by some SEK 123 million, while the seasonal reduction of capacity reduced revenues by SEK 42 million. We had a small decline in cargo of some SEK 12 million. Other traffic revenue, mainly comprised of unused tickets, increased with SEK 93 million. And on other operating revenue, we saw a SEK 38 million increase primarily as an effect of credit card fees and increased sale of EuroBonus points. And that led us to a revenue of SEK 9.5 billion for the quarter. So turning to the OpEx development on Page 13. Operating expenses increased with SEK 789 million versus last year. As you can see here, a main driver is the weakening of the Swedish krona versus the dollar. Total negative currency effects amounted to SEK 452 million. So if you adjust for that, the increase in OpEx was some SEK 337 million or a 4% increase year-over-year. Another reason for the increase in OpEx was, of course, the fuel costs, which increased to 200 -- with SEK 256 million. SEK 133 million of those stem from price increases while the remainder relates to hedge effects relating to value and premium cost of maturing derivatives. We continue to install high-speed WiFi on our airplanes. And as Rickard touched on, we are now at 47 aircraft, which is a service really appreciated by our customers and compared to last year, our cost for this service have increased with SEK 31 million. Another product which has been appreciated by our customers is the ability to use -- to book EuroBonus trips online with our Star Alliance partners. This, of course, leads to an increase in the cost for trips on other airlines that our customers take, and this has led to a SEK 36 million increase in sales and distribution cost. Personnel cost increased with SEK 52 million. This increase is related to normal salary increases and a somewhat higher number of employees, partly offset by efficiency measures. Cost associated with traffic disturbances such as EU 261 increased with SEK 24 million year-over-year. The other positive changes amounted to SEK 62 million, largely due to less unscheduled engine maintenance compared to the previous year, where we had some unexpected repairs to our A340 engines. So if you turn to page 14, this is the status of our efficiency program. Our efficiency program continues to perform according to plan. And during the quarter, we delivered nearly SEK 200 million in gross earnings impact. To mention a couple of examples of how we did, we see the benefit of reduced charges at Copenhagen airport, which delivered some SEK 20 million, and we also managed to increase fuel efficiency with a further SEK 15 million. But of course, the efficiency program of SEK 200 million is the, call it, net effect of a number of smaller and larger initiatives. Turning to jet fuel and currency hedging on Page 15. As we all know, our jet fuel policy is to hedge between 40% to 80% of our fuel consumption for the coming 12 months and up to 50% for the following 6 months. And we use a mixture of swaps and call options. For the next -- for the coming 12 months, we now have hedged some 74% of expected consumption. I want to point out, as I've done previously, that our call options allow us to share some of the upside when fuel prices decreases in the market while protecting against downside with upward movements. And this is, of course, important, given the volatility that we have seen in recent months. For foreign currency, our policy is to hedge between 40% to 80% of expected deficit and surplus for the next 12 months. And at the end of the quarter, we had hedged some 40% of our dollar deficit and 51% of our NOK surplus. Turning to Page 16. We have about SEK 2.2 billion of debt maturities in 2019. The majority consist of the SEK 1.574 billion convertible bond, which matures on the 1st of April, while the remaining maturities consist of secured financial aircraft leases and some drawn credit facilities. We're currently considering different solutions on how to deal with the convertible maturity. Our cash position of SEK 7.2 billion, as well as undrawn facilities, gives us complete flexibility in relation to this and other upcoming maturities. And the 11th of March will be the deadline for any conversion notices to be submitted by convertible holders. When it comes to aircraft orders, during the fiscal year '19, we expect 12 aircraft deliveries, of which 11 are A320neos and one A330. The recently announced A321 long ranges are expected in '20 and '21. During the quarter, we have completed JOLCO financing of a further 3 A320neos, making it 4 in total so far and the JOLCO financing of the remaining -- of a further 6 is underway. And for 2019, we expect our total CapEx to be some SEK 7 billion. Turning to the development in cash and cash equivalents on Page 17. If we look at the cash position over the last 12 months, it has declined by SEK 2.1 billion, and I'll go through the bridge for that. Our cash flow from operations have contributed positively with some SEK 3.7 billion, of which some SEK 500 million are from changes in working capital. We made significant investments, mainly in aircraft, which in turn decreased cash with some SEK 6.7 billion. And this, of course, includes PDP financing for future aircraft deliveries. We had about SEK 1.4 billion of that in the quarter -- sorry, year-over-year. And of course, when these aircraft are delivered, they will be financed and released cash on delivery. At the same time, we've also sold aircraft and other fixed assets for some SEK 2.5 billion of proceeds. Of course, importantly in this year, the redemption of our preference shares, which removed an instrument which had a fairly high cost. We spent about SEK 3.7 billion doing that. So one, the redemption removes the fairly costly instrument, and it also improves the possibility for SAS to pay dividends in the future in accordance with our dividend policy. As a final point, external financing increased with some SEK 2.3 billion, mainly connected to funding activities such as aircraft financing as well as the SEK 750 million cap issue of the bond that we did in June last year. So altogether, this leaves us with some SEK 7.2 billion of cash at the end of the period. Moving to our financial targets. We continue to perform in line or above our financial targets. Starting with ROIC, the decrease from last quarter is driven by the weaker result as we had guided the market as well as investments in fleet renewal, which increases the invested capital. The adjusted net debt to EBITDAR increased to 3 compared to 2.7 last quarter, and this increase is mainly driven by fleet renewal as well as redemption of preference shares. Financial preparedness decreased with 9 percentage points compared to last quarter. And this, again, is largely due to the redemption of preference shares as well as other cash needs. Despite the decline in ratios, we believe that this redemption puts us in a better position to pay dividends in the future in accordance with policy. So turning to the outlook for 2019, in the presentation of our Q4 results, we said we would revert with future updates on the outlook for the current year. While we have seen a decline in jet fuel prices from the peak in early October 2018, we see continued volatility and inter-quarter movement in the price of jet fuel. Furthermore, we see, and particularly in the last month, see continued depreciation and weakness of the Swedish krona versus the dollar as well as concerns driven by economic and political tensions. Of course, the frequent tweets that we are all subjected to does not help because it often affects the big capital flows in the foreign exchange market. We note that the competition has lowered their aspirations in terms of capacity growth coming into the summer, which could lead to an improved supply/demand balance and price stabilization. However, it's prudent to say that to date we have not any -- seen any such developments in our main markets. Accordingly, we don't believe that present market conditions are conducive to a much firmer guidance but we'll, of course, revert on this in the future. And as a result, we keep our guidance, which is that we expect to deliver a positive result before tax and nonrecurring items in the current fiscal year. So with that, I'd like to hand back to Rickard who will summarize this morning's presentation before opening up to the Q&A.

[Rickard Gustafson, President & CEO]

Thank you, Torbjørn. And I'll take you then forward to Page 20. And again, we have to summarize what we have said on this call that the numbers that we present today are in line with other guidance and reflects our first -- weakness of the first quarter of SAS and our industry in general. I would say also that it's -- I would like to stress that we made continued inroads and progress in our sustainability stride and that we continue to improve our customer offering and further strengthen the quality in our operating model. And as you have heard Torbjørn, we reconfirm our outlook for the full year of 2019. So with this, I like to end the formal presentation of this call and hand back to the operator to help facilitate the Q&A session. Thank you very much. Operator, please.

[Operator]

[Operator Instructions] The first question comes from the line of Andrew Lobbenberg from HSBC.

[Andrew Lobbenberg, Head of the European Transport Team]

I've got a lot of sympathy with your inability to be more precise on the outlook. But with that in mind, what can you tell us about the nature of your forward bookings at the moment for the spring and in terms of summer, in terms of book load factor and then in terms of booked yield? And then obviously, the key influencer which is really unclear is what is happening to Norwegian's capacity. I'm trying to follow it myself and it looks like it's down, but I don't know that I trust it. What are you seeing for the Norwegian's capacity plans into the summer in terms of long haul, intra-Scandia domestic and indeed to Europe? And then a final question around Brexit. And I know when Brexit was first announced, I had a quite a few chats with you guys around the sustainability of Brexit -- sorry, of SAS Ireland. Are you guys still confident that SAS Ireland would be able to use the Scandi traffic rights on London up to Scandi? Or have you got some contingency planning in case there are government affairs problems around SAS Ireland?

[Rickard Gustafson, President & CEO]

Right. Thank you, Andrew. Three big questions, and I'll try to answer them to my best of my ability. Starting with your question about the future bookings, and what I can say on that side is that in general terms, we are -- we were seeing the bookings coming in as expected. And we see that there seems to be a continuous good demand in the market. However, though, on certain specific destinations and especially during kind of the high summer season, there is a bit more challenging to get the bookings, especially the lesser bookings, coming in as expected. And I suspect that, that is related to the fact that we had an unusually nice and sunny and warm summer in Scandinavia last year. And I think that a lot of people here they look forward to enjoy another summer in the same quality. And Scandinavia is rather a nice place when the sun is shining. Unfortunately, you can't bank on that. So we'll see. If we have a -- weather-wise, a troublesome spring, that kind of booking pattern might change. But at the moment in general terms, we are pretty confident, and we see -- feel pretty good about the bookings but certain destinations can [ some repeat ] are a little bit behind what we expected. So the leisure traffic is not there. And I think that other carriers has kind of also disclosed similar patterns, I believe. Related to Norwegian, I don't know. I can't second guess them. They have announced that they are now come to a point where they are going to change the strategic direction and leave the high-growth phase of their history and into more kind of consolidating their capacity and assets more effectively. I know that, but time will tell if they will actually deliver on that or if they have another plan in back of their mind. So I don't know, Andrew. You have to ask Norwegian about that. But I said, we have noted it and that's why we say that we say that we see kind of emerging trend or dynamics that there might be lower growth going forward, but time will tell if that will be a reality or not. Brexit is an ongoing concern. We believe and in the discussions we have had with the authorities as well, that we believe that we will continue to operate with SAS Ireland out of London, and that will be part of a deal or a Brexit deal. So that's kind of where we're going in position, and we're trying to do every measure that we can to ensure that we are prepared for Brexit. I can't guarantee anything. I don't think anyone can guarantee anything when it relates to Brexit at the moment. But I also have a belief or a hope that at the end of the day to create chaos after Brexit is not of the interest of the EU nor the interest of the U.K. So some sort of kind of mitigating roles will be in place in order to ensure a more controlled Brexit scenario. But again, at the moment, we plan to continue to operate SAS Ireland also after Brexit.

[Andrew Lobbenberg, Head of the European Transport Team]

Can I just add 2 quick follow-ups? When you speak about weak markets, are you talking about the Mediterranean out of Scandi for the peak? And then back on SAS Ireland, I mean are you working or have you got a plan in your bottom drawer of a contingency in case there is a problem with SAS Ireland?

[Rickard Gustafson, President & CEO]

Right. Starting with the bookings again. Yes, that's correct. I referred to some leisure destinations primarily in the Southern Europe, Mediterranean area. Yes, that is correct. When it comes to Plan B for Brexit, yes, we do throw around different ideas and do different scenarios and trying to plan for this to the best of our ability. And yes, we do have some ideas but I'd rather stick to Plan A, which is to continue to operate SAS Ireland as is.

[Operator]

And the next question comes from the line of Jacob Pedersen from Sydbank.

[Jacob Pedersen]

A couple of questions. The first one regarding the outlook for your revenue, we've seen quite robust development at least compared to some of your European competitors on the yield side. What should we expect when looking into the next quarters?

[Torbjørn Wist, Executive VP & CFO]

Yes. No, I think -- this is Torbjørn. So far, I would say the yield development is positive. And of course, to the extent the, call it, flagged reductions in capacity were to come through, we obviously think that leads to a better supply/demand balance, which we -- in net will think would have a positive effect both in terms of ability to fill the planes and improve cabin factor as well as the yield development. So we are encouraged by the signs we see, and this is obviously something that we follow closely internally.

[Jacob Pedersen]

Then coming to your costs, you have unit cost ex currency and ex fuel up 0.8%, I think, in this first quarter even if your cost reduction program is running in line with your expectations. Is that satisfactory moving forward?

[Rickard Gustafson, President & CEO]

Well, if I can start and then, Torbjørn, you can follow through and provide some further details. We do have cost inflation in some significant parts of our business related to aircraft maintenance, engine maintenance and so forth. We believe that we have an aggressive target in reducing our cost by SEK 900 million for the full year. And once we've done that, the journey will continue. I believe that we are in a business where that is characterized by low margins and which requires high efficiency. So I think that journey will continue. I can't say, Jacob, that I'm pleased and satisfied with the first quarter in terms of the financial result in general. I'm never pleased with a loss. However though, I can clearly articulate that the negative deviation versus last year is driven by some factors that we cannot control fully, and we need to constantly work to mitigate longer term and that is the FX development and the fuel cost. Torbjørn, do you want to add anything?

[Torbjørn Wist, Executive VP & CFO]

No. I think you've said it all. I mean, this is an industry where there is a constant focus on how to improve efficiency. A lot of the investments we're making on digitalization is with the explicit aim of driving efficiency in areas such as planning, which is obviously a big part of our business. So we always continue on this particular journey.

[Jacob Pedersen]

Great. Coming to -- being a bit more specific on the yield. Have you any light to shed on that business versus leisure? How is it doing and how is yield on a regional-wise?

[Rickard Gustafson, President & CEO]

Well, Jacob, unfortunately, we don't really guide on yield, and we don't dig into some details on that area, so I think actually we have to pass on that question.

[Operator]

The next question comes from the line of Hans-Erik Jacobsen from Nordea.

[Hans-Erik Jacobsen]

You said you're going to introduce a dividend program. Do you think you will be able to pay a dividend from 2019? And have you any idea what percentage of the bottom line you could pay out?

[Rickard Gustafson, President & CEO]

Well, Torbjørn, do you want to take that?

[Torbjørn Wist, Executive VP & CFO]

Yes, sure. I'll take that. I'm not going to sit and guide, call it, an expected dividend payout for the year. Of course, that is something that one would have to take with the board and then propose to an AGM at the appropriate time. As you're aware, we have a dividend policy. It's clearly set out in the annual report. So that is the policy to which we relate. And of course, the outcome -- an expected outcome will be a function of the result for the full year 2019. So I'm not going to give you any more firmer guidance than that, I'm afraid.

[Hans-Erik Jacobsen]

All right. Another question. You mentioned that you are seeing signs of lower capacity growth in the European market, and I'm not talking about Norwegian then. Do you think that capacity growth is coming down due to demand weakness? Or is it expectations of lower demand growth? Or could it be that some of the carriers that have gone bankrupt lately in sum will lead to somewhat lower capacity growth than what we saw last year?

[Rickard Gustafson, President & CEO]

Well, I don't foresee at the moment. I can't provide any data that there's a lower demand, in general. In some markets though, I think you can see that. I can also draw your attention to Sweden, in particular, where Swedavia, who was actually running the major airports across Sweden, they have now for 3 months in a row reported a negative passenger numbers i.e., a negative growth in the passenger numbers. So in pockets of the market, you might say now that might be a demand thing. Otherwise, I think you're right. I think there is a lot of change and dynamics in our industry at the moment, where we've seen a number of carriers struggle and actually disappear from the map and also some of the low-cost carriers, I'm not just referring to Norwegian, but they seem to have a little bit more challenging in order to maintain their profit levels, and therefore might consider the growth pace of their businesses.

[Operator]

As there are no further questions, I'll hand back to the speakers.

[Rickard Gustafson, President & CEO]

Well, if there are no further questions, I think we'll thank you so much for your attention this morning. And I wish you a good day, and I hope to see you onboard an SAS aircraft soon. Thank you very much.

[Torbjørn Wist, Executive VP & CFO]

Thank you.