SAS AB

STO:SAS

Earnings Call Transcript

[Operator]

Ladies and gentlemen, welcome to the SAS Interim Reports Q2 2021. Today, I'm pleased to present Karl Sandlund, Acting President and CEO; and Magnus Ornberg, Executive Vice President and CFO. [Operator Instructions] Speakers, please begin.

[Karl Sundland]

Well, thank you very much, and good morning, ladies and gentlemen, and thank you for joining us for this interim report for the second quarter of our fiscal year 2021. I will start by providing you the overview for the quarter, followed by Magnus, who will take you through more details related to our financials. After that, as you heard, the operator will, as usual, facilitate a Q&A session for us. As always, you can follow our presentation online, and we will also try to guide you to the pages that we talk to. So let's start and flip to the first page with the title highlights of Q2. As you know, we continue to be heavily impacted by the pandemic. There are still strict travel restriction in place in all our main markets. And as a result, the second quarter of the fiscal year 2021 was more negatively affected by COVID-19 than the first quarter of the year or, in fact, actually more affected than any previous quarter during the pandemic. And the numbers on the right side of this chart shown is pretty clear. We had fewer passengers for the same quarter last year, but also fewer passengers than the first quarter of this year. And therefore, we have continued to adapt our capacity and our cost base. On a year-to-year basis, we have managed to reduce our cost by SEK 4.6 billion compared to Q2 last year. And this is more than the SEK 3.3 billion lower revenue that we have compared to the same quarter. We will come back to this on the following pages, but it's worth noting that this is the first time during the pandemic that we posted EBIT result that is improved on a year-to-year basis, and that's driven by a strict cost focus. With that said, though, loss of SEK 2.4 billion is not a result we are happy with. However, we are rather satisfied with SAS' ability to adapt to a very difficult and unique situation. Liquidity is, of course, key, and both myself and Magnus will come back to that shortly. Moving on to the next slide, please. I will focus my part of the presentation on 4 areas that we have worked hard with during the second quarter. The first area is adapting our commercial offering to the current situation. The second one is to continue to reduce our cost and secure additional financing to maintain liquidity. The third one is to prepare for an increased demand during the important summer season ahead of us. And finally, the fourth one is planning for the future and ensuring progress on our transformational plan. I would just use a couple of slides to give some more flavor on those areas. So if we start to flip to the next page. Starting with the first area, as mentioned, we have been more affected by the ongoing dynamics this quarter than the quarters before. The strict travel restrictions that were imposed during the first quarter have been remained in place during the second quarter. And this has led to lower demand across our main markets. And this is seen in our passenger numbers, as you see on the bars on the left side of the slide. The total number of passengers during the quarter was 858,000, down 14% from the 1 million passengers that we have in the first quarter. And this is also seen in our revenue, which is 15% lower in the second quarter than in the first one. To quickly adapt to this reality, we have reduced our seat capacity, as we see on the right side of the slide. In the quarter, we have reduced our seat capacity by 28% compared to the first quarter. And this has allowed us to reduce our costs. Cargo continues to develop better than the passenger demand and is the reason why we have increased the number of long-haul flights during the second quarter. As you see in the report, freight revenue is actually higher in the second quarter than both the same quarter last year but also compared to the first quarter of this year. So to conclude, being flexible and constantly adapting to changing startup factors have been key in the quarter. Next slide, please. In addition to adapting variable costs, through rightsizing our production, SAS has, since the start of the pandemic, worked hard to reduce our fixed costs. Part of this was the redundancy process that was completed during the first quarter, but also many other measures such as utilizing furlough schemes and implementing changes to CBA. Those are tough and painful measures, but necessary and have reduced our personnel cost by approximately 35% compared to Q2 last year. We have also drastically reduced our overall spend, phased out old aircraft and renegotiated with suppliers in order to reduce the fixed cost. Many of these measures take some time before full effect is reached, and therefore, we have seen a gradual improvement in our cost base on a quarterly basis, as you see on the left side on the side. This also translates into an improved result. Despite the significant profit revenue, as mentioned earlier, we have, for the first time during the pandemic, seen that we post the EBIT result that is improved on a year-to-year basis, but also compared to the previous quarter. I think this demonstrates our ability to adapt the business to the demand and the challenging situation that we've faced. We are not satisfied with significant loss, but as mentioned, we are rather satisfied with our ability to adapt to this very difficult situation. If we move on to the next slide. As mentioned in the beginning, liquidity is, of course, key and has continued to be a focus area during the quarter. We're going to hear more from Magnus shortly. Our efforts to reduce our costs in combination with fewer refunds and hard work to secure additional financing, have allowed us to reduce our cash burn during the quarter. We ended the quarter with a cash balance of SEK 4.4 billion, which means that during the second quarter, the cash and cash equivalents were reduced by only SEK 0.3 billion. A couple of things to highlight. The cash flow from operating activities amounted to negative SEK 1.4 billion compared to a negative SEK 4.9 billion in the previous quarter. And the main reason for the reduced cash burn in both fewer refunds during the quarter, but also due to the cost improvement. In terms of investing activities, we have taken delivery of 1 Airbus 350 and also paid USD 55 million predelivery payments for Airbus 320neo. Finally, we have a large positive contribution from our financing activities. I'm going to allow Magnus to speak more about that later, but worth noting our USD 270 million in aircraft financing and EUR 59 million in financing connected to emission right. In total, this amounts to financial preparedness of 38% at the end of the quarter. And while this is higher than our financial preparedness of 25%, we think it's prudent to improve the financial preparedness due to the high uncertainty in our environment. And we have therefore secured support from our largest shareholders, the Government of Denmark and Sweden, for access to a credit facility of SEK 3 billion. As mentioned during the previous quarter, the most important driver of liquidity has increased bookings. And therefore, we move on to describe the outlook for the summer and our activities to stimulate bookings going forward. The main driver for an increased demand is released travel restrictions. The vaccination process and development of infection rates are decisive on when governments will remove restrictions. And therefore, of course, we follow this very closely. We are encouraged by the vaccination schemes that are now rolled out, and it's positive to see that more countries have a now reopening plan. It's also good to see that EU has decided on a COVID certificate from 1st of July that will enable travel between countries. We see that there is a build-up to side travel, and we have experienced an increased number of bookings for the summer and the fall. But of course, still, the bookings are on a very low level compared to a normal year. As mentioned in our -- in Q1, we do not expect the normal summer, but the gradual increase of demand from low level to approximately 50% of normal demand during the second part of the summer season. Our customers' booking behavior has changed during the pandemic. Travel restrictions change on very short notice, which gives uncertainty. And on the right side of this slide, you see an illustration of this. A normal year, we have sold approximately 60% of July's volume by the beginning of June. Last year, bookings came substantially later, and as you see in the chart, only 30% of the revenue flown in July was sold before the beginning of June last year. This delayed booking pattern means that we have lower visibility than normal and that the uncertainty of how the summer will develop remain. Next slide, please. However, we are ready to welcome our passengers aboard again as restrictions are released. We are gradually increasing our capacity and will offer 180 routes to almost 100 different destinations this summer, where we will offer more nonstop routes between Scandinavia and Europe. And in addition, we are adding capacity on our domestic market supporting our increased demand. We know that flexibility is the keyword for our customers these days. They need to feel secure that they have the freedom to rebook or cancel ticket, and therefore, we have increased flexibility. For all international travel, our customers may rebook their tickets after 3 days before departure. And for domestic travelers, we have a Go Flex product, where they can rebook until 1 hour before the quarter. EuroBonus remains an important cornerstone in our offering. And in addition to extend TR level for our members, we also give 4x as many qualifying points for every trip made during April to June. We have also implemented several measures to ensure that our customers safety well-being aboard, such as updated boarding procedure, face mask requirements and so on. And to make it easier to travel, we have established an SAS Travel Ready Center. And this is a digital tool where our customers can both inform themselves about current travel restrictions and prepare for their travel. And by using this tool, our customers will be ready to travel before they get to the airport, and there's no need for manual in the special document control, et cetera, at the airport. So with those measures, departures that attract the destinations during the summer, increased flexibility and initiatives to make it easier to travel, we are prepared to welcome more passengers during the important summer season. But we also need to focus longer term, and we need to continue to adapt to an ever changing market dynamics. So if we move to the next slide, please. When we announced our recapitalization last year, we also presented a new business plan with 4 pillars: continuing to be the preferred airline for Scandinavia travelers, accelerating the transition to modern single type Airbus fleet; maintaining our position as the global leader in sustainable aviation; and ensuring that we have a fully competitive and efficient operating model. Our commitment to the business plan remains firm. And during the quarter, we have continued to demonstrate progress across all 4 pillars of the business plan. In terms of our customer offering and customer experience, I have mentioned what we have done when it comes to flexibility, safe travel routes and so on. SAS has also continued to be the largest airline to, from and within Scandinavia in the quarter. And I'm glad to see that we also have achieved a high customer satisfaction also during this pandemic. We are moving forward on our journey towards a modern fleet and have accelerated our transition to single-type Airbus fleet. During the quarter, we phased out 8 Boeing 737 while phasing in 1 Airbus 320neo and 1 Airbus 350. So again, proof points that the journey is ongoing. This fleet transition is also important to reach our sustainability target. The share of new fuel-efficient aircraft is increasing quickly, and this is also seen in our emission reporting. Our CO2 emission power ASK has been reduced by 10% compared to the same period last year. And during the quarter, we have also signed an agreement with Gevo that will secure up to 20% of our sustainable aviation fuel need in 2025. And finally, we have also made progress on delivering on our transformation plan, which I will describe on the next slide, please. Prior to the COVID-19 pandemic, SAS operating model has been successful and safe in putting our position as the leading carrier in Scandinavia. And we are now continuing that journey by further adapting our capabilities to meet the new realities post COVID-19. The new reality is defined by an increased emphasis on leisure travel and tough competition with new players entering our home market. And this requires changes in how we operate and further adjustments to our operating model to ensure that SAS remains as the #1 carrier in Scandinavia. During the pandemic, we have made efficiency improvements within all parts of the business. We have reduced the number of employees. We have negotiated an incremental changes to the CBAs, as mentioned. We have also implemented measures to improve productivity in our network and renegotiated agreements with suppliers, all to stay competitive and continue to evolve our business. As part of this, SAS has decided to establish a new additional Danish crew base in Copenhagen. And we have entered into a new collective agreement with the Danish Union FPU for cabin and flight crew. The main benefits with the new agreements are, one, that it is an agreement until November 2025, which gives the improved predictability. And two, that is secure at least 15% productivity improvement through improved flexibility and increase the ability to do seasonal adaptation. And SAS will, through these agreements, secure Scandinavian aviation jobs at good market space terms and conditions. As a first step, we intend to create more jobs in Denmark instead of reopening the Malaga base that was closed due to the pandemic. The new crew base will be operated under an existing European operator's license, using local Danish employment and is expected to open in the coming winter season depending on the market development. Overall, with this move, together with all the other measures that we take throughout the company, will enable SAS to continue to be the preferred choice for Scandinavia travelers while continue to be a cornerstone in the Scandinavia infrastructure. And our determination to secure profitable and sustainable aviation will benefit all stakeholders, our customers, employees, owners and the broader society in general. With that, I stop this overview part of the presentation and hand over to Magnus, who will take you through the financials for the quarter.

[Magnus Ornberg, Executive VP & CFO]

Thank you, Karl. And I will, as usual, start to give a high-level summary of the quarter. So let's move into the next slide, please. And I start from the left side going through some traffic numbers. And of course, the pandemic continues to heavily impact our demand. And we are continuing to adapt, as Karl said, the capacity, and we have now offered seat capacity from 57% lower. The reduced capacity and also lower demand is, of course, also reflected in our revenue passenger kilometers, which are down some 78%. Unit revenue has declined by some 32% driven by also lower cabin factor. And we are mitigating this revenue drop through cost reductions. We see a unit cost increase of some 15%, probably the lowest we've seen during the pandemic but still is an increase. This weak market is, of course, also reflected in our financial numbers and developments. Revenues dropped some SEK 3.3 billion in the quarter. We have mitigated a lot of that in cost activities. I'll go through that in a minute. And earnings have improved in the quarter with some SEK 1.4 billion but still, of course, a large negative result of SEK 2.4 billion. The result impact is, of course, also impacting our cash flow from operating activities, negative SEK 1.4 billion, even though this is an improvement from the same quarter last year and also an improvement from the quarter earlier, as Karl also went through. And I'll go through more in detail, comment that when I talk about the financing activities. So let's dig into a little bit on the revenue development, where we see a decrease, as I said, of some SEK 3.3 billion, currency impact, SEK 230 million, which is more than a weak Norwegian krone against the Swedish krone. But of course, the main impact in the quarter is the passenger revenue, mainly driven by the capacity and a lower load factor. A slight pickup on the passengers yield on the flight that we are actually doing. Happy to report back on cargo contributing positive year-on-year with some SEK 130 million and, of course, driven by high demand, and this is reflected by higher yields and higher fill rates. And then the other traffic revenues and other operating revenues are also lower, and those are very much volume-driven, which is handling charges and luggage channel, et cetera, et cetera. So this is reflecting the lower production level. So we're ending up at SEK 1.9 billion, which is then the lowest quarter basically during this pandemic. So let's look into the EBT development in the quarter. And we had a negative SEK 3.7 billion last year. This year, we ended up at negative SEK 2.4 billion. And of course, we had a large impact on the revenue to SEK 3 billion less, and we have worked hard to mitigate that lower revenue. And we will comment on some of the cost items. The fuel costs contributed positively in the quarter with SEK 1.9 billion. We should take note, however, that last year, we made a SEK 1.2 billion charge. We took a hedge loss due to the low volume last year. But on top of that, we have also lower consumption and some positive hedge effect this quarter. We took significant actions to reduce our staff last year. And that is impacting, of course, the personnel cost positively now, and we see some impact of some SEK 638 million in the quarter. On top of that, both services is less, some SEK 460 million. This is wet lease or handling charges. Some of that is volume driven, but it's also renegotiated costs and contracts. The same with charges, some SEK 300 million lower, also volume-driven and also some renegotiation. In this quarter, we see a slightly higher positive impact also from government support. This is more of a timing issue, and we booked those based on the decisions done by the various states. And this quarter, it's some positive SEK 265 million. And apart from that, we are working broadly on managing our costs, and we see impact on all areas of the company now, where we basically are focusing on spending the cost on our sort of critical areas and basically mainly on areas which are directly connected with our production and operations. All in all, SEK 1.4 billion in improved results, and it's combination of working hard on managing the variable costs and the semi-variable costs and also on the fixed costs. On the next slide, I also want to highlight the development quarter over previous quarter, and it shows a lowering of result with some SEK 400 million. However, if we take into account the currency impacts that we saw in Q1 and also that we now have lower revenue in this quarter, we can see an improvement of some SEK 600 million. And again, the government support is, of course, helping us in this quarter but also lower fuel consumption and also personnel expenses and other. So this is -- we are continuing to improve our efficiency over time. Next slide. I want to highlight a bit on the financing activities, which has been our probably focus #1. And we have worked intensively to safeguard and secure additional liquidity this quarter. Part of the actions have been to -- in terms of by the aircraft financing, we've closed a deal on 5 predelivery payment to finance that. We have also done 1 sale and leaseback activity also of our A350. And we have also finalized aircraft refinancing as well, total amount of some SEK 230 million. We've also engaged in engine financing of some spare engines of SEK 40 million and also, finally, doing emission right financing, basically trading security of around SEK 60 million. All in all, this significantly supported our liquidity position at the end of April almost by some SEK 3 billion. And I'm happy to report back that we are seen as an attractive partner in the financing market, and the agreements have been entered on competitive terms, supporting SAS in the long run. And I want to highlight here also on the operational cash flow, which Karl went through. We have commented earlier that our burn rate -- operational cash burn rates have been around SEK 700 million per month in Q4 last year and also Q1 this year, excluding the refunds. And with these numbers that we report now on Q2, the cash burn has been reduced to then around SEK 400 million. And this has been achieved basically to continued decrease of the cost, of course, but also that we start to see an increased level of sale of tickets. So our unearned transportation revenue has, for the first time during the pandemic now increased and supported liquidity with some SEK 300 million in the quarter. Going forward, we are working hard to continue to safeguard liquidity and cost levels. Of course, the main action right now is to aligning our capacity to demand. And with the low visibility that Karl talked about, it is a challenge. But I think we have done that in a good way in the last quarter -- last quarters and, of course, plan to continue to do that. We are also implementing our transformation, continue to implement our SEK 4 billion transformation program with a target of increasing productivity with some 15% to 25%. We will seek to engage in more aircraft financing in Q3 or sale of aircraft as well. We made a number of agreements of deferred payments to suppliers in Q1. And the effect of that will continue to reduce the cash-out in the near term. And we will also focus on selective and targeted campaigns or marketing activities to secure the demand that is out there. And of course, we will also continue to see the government support packages when those are approved and planned and also the furlough schemes that are available in Sweden, Norway and Denmark. And yesterday, we -- due to the uncertainties in the market and also that liquidity is crucial for us, like any company, we have -- are happy to report back that we have secured support from our major shareholders, the Government of Denmark and Sweden, for access to credit facility of some SEK 3 billion. And the aim of this facility is to create a liquidity buffer and is to be seen as a complement to other ongoing activities that we do to reduce costs or strengthen liquidity. We expect to set up this facility in Q3. Moving on, with all these financing activities, we have also, of course, updated our maturity profile of our loans. And I can say that some SEK 1.4 billion of those new financing measures are -- have maturity 2022, roughly SEK 1.1 billion in 2026 and around SEK 0.4 billion in the year beyond 2027 million. And as Karl said, we took delivery of the one A320neo in the quarter and one A350 as planned. And the remaining plan that we have is unchanged from last quarter. What is not seen in the slide is the intense work that we are doing to -- with our fleet conversion, and we have sort of increased the speed. I think it's probably the quarter where we have phased out most old aircraft. So 8 Boeing 737 have been phased out during this quarter. And of course, this also reduces the spend on future maintenance and leasing costs. Next slide. On the hedges, we have an uncertainty of demand in production. And of course, that is impacting the -- making the forecasting of financial exposures more uncertain. And significant and rapid changes in consumption capacity can, of course, have effects on our hedge levels. However, we have -- as you know, regarding fuel, we have changed the policy and, thus, can have between 0% and 80% hedged. And now we are hedging on a very low levels of some 5%. And this is, of course, reflecting that no new hedges have been down in the last few quarters. On the currency side, 64% of the exposure of Norwegian krone, cash flow surplus have been hedged, and around 41% of the expected U.S. dollar cash flow deficit has been hedged. And of course, then the sensitivity analysis will -- is now lower than normal. And this is, of course, depending very much on the lower volume that we see -- have seen and see in the near term. And there are no hedges beyond 12 months. My final slide will go through the financial targets, which remain. So the return on invested capital to be higher than the WACC. We are now at, of course, a negative -- large negative number due to the significant low EBIT, negative 25%, slightly improved from previous quarter due to an improved equity position this quarter. On our leverage metrics, remains that we have a target of having financial net debt less than 3.5x EBITDA. With a negative EBITDA, of course, measure -- it's difficult to measure, but our long-term target on this target remains. Financial preparedness, also important for us. We're working hard to keep that above our target of 25%. Reporting back on 38% this quarter, slightly lower than last quarter due to a lower cash position but also lower unutilized credit facility. And we have been able to partly mitigate this by lower fixed costs over the last 12 months. And by that, I finalize my part of the presentation and hand over to Karl to summarize the quarter before we open up for the Q&A.

[Karl Sundland]

Well, thank you, Magnus. And to summarize, this has been a quarter that has been more affected by the pandemic than the previous quarter or any quarter before it, and this is seen in our passenger numbers. To adapt, we have worked hard to reduce our cost. The cost is down by more than 50% in the quarter compared to last year. And this focus has led to EBIT result that is better than the quarter before. Another focus area has been to maintain liquidity, both by improving the operational cash flow but also by securing additional financing, as you heard. There are some positive signs ahead of the summer, driven by increased vaccination but also still high uncertainty due to the low visibility we have had driven by late booking behavior among our customers. Looking further on, we continue our transformation journey by efficiency improvements within all parts of our business. And this will enable SAS to continue to be the preferred choice for Scandinavia travelers while being a cornerstone in the Scandinavia infrastructure. Before we move on to the Q&A session, I would like, on behalf of the Board and all employees in SAS, to thank Rickard Gustafson, who has led SAS as President and CEO during the past 10 years. Rickard has made decisive contribution to our company. And during his time as CEO, the company's results has been turned around, and SAS showed 5 consecutive years of positive results before the pandemic. Rickard also been instrumental in the important work to lead the transition towards sustainable aviation in the future. And we wish him the best of luck in his future assignment. I would also like to wish Anko van der Werff, welcome to SAS as our new CEO from mid-July. And finally, I would like to thank all my colleagues at SAS for your hard work and commitment and engagement. As the leading airline in Scandinavia, we are really looking forward to welcome our passengers onboard soon again. And with that, I thank you for this part of the presentation, and I'm going to ask the operator to help us with the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Jacob Pedersen from Sydbank.

[Jacob Pedersen, Head of Equity Analysis & Vice President]

Congratulations on a fine quarter. All the circumstances taken into consideration. I have a couple of questions. First of all, regarding the jet fuel cost, as I can see it, you lower your expectation for this year's jet fuel cost by SEK 2 billion to SEK 3 billion, and that's quite a substantial amount. Can you talk a bit more about what is behind this lower? Is it hedge positions and positives from hedges? Is it lower volume? Or what has happened?

[Magnus Ornberg, Executive VP & CFO]

Yes, I will take this one. I think you should see this in the light of basically low hedge levels, meaning we don't see those deviations based on that. And the other one is, of course, the expected much lower volume. So basically, you can say now that our fuel cost will be very much reflected based on the current market price. So everything will depend on the production level.

[Jacob Pedersen, Head of Equity Analysis & Vice President]

Yes. But in your estimate, is that still a projection of the ramp-up that you presented last quarter, 30% in June; 50%, July, August; and 50% to 60%, September and October. Is that still your capacity plan?

[Magnus Ornberg, Executive VP & CFO]

This is still our capacity plan, and we have not made any changes to the previous quarter's estimation from that side. So I think you should see those numbers more of a reflection of how much we have sort of committed already and not the reflection of any changed demand numbers, yes.

[Jacob Pedersen, Head of Equity Analysis & Vice President]

So just to understand it because I'm left a bit in the dark still, should we expect your fuel cost to be higher because you haven't hedged very much for the next quarters? Or does the matrix that you present today, does that represent where we should expect your fuel cost for the full year to end up?

[Magnus Ornberg, Executive VP & CFO]

I think it's more -- you should see that as more of a sensitivity analysis on sort of the current hedges and how the market price for the fuel will develop and should not be seen as a reflection of sort of changed volume expectation or the demand expectation.

[Jacob Pedersen, Head of Equity Analysis & Vice President]

Right. So bottom line, I should expect a jet fuel cost, when this year is over, that is substantially higher than what you project here?

[Magnus Ornberg, Executive VP & CFO]

Yes. If you ask it like that, yes.

[Jacob Pedersen, Head of Equity Analysis & Vice President]

Yes. Okay. Okay. Okay. That was good for clarity. Okay. Then coming to your Danish base, I think very good news. Does this mean that your future growth will come on higher productivity agreements? And yes, that will be the first question regarding to this.

[Karl Sundland]

Well, thank you, Jacob. I think you should remember that prior to COVID situation, SAS operating model has been successful in safeguarding our position as the leading carriers in Scandinavia. And we have 5 consecutive years of profit also driven by this model. We are now seeing a reality defined by an increased emphasis on leisure travel and even tougher competition. And this requires also us for changing and develop the operating model to ensure that we remain at the position that we have today. And that's one part of this puzzle. We have decided to establish a new additional base in Copenhagen. With a new agreement, Danish agreement with the Danish Union FPU, and as I mentioned, those agreements have 2 major benefits: one, that they are long term, they are until November 2025, so we have stability and predictability; and also gives a higher flexibility when it comes to seasonal adaptation and improved productivity and so on. So we can continue to safeguard Scandinavian jobs within the aviation sector. And as a first step, we intend to create jobs in Denmark instead of reopening the Malaga base that we closed due to the pandemic.

[Jacob Pedersen, Head of Equity Analysis & Vice President]

Okay. Coming on to your current employees, where are you on more efficiencies in the current collective agreement and SK agreements?

[Karl Sundland]

Yes. We -- within the transformation program, we're working hard within all parts of the company to make sure that we have higher efficiency driven by increased productivity and flexibility in every parts of the company. We have agreements -- we have an existing agreements that will last for at least 1 year when it comes to the existing flight crew that was focused on, which we are working on during this year.

[Jacob Pedersen, Head of Equity Analysis & Vice President]

But no new efficiencies coming regarding this very large portion of your employee base?

[Magnus Ornberg, Executive VP & CFO]

Yes, I can comment in general. I mean our SEK 4 billion plan is substantial, and we have come far into that one during this year. And we will continue to execute on that. This is one portion of it. And what we are presenting today is an additional sort of action and to reach these targets. But we have more work to do in several areas of the company for sure, and we will continue to work on that.

[Jacob Pedersen, Head of Equity Analysis & Vice President]

Okay. Last question, then I'll let you go. You're building quite a substantial debt position at the moment. Are you also, on the medium term, comfortable with the level of debt concerning the very limited earnings and view you have at the moment?

[Magnus Ornberg, Executive VP & CFO]

Yes. No, but we are comfortable -- we're very happy with the work that we've been doing in this quarter when securing liquidity. We are also appreciative of the support now from the main shareholders to substantially support our liquidity and as a backup facility for this uncertainty or low visibility that we see in the market. Obviously, we are monitoring, of course, the debt situation, seeing what is the sort of optimal level. But we see now through the plan that we made now last year with the recapitalization, we see that this sort of fits within that plan in that sense. But of course, our target is to continue to improve our efficiency, so that we can start to have positive results. And that is, of course, the -- what we need to have in the years to come in order to service the debt of course. So this is our target to deliver on that plan.

[Operator]

Our next question comes from Achal Kumar from HSBC.

[Achal Kumar, Analyst]

First of all, what I wanted to understand in terms of competitive landscape, so previously, of course, we were expecting Norwegian probably go out and now Norwegian is coming out with the smaller structure but more focused. And then you have a bid, and then you have a new airline. So how does the competitive landscape looks like for you, if you could please discuss that?

[Karl Sundland]

Well, thank you. Well, I think that the market is going to be very competitive also in the future. One should remember that the European aviation industry has been highly competitive during the last 10, 20 years with strong capacity growth and increased LCC competition, new players coming and so on. But we have proven before that we can live in such highly competitive markets. Before COVID, we had 5 consecutive years of positive results, and we increased our market shares. But of course, we need to continue to adapt both our customer offering to attract frequent travelers. We will continue to drive the sustainability agenda. And we will continue to adapt and change and enhance our operating model. We are improving efficiency, as Magnus just said. Throughout the company, we are increasing flexibility to stay competitive. And our ambition is to continue to be the preferred airline in Scandinavia. And this determination to ensure profitable and sustainable aviation will benefit all stakeholders.

[Achal Kumar, Analyst]

Okay. Okay. Fair enough. The other thing I also wanted to understand about the refunds, I mean, of course, last time, I think you clarified that you're done with most of the refunds. Now of course, you have some reservation due to EU261 ruling. I mean are you still facing some challenges in terms of refunds or to compensate against the flight delays? Also, what sort of financial implication you are expecting due to that?

[Magnus Ornberg, Executive VP & CFO]

Yes. I mean, I try to understand the question fully, but we had, of course, a large refund that you said in Q1. And this quarter, It is significantly less. I think we have some SEK 200 million there. And when it comes to the EU261, we have taken the charge, and our estimation is around SEK 150 million on this verdict and that we have included in our predictions, of course. So that is included in our estimation. And of course, we need to sort of monitor this as we go on. But they are all included, yes, in the numbers.

[Achal Kumar, Analyst]

Okay. Okay. Other things on the cost side, so you highlighted -- of course, you've done a lot of work on the cost, cutting down cost by almost 52%. And then you've cut employee costs significantly. So what I wanted to understand is that is it -- going forward, of course, once you increase the operations, how the cost would evolve as you increase the size of the operations. So I believe some of the costs will definitely come back to the business. So how -- so basically, what I want to understand is that this SEK 4 billion of sustainable transformation plan phase, how would you achieve that? And I believe that we are not talking about the cost cuts due to the current situation, but of course, that's the kind of a permanent cost cut you're targeting -- you're talking about, right? So how would you achieve that? And how do you see the cost evolving over the next 12 months as you increase the size of operations and all?

[Magnus Ornberg, Executive VP & CFO]

Yes. Thank you very much for the question. Now we are very happy to see the development on the cost level in the last 12 months. Of course, in the early part of the pandemic, we had a large negative result, and we have, over time, now improved that. And I would say that since somehow December, something we have very much aligned now where we see any further revenue drop, we can, to a very large extent, meet with further cost reductions. We have also been able to transform fixed and semi-fixed cost into more variable, and therefore, we see a very good alignment now on the volume. Of course, we are lacking volume, of course, to match the cost level, but we see now over time development on that. Of course, this is going to be one of the biggest challenges in the -- when we start to ramp up, that -- we can have to make sure now that we do not increase the cost in the same sort of pace as we are increasing the volume. And I see this as an opportunity though, a challenge, yes, but it's an opportunity to make sure that we are coming out as sort of a stronger airline in that sense. And I think some of the renegotiated contracts and also change processes that we now see should support this going forward. So I think the whole productivity program, as you bring up, and I ask Karl to comment also, the SEK 4 billion is super essential for us. I think it will support us at least in 3 ways: one, to mitigate cost increases over time because you have inflation and so on; you will also see -- giving us a chance to be more competitive in the market; and of course, should also support our profitability improvement because, in the end of the day, we need to move into profitable territory and start to increase the margins basically. So I have Karl to comment also on the actions.

[Karl Sundland]

Well, just to build out what Magnus has said, that the cost focus is our #1 priority. And as you have seen in the quarter, we have managed to reduce the total cost by more than 50% compared to the same quarter last year. Of course, as we ramp up the business, the variable cost will increase in line with the production. But the transformation program and other productivity measures will ensure that. And we will focus a lot on that to be able to increase capacity without increasing the fixed cost. So this will be, of course, the focus also going forward.

[Achal Kumar, Analyst]

Okay. Okay. Right. Final one from me. So basically, I also wanted to understand a bit about your liquidity. So you said the liquidity cash burn has reduced to SEK 400 million. On the other side, of course, you also highlighted that this quarter was even more challenged versus any other quarter. I mean so -- and in the last quarter, you had SEK 700 million of cash burn excluding your refund. So how have you reduced the cost? I mean I believe that cost cuts were happening the previous -- in the previous quarter also. And then versus previous quarter, you've got 11% cost further. So how the cash burn has reduced? And if you could please also suggest how you managed to limit your cash, limit your liquidity burn only SEK 300 million in the quarter versus last quarter given that, of course, you did have the refunds, which were SEK 2.1 billion. But last quarter, I think you burned a cash of almost SEK 5.5 billion. So how did you manage that? So if you could please highlight -- if you could please share that on that.

[Magnus Ornberg, Executive VP & CFO]

Thank you for the question. I think the main -- I mean the main activity that we are doing is to constant focusing on cost. And I think one of the most important actions for us to do that is to align our production levels or spend to the demand. And I think we are doing that in a better and better way now, I think even better this quarter, meaning that we are having a good way to adjust and focus on which sort of routes to fly and to manage that on a much more agile and flexible way than I think what we have ever been doing. I think that helps a lot. On top of that, we are working with our internal efficiency. We see the effects of the redundancy program we did last year starting to impact, and that helps us. We are working with our supplier base and coming to agreement where -- which is caught up in terms of cost and also liquidity. So all of these things is helping us on sort of on the cost side. But I also mentioned in my presentation that we have also increased sort of the positive, meaning we have sold more tickets in this last quarter than what we did in the previous quarter. And what this item, what we call, unearned transportation revenue, which is basically a balance sheet item which supports the liquidity, has increased for the first time since I started last year in September. And this is -- I'm very happy to see that now. So that means that we have sold more tickets than what we have flown. So that, of course, helps the liquidity as well. But then, of course, the main issue -- and this -- all what I've talked to now is, of course, helping us to reduce the operational cash burn. But what we have been working diligently on in this quarter is, of course, also to secure a number of financing deals, as I talked about, the aircraft financing, engine financing, et cetera. And that has, of course, supported us to almost have the same liquidity when we now ended the quarter as when we went into it. And so we are happy with that, and that is almost better than our plan, I would say. So we have a good position going in now into the quarter -- next quarter. And of course, if I tap that now with the decision which was done yesterday from our main shareholders to further support with a liquidity buffer of SEK 3 billion, that gives us ample liquidity going forward to plan and do the right things going forward, to take us through this period. So this is going to be a very interesting next 3 to 6 months to start to sort of ramp up and see the new normal volume in the market.

[Operator]

[Operator Instructions] Okay. There appears to be no further questions registered, so I'll hand over back to the speakers for any other remarks.

[Karl Sundland]

Well, thank you a lot for listening into this presentation of our Q2 report for 2021. And I hand over to Michel Fischier for the rest of the session.

[Michel Fischier, Vice President of Investor Relations]

Yes. And I will answer the questions which have come in on the web after the end of this call. So thank you very much for today.

[Magnus Ornberg, Executive VP & CFO]

Thank you very much.

[Karl Sundland]

Thank you.

[Operator]

Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.