Earnings call transcript: Fly Play hf sees stock surge after Q2 2025 results

Play Airlines (PLAY) reported its second-quarter 2025 earnings, highlighting a challenging financial performance but optimistic future projections. Despite a decrease in revenue and an increase in negative EBIT, the company’s stock surged by 15.63%, reflecting investor optimism driven by strategic shifts and future guidance. The airline’s focus on expanding its leisure market and operational restructuring were central to the discussion during the earnings call. InvestingPro analysis reveals the company operates with a significant debt burden, with a debt-to-equity ratio of 23.68x, though current Fair Value calculations suggest the stock may be undervalued.

Key Takeaways

• Revenue for Q2 2025 decreased by $6 million, an 8% drop from the previous year.
• The company’s stock price increased by 15.63% following the earnings report.
• Play Airlines anticipates a significant improvement in financial performance in Q4 2025 and Q1 2026.
• The airline is shifting its operational model to focus on point-to-point routes and ACMI operations.

Company Performance

Play Airlines experienced a challenging second quarter with a revenue decline of 8% compared to the previous year. The company’s EBIT was negative $9 million, a deterioration from the negative $6 million reported in the same quarter last year. With trailing twelve-month revenue of $2.1 billion and an EBITDA of $457.8 million, the company faces significant challenges. InvestingPro data shows concerning cash burn rates and weak gross profit margins of 41.16%. Despite these figures, the company remains optimistic about future profitability, driven by strategic shifts and operational changes. For deeper insights into PLAY’s financial health and 14 additional exclusive ProTips, consider exploring InvestingPro’s comprehensive analysis.

Financial Highlights

• Revenue: Decreased by $6 million (8% YoY decline)
• EBIT: Negative $9 million (compared to negative $6 million last year)
• Cash Position: $12 million, bolstered by a $20 million convertible bond
• Yield per Passenger: Increased by 4.1%
• Load Factor: 83%, down by 2.7%

Market Reaction

Following the earnings announcement, Play Airlines’ stock saw a notable increase of 15.63%, closing at $25.69. With a market capitalization of $882.38 million and a P/E ratio of 24.89x, the stock trades with high volatility (Beta of 2.14). This surge reflects investor confidence in the company’s strategic direction and future profitability, despite current financial challenges. InvestingPro’s detailed Research Report provides comprehensive analysis of PLAY’s market position and growth potential, available exclusively to subscribers.

Outlook & Guidance

The company expects net income for Q3 2025 to align with last year’s results and anticipates an improvement of $25 million or more in Q4 2025 and Q1 2026. With analysts projecting EPS of $1.73 for FY2026 and setting price targets between $29 and $46, Play Airlines projects profitability in 2026, supported by expected annual ACMI revenue of approximately $100 million. The airline plans to maintain four aircraft in Iceland while potentially expanding its ACMI fleet.

Executive Commentary

• "We are progressing as expected. We are on track." This statement underscores the company’s confidence in its current strategic trajectory.
• "The leisure part of our business is growing and we’ll be taking it more or less over." This highlights the company’s focus on expanding its leisure market presence.
• "We are seeing our cash position being strengthened through the $20,000,000 convertible bond." This indicates a robust financial strategy to support future growth.

Risks and Challenges

• Decreased passenger movement and load factor could impact future revenue.
• The transition to a point-to-point model may face operational challenges.
• Economic fluctuations could affect leisure travel demand.
• The competitive landscape in the airline industry remains intense.
• Potential geopolitical tensions could disrupt international travel routes.

Q&A

During the Q&A session, analysts inquired about the strength of forward bookings, which the company confirmed as robust. Questions also focused on the ACMI business strategy, with executives clarifying revenue expectations and operational plans. The announcement of new destinations was also anticipated, reflecting the company’s ongoing expansion efforts.

Full transcript - Fly Play hf (PLAY) Q2 2025:

Presenter/Moderator, Play Airlines: Dear investors and other interested viewers of this webcast, welcome to this presentation of Play’s second quarter results of 2025. On the agenda, we have some highlights from this last quarter. Then we’ll cover our financial results. And finally, I will give you some update and insight into how we’re seeing the imminent future. So just at a glance, the operations out of Kevlarik, we show here we moved 361,000 passengers somewhat down from last from second quarter last year.

As always reminding you that we are producing less for ourselves and ever more for other operators. We had a respectful 83% load factor and an impressive 91% on time performance. The share of the Via passengers is ever decreasing as you can see in the bottom right corner and the front passengers are getting a bigger share and we will see this development obviously move on. And now we’re showing you our sort of a glimpse into our ACMI operation. We also had a very impressive one time performance there, 8% to 9% almost in our two operational bases in Cesenao, Moldova and Kadoviche in Poland.

We had two aircraft in operation during this quarter. The first started in May and the second one joined in June. In the second quarter of the year, we celebrated our fourth anniversary, a happy day. And yes, good to celebrate. We also celebrated two inaugural flights, one to Faro in Portugal, our fourth destination in Portugal if we count Madeira.

And then Antalya in Turkey, really our first venture into Asia. Also in the second quarter, Play sold $20,000,000 worth of a convertible bond. This was a conclusion of a process that started a couple of weeks earlier whereby it was announced that there was a plan to delist the company and increase the capital in a delisted company, but ended up slightly differently as has been announced previously. So with a $20,000,000 bond issuance and we have in just over a week’s time we have a shareholders meeting that will pave the way for the issuance of this bond later this month. We are also proud to present to you a very impressive NPS score or Net Promoter Score of 54.

I doubt you’ll find a much higher score with any airline in the world jumping 74% from 31%, a still very respectable 31% last year. So we’re thrilled that our passengers are so happy with us. So we’re happy back. Also we can proudly remind you that we reached an agreement with the labor union that we are dealing with EFF or Istlas Kaflusztieta Vilaiv. So there were renewed contracts both with the cabin crew and the flight crew.

And so I’m thrilled that we reached this agreement after honestly quite a few months of huggling back and forth. And I think we can all now lay to rest any notion of this labor union not being a proper one. The results of the agreement are the agreements are more or less in line with the sort of general labor agreement that were made last year as a general rule in Iceland called We can also tell you about our good staff that unfortunately we are seeing a reduction in the number of our employees. This is obviously a direct result of the changes in the business model that we have been presenting first in October and then since then and ever since then. So I hope it’s not a surprise when news of reduction in staff here at Play hits the news.

It would be odd if that was not happening with our own production going from 10 aircraft down to four. This is happening through temporary contracts expiring, some staff resigns and then there are unfortunately some layoffs. Now on to the financial results. So here we see some headline numbers that we will dig into in the next few slides. So we see a $6,000,000 and 8% decrease in revenue between second quarter of last year and second quarter of this year reflecting basically just the changes in our schedule.

There is less revenue and less cost in operating ACMI for other operators as we don’t assume the so called DOC cost or direct operational cost fuel and so forth. And so revenue being down slightly should not be a surprise, neither should the financial performance be as we have already issued a statement saying that we are slightly worse than last year. So last year was minus $6,000,000 this year is minus $9,000,000 So EBIT down by three point some million dollars and we will dig into that a little bit deeper later in the presentation. And regarding the balance sheet, we are reporting that we had about $12,000,000 in our accounts at the end of last quarter, which will then be enhanced by the $20,000,000 bond issue that I touched up on just a bit earlier. And then the income statement, we see the $6,000,000 revenue decrease that I was just mentioning.

Operating expenses are down €3,000,000 and hence the EBIT is lower by €3,600,000 If we look at the variance column there on the right, we see that the fuel is down. Obviously, we’re flying less for our own production. So less volume of fuel. There’s also slightly lower price of fuel. But what is hitting us on the counter is the ETS movement, which was negligible last year due to us or due to play acknowledging in that quarter the sort of ETS units being distributed to the company where this is not happening this quarter of this year.

So a big effect there. So this explains actually most of the deviation between years. We can say that the difference in ETS units more than explains all the difference in our EBIT between years. And so if you look at our income, yield per passenger is up by 4.1%, but load factor is down by 2.7%. Both of these are a reflection of the changes we are making in our offering and our business mix as the leisure destinations are ever increasing portion of our production.

They are yielding or resulting in a higher yield, but slightly lower load factor. But this translates into a higher TRASK or higher unit revenue of about 3% or 2.9%. At the same time our cost is somewhat up. But if looking past one off items, our unit cost is actually going down. So if we look past the free ETS units currency fluctuations that are or currency movements that are going against us, The rest of the CASK bridge shows a very small, but positive movement from six to five ninety five.

So it’s both that the dollar which is our the currency that we make our accounts in. The dollar is weakening and the kroner So this hitting us a little bit both economically, but also just in the accounts as we present them. And now our balance sheet, I guess the biggest movements as always are that the balance sheet is shrinking a little bit with the aging of the fleet that we are using so that the right of use assets, which is makes up the bulk of our assets is decreasing with the as the leases get closer to expiration although it’s pretty far still. And at the same time the lease liabilities are decreasing at approximately same pace.

Other movements I think we’ve discussed already, cash is decreasing as mentioned before, but being counted with this bond issuance. And the same with cash flow. Cash flow is negative about the same dollar number as it was last year. So Q2 usually not a positive cash flow quarter. And yes, I don’t think I have to remind you again that we sold $20,000,000 worth of convertible bond in the quarter to establish a cushion in the cash balance.

Fuel price has been decreasing slowly, but somewhat steadily over the past year or even a little bit more. So you can see this in the chart there on the right market price sort of decreasing quite slowly and then with the bluish line you see a more stable effective fuel price that we are experiencing usually a little bit higher than the market price as the price is going down and we are hedged. So when the price is going down, we don’t experience quite the same drop in price. But conversely, if the price gets higher, we will not experience that as sharply. Quite happy with the position we have is about 30%, 40% hedged over the next three quarters at prices that are around or lower than the current spot price.

So generally, our financial summary, so even though our EBIT is slightly worse than it was last year, we are experiencing a higher unit revenue. We’re also experiencing higher unit cost looking past the one off items. And on top of that, we our calculation show that we are impacting impacted by almost $5,000,000 by weaker dollar. And then there is also the fleet mix shift to the A320s, which is slightly higher cost, but something that we will be experiencing going forward. Having a part of our fleet on this ACMI market reduces the revenue as explained before.

We don’t pay the fuel or the direct operational cost, but get lower revenue instead. But this yes, so this lowers revenue, lowers cost, lowers our cash need, tax liabilities and gives way more stability. And so cutting out loss making routes like we’re doing now and discontinuing from the basically from the fall onwards, we’ll be focusing on the markets that have been giving us profit basically since we started. A little bit on how we see the future and for those of you who have been diligently watching this every quarter, you’re going to be hearing some of the same things over and over again. So we have a continued focus on the leisure market.

There was a 15% increase in leisure capacity in quarter two compared to quarter two last year even with fewer aircraft operating out of Keppelhoek seven to eight versus 10. And these are the profitable routes or the more profitable routes for us. The schedule out of Keppelhoek after October will without the transatlantic business, without any America flights. And basically the bulk of it will be these leisure destinations, but complemented by some Northern European or Eastern European destinations. And then we have the ACMI leasing part of the business.

This gives much more stable financial income. It also gives a much better financial income during the winter that has been honestly quite tough for us the past few winters. And so this operation began on May 12 really. And we long time ago announced that we had these four aircraft on this long term agreement. We cannot tell you that we have then since withdrawn two from our own operations or are withdrawing them from November onwards.

And we’ve already secured a contract for one of them until late twenty twenty six. And then the last aircraft is being marketed as we speak. And we have no worries that it will not be successfully placed. We can also tell you that this the change in the business mix is resulting in a stronger forward revenue than we were seeing at the same time last year. So we’re seeing higher unit revenue which is a combination of price and load yield and load.

So we’re seeing this being higher for quarter three and quarter four and basically just onwards. And we are just showing you here that we are still increasing our capabilities and learning how to optimize our ancillary revenues and we see here how those are growing compared with year earlier. So we can confidently tell you that the business plan that we have been presenting now for a couple of quarters is advancing as we have presented. The 2025 network is being optimized with a great focus on the leisure outside of Keflavik. We’ll be making a bulk of our own production.

The Maltese AOC is already established. There are a couple of aircraft already listed on our Maltese AOC. And before year end, we expect to have all 10 aircraft operating on the Maltese AOC. And to reiterate, we have finished long term contracts for five of the six aircraft that we plan not to operate ourselves during the winter. For the outlook, so we’re operating the last hub and spoke flights at the October.

From then on we’ll have four aircraft in operation out of Kalog. Full shift of the aviation part of our business will be moved to Malta before end of the year and resulting in a sort of eliminating the dual cost that we’re experiencing now having two AOCs, one in Iceland and one in Malta. And then once everything is Malta, we’ll be experiencing a lower operational cost base down there. Commercially, we are seeing the forward unit revenue trending positively for all quarters that we see. And the aircraft dedicated to our ACMI business are enabling us to garner to get stable revenue and a much better utilization of the fleet than during past winters.

Financially, we can say that the quarter three net income is expected to be in line with last year despite one aircraft being in extended maintenance unexpectedly. So 10% basically decrease in our production capacity being taken away. And another one was actually away for three weeks due to a hail incident that has been reported. Regarding next winter, now it’s August, so winter is almost upon us here in Iceland. We are expecting to see a dramatical change in fortunes.

And so if we take quarter four in 2025 and quarter like first quarter twenty twenty six, we’re expecting to improve our financial performance over that period by somewhere north of twenty five million dollars And then we are expecting to be profitable in 2026. And so to end this, we can confidently say that we are progressing as expected. We are on track. The leisure part of our business is growing and we’ll be taking it more or less over. And we are having our long term ACMI business being established pretty well.

We are still in this transitional period. So having and having some sort of temporarily financial impact along the way. Very strong operational performance. Our unit revenue is up in last quarter and adjusted for one off items. The unit cost is also down, but there is some sort of aircraft maintenance delay, FX development, ETS unit stuff and so forth.

That’s throwing the numbers a little bit off track. We are seeing our cash position being strengthened through the $20,000,000 convertible bond that was being backed by the largest shareholders of the company and some institutional investors joining forces with us. And so our cash position remains solid despite these one off items. And our business looks good going forward and the company is stable. I think this is where we end.

As always we we’re open up to questions. And I see we already have one. Is Play planning to launch any new destination from Iceland in the coming quarters and what regions are you targeting? Okay. So I can’t really tell you what and when we will announce regarding new destinations, but we will certainly in the not too distant future be announcing new destinations.

I mean we are the company that is like that keep on giving Icelanders new and exciting destinations like I mean we are having two destinations in Morocco next winter, Antalya in Turkey. The destinations that our competitors are not offering and we will continue to offer exciting new destinations. How do the forward booking for the quarter three and four look for the Icelandic market? So I’m not entirely sure if the Icelandic market means to Iceland or from Iceland. But I want to say, so we can say that in past October when we only have four aircraft in operation and are no longer doing the hub and spoke business, We’re only doing point to point.

It’s going to be we’re expecting it to be somewhere something close to two thirds of our passengers being flying from Iceland or their trip starting in Iceland and then mostly coming back as well. And a third the other way around. So it’s a from market and a to market. So a third of our customers will be tourists to Iceland and two thirds Icelanders going abroad. We are actually experiencing both of these markets pretty good.

We don’t see any trauma within the Icelandic economy or the Icelandic consumer. So the bookings are looking pretty good, pretty good. And I think this summer and this year tourism wise in Iceland will be also pretty good. How much revenue are you expecting annually from ACMI in 2026 or I guess from 2026 onwards? And do you anticipate further fleet reallocation toward Lululemon?

So how much revenue are you expecting annually from ACMI in 2026? And do you anticipate further fleet reallocation toward ACMI beyond the current six aircraft? So we have on our website a presentation that was made when we were in this well first this sort of takeover thinking and then when we were selling the bond. And if I remember correctly, it’s a little bit north of $100,000,000 that we’re expecting annually from the ACMI business. But it’s there somewhere on the website.

We don’t expect to allocate more than six of the 10 aircraft we currently have to this business. That does not mean that I don’t see us growing in the ACMI business but that would then be through sort of play sourcing more aircraft. I can definitely see that happening but I don’t see us decreasing from the four in Iceland. Any more questions? No, we don’t seem to have more questions.

So if you don’t, then I thank you who took time to watch and listen. Thank you for your time. Until next time.

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