Eva Airways Stock

Welcome, everyone, to the EVA Airways Investor Conference. I would like to introduce today's management team. President Chia-Ming Sun; Executive Vice President, Chi-Wei Liao; Spokesperson, Chen Yao-Min; Corporate Planning Division Vice President, Kai-Cheng Chung; and Finance Division Vice President, Ta-Wei Tsai.

First, I would like to invite President Chia-Ming Sun to give remarks.

Good afternoon, everyone, institutional investors and friends from the investment community. First, I would like to welcome you all on such a wonderful day, May 20. Thank you for attending our investor conference today. Our presentation is divided into 2 parts, and the first part is further split into 2 sections. First, we will invite our Vice President of Finance, Mr. Tsai, to report on our operating results for the first quarter. For the second part, our Vice President of Corporate Planning, Mr. Chung, will report on our overall business outlook, including industry trends, fleet development and operational strategies.

After the reports are concluded, we will address the questions previously submitted by institutional investors in a consolidated Q&A session.

Now let's invite Vice President, Tsai, to begin. Thank you.

Good afternoon, everyone. First, I will report on the operating results for the first quarter of this year. The consolidated operating revenue was TWD 60.516 billion, a year-on-year increase of 10.1% Net profit for the period was TWD 8.865 billion, a year-on-year increase of 40.2%. Net profit attributable to the parent company was TWD 8.268 billion, a year-on-year increase of 39.4%. Earnings per share, EPS was TWD 1.53.

Consolidated total assets were TWD 391.276 billion. Total liabilities were TWD 247.236 billion. Total equity was TWD 144.040 billion. Current ratio is 112.11% and book value per share is -- continuing with the analysis of the consolidated operating costs for the first quarter of this year. Fuel costs account for 30%. Maintenance costs account for 10% and personnel costs account for 22%.

Depreciation and amortization. Station and ground costs are 10%, passenger service costs are 8% and other costs are 6%, which are mostly consistent with the same period last year. Regarding the detailed breakdown of fuel costs, the average price of aviation fuel in the first quarter was USD 85.56 per barrel, a year-on-year decrease of 6%. Fuel consumption was 4.64 million barrels, an increase of 5%. Total fuel procurement cost was TWD 14.561 billion, a year-on-year increase of 3% -- there has been no fuel hedging so far this year.

Finally, regarding the cash flow analysis, the consolidated net cash inflow from operating activities in the first quarter was TWD 26.186 billion. Net cash outflow from investing activities was TWD 6 billion. The ending balance of cash and cash equivalents was TWD 95.057 billion. That concludes the report.

Next, I invite Vice President, Chung, to report on the operational outlook.

Good afternoon, everyone. Next, the Corporate Planning Division will report on our company's 2026 operational outlook. In this section, we will explain our first quarter passenger operation indicators, the impact of industry trends and the company's operational strategic planning in response to these changes.

First, we will report on our passenger operation performance indicators. In the first quarter of 2024, passenger revenue reached TWD 40.3 billion, a year-on-year increase of 10.7%. The number of passengers carried this quarter reached 3.67 million, up 10.1% year-on-year, with revenue passenger kilometers growing to TWD 17.5 billion, up 5.7%. The North American region remains the area with the highest share of passenger revenue. What is worth noting here is that while we are expanding capacity, our unit revenue still reached TWD 2.74, a growth of 0.9% -- the passenger load factor further increased from 81% last year to 84.1%. This demonstrates that through precise yield management, our company has achieved the goal of simultaneous growth in both capacity and yield.

Next page, please. Next, we will look at the passenger load factor trends from 2024 to 2025 (sic) [ 2025 to 2026 ]. From the monthly load factor trend chart, we can see an upward trend throughout the first quarter. Although February had fewer days, driven by the Lunar New Year and the onset of the peak travel season, revenue remained strong. In March, due to the outbreak of the Middle East conflict at the end of February, market demand for stable flights surged, driving a spike in bookings on European and American routes. The monthly load factor surged to 89% and revenue reached TWD 14.1 billion, demonstrating that our flight arrangements are well positioned to capture high-quality passengers. We successfully converted external geopolitical uncertainty into tangible results.

Next page, please. Next, let's look at the performance by region. Long-haul routes saw thriving demand due to geopolitical tensions. Passenger revenue grew by 6.3% year-on-year to TWD 17.3 billion (sic) [ 17.3% ] . Northeast Asian routes continue to show excellent performance. Travel enthusiasm remains high. Revenue grew by 15.7% compared to the same period last year, while Hong Kong, Macau and Mainland China routes also showed a strong year-on-year growth rate of 16.1%. This echoes the yield management we mentioned earlier, allowing us to maintain revenue growth across all markets. Combining these factors, our company's first quarter passenger revenue of TWD 40.3 billion has hit a record high.

Next page, please. Next, we will report on our cargo performance. In the first quarter, cargo revenue was TWD 13.2 billion, a 4.1% increase compared to the same period last year. Cargo tonnage reached 200,000 tons, a slight increase of 2%. Both cargo volume and unit revenue showed growth. Cargo unit revenue increased to TWD 11.56, although the growth rate slightly declined by 1.6 percentage points due to capacity expansion. However, overall revenue continues to climb, reflecting our core focus on profit maximization in cargo operations and the effective utilization of capacity by balancing price and volume.

Next slide, please. Moving on, we look at the cargo revenue and unit yields from 2025 to 2026, looking at the dynamics of the cargo market. The Middle East conflict has led to longer maritime shipping routes and increased supply chain uncertainty, causing some time-sensitive cargo to shift to air freight, which boosted demand and drove up cargo revenue and unit yields in March. Furthermore, global demand for AI equipment remains strong with AI servers and related high-value equipment relying heavily on airfreight for delivery. These high unit price goods have not only supported but also stabilized freight rate levels. In particular, the transpacific routes with high AI demand account for 69% of cargo revenue, making them our company's largest source of cargo profit.

Next slide, please. Next, we look at industry trends. Looking ahead to the future, according to the International Monetary Fund, IMF report, global economic growth in 2026 is projected to be 3.1%. The overall trend is resilient and stable. Although growth in developed European and American countries is slowing, the global economic center is shifting rapidly toward emerging Asian markets, especially India, Vietnam and ASEAN countries. Their economic momentum will translate into substantial passenger and cargo demand for our company's Asia Pacific transit hub.

Next slide, please. This is the Asia Pacific Airlines Association, AAPA, data on global international passenger demand. Looking at 2026, global growth momentum is stable with the Asia Pacific region remaining above the average. Even with international uncertainties, the travel market base remains highly resilient due to inelastic demand for tourism and business travel. However, we must also face the challenges squarely -- impacted by tight energy supplies, surging fuel costs and inflation, airfreight demand may face some suppression in the short to medium term. But in the long term, we believe the Asia Pacific region will continue to lead the world as a primary source of growth momentum.

Next slide, please. Next, we look at the international cargo market. The international cargo market also performed remarkably well at the beginning of 2026. In December, global growth was 9% year-on-year, while the Asia Pacific region grew by 8%, keeping pace with the global growth rate. This wave of growth is benefiting from e-commerce opportunities, the AI product boom and the effects of tariff easing. Despite the unstable global geopolitical situation, air cargo maintains high-level volume performance, becoming the key to stabilizing our overall revenue and buffering against passenger transport risks.

Next slide, please. Next, we look at the impact of the industrial environment. At the end of February, the outbreak of the war and the blockade of the Strait of Hormuz impacted global energy supplies, leading to a sharp rise in international oil prices. Aviation fuel prices once exceeded $200 United States. This has forced many airlines to take emergency contingency measures, including reducing flights, adjusting routes to include technical stops or implementing fuel-saving practices. As of now, the average jet fuel price remains around $160 United States per barrel. This has caused jet fuel costs to surge significantly. Beyond costs, the Asia Pacific region is highly dependent on energy supplies from the Middle East. Consequently, the aviation industry is facing severe cost pressures and the risk of shortages. We anticipate that even if the conflict subsides, energy supply bottlenecks and high oil prices will persist for several months.

Next slide, please. Let's take a look at the flight capacity plans of airlines in various regions as of March this year. Naturally, due to regional conflicts and the energy crisis, there was a significant gap between the actual capacity and the original plans for global airlines in March. Middle Eastern airlines were the hardest hit. Although there are signs of a gradual recovery in capacity, travelers concerns regarding travel in that region have not yet eased. In such a market, we have assessed a sharp increase in passenger demand for stable flight services. As transit hubs in the Middle East face challenges, our stable route network can fill the market gap. Travelers are maintaining their travel plans by flexibly adjusting destinations or routes, allowing us to attract premium passengers traveling to and from Europe and the U.S.

Next page, please. Next, we move to fleet development. Despite the challenges, we are committed to continuing our fleet modernization. In 2026, one 787-9 has been delivered so far. Another one is expected to be delivered before the end of the year. By then, our 787 fleet size will reach 23 aircraft. This new generation fuel-efficient fleet is taking shape, structurally strengthening our defense against high oil prices and enhancing the competitiveness of our key long-haul routes. In addition, we will begin converting one 777 passenger aircraft into a freighter this year to add cargo capacity for next year.

Next page, please. Next, we will discuss our passenger route network layout. Expanding our network has always been at the core of strengthening our hub performance. On June 26 of this year, we will launch a direct flight from Taiwan to Washington, D.C., providing 4 flights per week. This is the first time a national airline has launched a route to the U.S. capital. The opening of this route will complete our company's layout in the U.S. East Coast. It precisely enters the political core and an economic hub where enterprises cluster. This will significantly increase our weekly flight capacity. Furthermore, we will substantially increase frequencies on high-demand routes. Milan will be increased from 4 flights a week to 7. Aomori increased from 3 to 7 flights per week. For Kobe, we increased from 3 to 10 flights per week. Incheon also increased from 21 to 25 flights per week. By the end of September, we will serve a total of 52 destinations reaching 593 flights per week, fully capturing the peak summer passenger demand.

Next slide. Next, let's talk about our cargo network layout. In terms of cargo, we continue to maintain highly efficient operations. Our freighters fly 28 flights per week to North America and 30 to Asia. By the third quarter, we operate 20 destinations with 58 flights per week. Beyond freighters, our growing passenger belly capacity also provides stable space for freight forwarders.

Next slide. The market environment mentioned earlier presents both challenges and opportunities. Affected by geopolitical conflicts, some air routes are restricted and require detours, extended flight times have gradually become the new normal. This creates structural pressure on fleet and manpower scheduling flexibility. It further increases operational complexity while fuel prices and operating costs continue to climb. Although the company has moderately raised fuel surcharges, cost pass-through to consumers remains limited due to market competition and demand elasticity. This high cost environment puts pressure on profitability that is hard to mitigate in the short term. While inflation may dampen some consumer spending, the Asia Pacific aviation market demand will remain highly resilient in the medium to long term.

Next slide. Due to conflicts in the Middle East, there is significant uncertainty in the region. Passengers originally transiting through the Middle East space restrictions, which drives transit demand and further boost demand for Europe-U.S. routes, increasing both load factors and average fares. Despite short-term external uncertainties, the company continues to advance its long-term network strategy, strengthening network resilience to maintain our overall competitive advantage. Another key opportunity lies in premium passengers. As younger generations become the primary consumer base, their focus on service quality and the overall experience continues to rise. They are willing to pay a premium for high-quality service and convenience. Meanwhile, international business activities and cross-border collaborations continue to grow, driving stable development in the global travel market.

I would like to share a figure with you here. In 2025, our business class passengers accounted for only a small portion of total passengers, yet they contributed 21% of revenue, highlighting their critical importance to our total revenue. Compared to pre-pandemic levels, the number of business class passengers has grown by 27%, with revenue significantly increasing by 60%, serving as an important and stable source of profit. Of course, due to geopolitical issues, capacity in some regions has yet to recover, leading to tight cargo space. Our company flexibly adjusts cargo dispatch in coordination with belly cargo capacity to ensure we meet freight forwarders' needs for high-value goods through block space agreements, charters or guaranteed space.

These demands have driven a significant increase in overall cargo revenue and have also supported the growth of our cargo yield. To summarize, our operational strategy will continue to focus on flexible aircraft deployment, strengthening hub efficiency and aggressively increasing revenue to address cost pressures, thereby enhancing overall operational efficiency and business resilience. In passenger transport, we are dynamically adjusting capacity and aircraft allocation, optimizing flight connections and transfer options and deploying capacity to routes and markets with clear demand. This includes opening new routes like Washington, increasing frequency on high-demand existing routes and as of today, deploying in a 330 wide-body aircraft to Kaohsiung to operate routes such as Kaohsiung-Narita, Kaohsiung-Pudong and Kaohsiung-Macau, further strengthening our hub and regional market presence.

Regarding costs, given the rises in route diversion, fuel and overall operating expenses, we have prudently adjusted pricing and fuel surcharges to reflect these cost pressures. Certainly, in a competitive environment, cost pass-through must remain disciplined. However, driven by cargo demand, the dynamic adjustment of fuel surcharges helps support stable and high cargo yields. Simultaneously, through the conversion of 777 passenger aircraft, we are expanding medium to long-haul cargo capacity to capture high-value demand for AI, semiconductors and high-tech electronic products, optimizing our overall profit structure. We reiterate that under manageable risk conditions, we will not use flight cancellations as a primary means to mitigate losses from high oil prices. Instead, we use precise revenue management and aircraft scheduling to increase revenue, addressing uncertainties in fuel prices and geopolitics while protecting passenger rights.

Looking ahead to the second half, we maintain a cautious and stable outlook, continuing to drive our network layout, flexibly adjusting pricing and strategies based on market supply/demand and cost structures and continuously increasing the company's operational resilience and long-term value. That concludes our presentation. Thank you all.

Thank you to the management team for the presentation. We will now proceed to the Q&A session. The management team will address the questions previously submitted by our guests. First, I would like to invite the President to respond to the investors' questions.

I would like to elaborate on the reports from our 2 Vice Presidents. The first part covers the operational status of our first quarter. As you have seen, our Q1 revenue grew by 10.1% compared to the same period last year. That quarter is behind us, and VP Chung just provided an outlook looking forward. We are identifying current challenges and opportunities, and I will outline our operational strategies. Regarding the questions raised, I understand everyone is very concerned about the future, specifically the outlook for this year's summer peak season. I'd like to report that based on our current passenger booking volumes, we are seeing growth of nearly 20% to 30% compared to the same period last year.

Almost every route has shown some growth, and we expect that throughout the summer, demand for study abroad programs, tourism and visiting relatives in Europe and America will continue to rise. For Northeast Asia, a favorite among our citizens, bookings look very strong. I believe we have a good chance of maintaining a load factor of over 90%. Demand for Europe remains very robust, partly linked to the Middle East. So overall booking conditions are excellent, and we expect to maintain load factors above 90% there as well. As for the U.S., bookings are currently between 80% and 90%, including our soon-to-launch Washington, D.C. route, which is seeing great demand. Regarding Southeast Asia, aside from our regular transit-focused routes, popular destinations like Bali, Dayuan and Bangkok are all expected to maintain high booking levels. That covers our summer outlook.

The second question asks if summer booking momentum has been affected by fare hikes and how the Q2 load factor compares to Q1.

Actually, that is a very good question. It contains the answer within itself. Because when I was answering the first question about our summer booking outlook, I suspect the institutional investors already knew that ticket prices have indeed risen, so they didn't ask about the impact of the fare increases. That was just a question about positioning. And the second question directly asks about the impact of rising ticket prices, which shows everyone is well aware of the price situation. Of course, looking at the impact from our current perspective, as just reported to everyone, the entire summer season has been quite strong. Stable as it is now, judging by the current load factors, everything is slightly higher compared to the same period last year. So both the load factor and the revenue look quite good.

The third question is about the fleet.

I believe our department head just introduced the status of the fleet through the end of this year. Of course, everyone also knows that we still have some new aircraft that have not yet been delivered. This includes 24 A350s, 18 A321neo's and we currently still have 12,787s pending delivery totaling about 54 aircraft. Since these are scheduled for delivery from 2027 through 2033, that is the current status of the fleet.

Additionally, there is a question that everyone is quite concerned about, which is regarding our newly added fourth-generation premium economy class, its current operating routes and its operational status. After we introduced our fourth-generation premium economy class last year, we retrofitted our existing fleet of 4 787-9s that originally lacked it. So our entire 787-9 fleet is now equipped with this fourth-generation premium economy. Aside from the short-haul Jakarta route, we have implemented it on long-haul flights, including direct service to Milan, Dallas and Vienna as well as the morning flights to San Francisco. Just as the department had mentioned, as seen on the screen, for the Washington flight on June 26, we are also using the 787-9 model.

Our fourth-generation premium economy has seen a major upgrade in both software and hardware specifications, essentially making it like a business class. It has received a lot of positive feedback from travelers since its launch. While the department head just reported that business class accounts for a certain percentage of passengers and 21% of revenue, a large portion of our high-end clientele is actually found in the premium economy sector. Therefore, the introduction of the 787-9 with fourth-generation premium economy has been very effective for the overall operation of our current fleet. I think this aligns with.

Another question concerns the closure of the Strait and whether there is any disruption in the aviation fuel supply chain.

As mentioned in the General Manager's report earlier, we all know that since the U.S.-Iraq (sic) [ U.S.-Iran ] war began on February 28, the closure of the Strait of Hormuz has significantly hindered the supply of crude oil. In fact, our aviation fuel usage is quite high, and I believe the figures were briefly reported to everyone just now. Beyond implementing various contingency measures to address these high oil prices, one critical point for us in order to maintain normal flight operations is securing fuel supply, which is a major priority we are working on. From what we see now, I believe all countries are doing their best to find sufficient fuel sources and currently, there are no issues at any of our flight destinations.

Everyone is working very hard. And for now, overall fuel supply remains normal for standard operations. Only in a few Asian countries is supply limited to existing flight schedules. If you want to add new capacity, you might face some restrictions. So overall, the current fuel supply has no impact on our operations. That concludes my report on this matter.

This mostly answers the questions from institutional investors, but I would still like to report to everyone that, as mentioned, our revenue for the first quarter of this year grew by 10.1%. April's revenue has also been announced. And if we include that, the company's cumulative revenue growth is actually 12.1% -- this indicates that the growth is even better than in the first quarter. As the General Manager reported, the outlook for the entire summer vacation is quite good. Therefore, looking at our projections for the second and third quarters, including the summer period, it appears we can maintain high levels in both unit revenue and load factors. Of course, the high oil prices caused by the war will inevitably affect profits. Although we are collecting fuel surcharges, as everyone knows, the actual amount collected to cover these extra fuel costs is limited.

We are still working very hard to increase our revenue. Regarding our operational strategies, they are as shown on the last page of the presentation just now, if that could be displayed. Yes, regarding this operational strategy, I would like to summarize this strategy briefly into 3 key strengths. The first is flexible deployment to strengthen operational resilience. Deputy General Manager, Wang has just covered the details. The second is expanding the network to enhance hub efficiency. As just reported, this includes the launch of the Washington route and deploying wide-body aircraft to Kaohsiung, where we carried 308 passengers on the 309-seat Morning Kaohsiung-Tokyo flight. I believe these wide-body aircraft represent a major upgrade for Kaohsiung in terms of service and overall performance.

Travel demand from passengers here in Kaohsiung is very strong, which is why we have increased our seat capacity by nearly 70%. Furthermore, after flying in the morning, the aircraft returns to operate flights to Pudong and Macau in the afternoon, ensuring excellent utilization rates. This is a significant service upgrade for Kaohsiung, and I believe it makes a substantial contribution to our overall revenue growth. The third point, the third strength is grasping demand to reinforce passenger revenue. Since there is currently very strong demand for air cargo, as we have observed and considering the overall development of AI, it appears there won't be a significant downturn in cargo this year, so we will proceed with our original passenger to freighter conversion plans by the end of the year.

We will adjust fuel surcharges as much as possible. As I mentioned, beyond strong bookings, current ticket prices are also trending upward. So we hope to mitigate the impact of fuel prices on our profitability by increasing passenger revenue and collecting surcharges, which is an area we are working very hard on. I would like to offer these 3 strengths as a simple summary and conclusion for all of you. Finally, I would like to thank you all again for attending our investor conference today, and I wish you all a pleasant day. Thank you.

The EVA Airways Investor conference concludes here. Thank you very much to all our distinguished guests for your guidance. Wishing all distinguished guests good health and all the best.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]