Ryanair Holdings plc

Good morning ladies and gentlemen, you're welcome to the Ryanair Q3 results presentation. I'm Michael O'Leary, I'm the Group CEO and I'm joined this morning by Neil Thorne, our Group CFO. You'll have seen the strong Q3 numbers we published this morning on the Ryanair.com website. We reported a Q3 net profit of £88 million up from a Q3 loss in the prior year. We'll take that as right and we're going to run straight through the slide presentation which we'll move to now. As you will see, Riley remains Europe's favourite airline group. We have the lowest costs, we have the lowest fares of any airline operating across Europe. We're number one for traffic, 154 million guests, up 8%. Number one for coverage. Lower growth is driving slightly higher fares both this winter and we think that trend will continue into the summer of 2020. E-airline failures and sales reorganisations are accelerating. We've seen that trend over the winter period. Ryanair is proud to be Europe's greenest, cleanest airline and we're about to invest upwards of 20 billion in a fleet of new Boeing aircraft which will significantly increase the amount of passengers we carry per flight by reducing fuel consumption. Ryanair is and remains the lowest cost operator in Europe and we will be the structural winner. This site is familiar to everybody. It sets out our 82 bases, 241 airports, and I would draw your attention that in summer 2020, we have new routes in Katowice in Poland, Zadar in Croatia, a new country in Armenia, and in total, we'll offer over 111 new routes this summer. We continue and commit ourselves to offering Europe's lowest airfares, which is why other airlines, our competitors, can't compete with Ryanair's prices, nor can they compete with our costs. Other airlines claim to have lower costs on some random or chasm basis. It's simply not true. If you look and compare us on a unit cost basis, per passenger excluding fuel, we beat everybody. We're significantly cheaper, for example, than EasyJet on airport and handling costs, about one third of their costs. And in aircraft ownership, we're significantly cheaper than Wizz. In total, however, Our unit costs ex-fuel are more than 34% lower than our nearest competitor, which enables Ryanair to continue to grow off of lower fares than any other airline and sustain those low fares.

Neil, the results. Yes, Q3 showed a strong performance. Guests were up 6% to 36 million customers. Revenue for passenger performance strongly at 13% improvement. Thanks to strong close-in bookings on Christmas and the New Year, we saw a 9% increase in average fare. and priority boarding and reserve seating continue to drive a strong performance in our artillery revenues which were up 21%. Unit costs, despite the fact that we haven't got any masses in our fleet, were only up 1% in the quarter and as Michael already said we recorded a profit of £88 million in the quarter which compares to a loss of £66 million in the prior year. Interestingly our earnings per share is tracking ahead at that thanks to the buybacks that we've been doing over the past year.

In terms of current development, so clearly the MAX 200s are delayed. Boeing themselves are saying that the return to service, they expect the grounded MAX to return to service in June. The certification of the MAX 200s is running at least two months beyond that, so frankly we're too busy in July and August, so we've now reduced, cut back our summer 2020 schedule, taking out the 10 MAX aircraft we had hoped to receive, and therefore our growth next year will be slightly lower, but that should help the underlying airfare proposition this summer. Our cost leadership is being maintained, as Neil has said, despite the fact that we don't have 55 MAX aircraft in this winter's fleet. We're still seeing a tremendous unit cost discipline up only 1%. We believe the slower capacity growth by Ryanair and our competitors and higher fuel will continue to drive consolidation. We've seen that this winter with the failure of Thomas Koch and Adria, among others. There will be slightly higher losses due to the price war with Lufthansa subsidiaries in both Germany and the Austrian market. We believe they are engaged in low-cost selling. We are the lowest cost operators and we'll continue to meet and beat them on price. We're continuing to make significant environmental progress and we're pleased to announce today we've appointed our first Director of Sustainability who will be the focus of our delivery of these ambitious environmental targets. Of the 700 million shared buyback, we have about 440 million euros now completed. There's about 260 million to go. We expect to run that programme out slightly longer now, completed by about the end of July. And as you would have seen in early January, we raised our full year guidance from an old range of 800 million to 900 million. The new range is now 950 million to a billion and 50 euros. The max update. So we have 210 aircraft on orders. They will be delayed now until the winter of 2020. And that means slower FY21 growth. We're reducing it from 162 million to probably about 160-156 million over the next 12 months. Most of that growth will be delivered by the additional A320s in Lauda. It has led, regrettably, to some base closures this winter because we've had a constrained capacity with fewer aircraft. So we've closed bases in Arecife, in the Canary Islands, Belfast, Hamburg, Las Palmas, Nuremberg, Stockholm, Skata and Tenerife South. We've frozen our PDP payments to Boeing. We do want to restart those PDP payments, but only once we have certainty on our max delivery programme. We continue to look through the current noise and we believe this is a great aircraft. it does carry 4% more passengers per flight and 16% lower fuel consumption. Our senior pilots, our training pilots have been in the MAX simulators, they've been in the NG simulators, we recreate and they're very confident that this is a great aircraft, it handles brilliantly and that our customers are going to really like it when we start taking it on board. But the result of this delayed delivery means we're now moving out our target of 200 million guests will be delayed from currently FY24, it will now be FY25 or FY26 depending on when we can take the deliveries of all 210 of these aircraft. Consolidations continue. In recent months we've seen the failure of Ernst Airlines in Italy, Adria in Slovenia, Thomas Cook, the charter airline, has been the big failure last autumn. TAP is currently for sale, so is Croatia Air. Aer Europa and Condor have been sold. Alitalia, Flybe and Tarim are now in receipt of state aid. And even in Vienna, where Lava Motion is losing money, we've seen Eurowings significantly cut back their programme. In fact, they're closing their Vienna base. Level has cut back its programme and EasyJet has failed to grow. The ladder losses have increased marginally from 80 million to 90 million this winter, but it's entirely an average fare issue. Fares have been lower than expected and significantly lower than budgeted. That's because it's engaged in a freight war with Lufthansa subsidiaries in both Germany and Austria who are engaged in below-cost selling, and both Eurowings and Austrian Airways are losing money themselves. This year, Lada will carry about 6.5 million guests. We expect that to grow in the next 12 months to about 10 million guests. This summer, the fleet will rise from 23 to 36 aircraft. with most of that growth taking place in Vienna, the main base in Vienna, which will also open a fifth base in Zadar this summer. And as a result of those investments for the longer term, losses will grow from 80 million to about 90 million euros this year. The management team are now engaged in a line-by-line detailed cost review and are continuing to roll out cost reduction measures through this winter and moving into next summer. In terms of our environmental proposition, we are the first EU airline to publish our monthly CO2 emissions. We've now appointed Thomas Fowler as the Director of Sustainability. He will be charged with delivering the very ambitious targets that we've set out in our environmental statement. We are already one of Europe's greenest airlines. Passengers switching to Ryanair from Hyfair legacy European airlines can reduce their emissions by up to 50%. We're not content with that. We have a plan to cut our emissions further by another 10% over the next decade and much of that will be delivered by the Boeing MAX aircraft deliveries. We've committed ourselves to being plastic free in five years time. We're ahead of target now. We're up to 60% plastic free both in head office and on board. We're raising the voluntary carbon offset. This summer from April it will rise from €1 to €2 per flight. It doesn't offset all of our carbon emissions, but it is an indication for those customers who want to offset or make a contribution towards the carbon offset of their flights can do so. And critically, we're on the dawn of taking delivery of 210 new Boeing 737 aircraft, which will cut our fuel consumption and cut our noise emissions while carrying 4% more passengers.

Niamh, do you want to say the guidance? I will, Michael, thank you. So as guidance to the market on the 10th of January, we expect profits being a new range of 0.95 billion to 1.05 billion. The moving parts in there, as you can see our guests, our traffic increased by 8% to 154 million. Revenue per passenger, thanks to the strong performance on auxiliaries and slightly better than expected average fares. will be up approximately somewhere between 3 and 4%. Unit costs ex-fuel will be up just 2% and that's with no maxes in the fleet this year. Our fuel bill at current spot prices will be somewhere in the region of about £440 million higher than last year. So a good performance for the year. This of course, as is always the case, is very much dependent on close-in bookings for the rest of the quarter and the absence of security events. And before anybody asks, we won't be giving any guidance this morning. We'll do that on the full year in May.

Okay, now we'll open for questions and answers.

Revenue per passenger was up 13% in Q3.

Why? We had stronger closing bookings over the Christmas and New Year holiday period at higher than expected airfares. Average fares in the third quarter were up 9%. That was supplemented by very strong performance on ancillary revenues, which were up 21%, largely as a result of the success of our priority boarding and assigned seating services.

Will the ancillary performance continue in Q4? We expect them to continue to perform well, but they won't be growing as fast as they were in prior quarters. We've now annualised the bag policy that we brought in November 2018, that annualised in November, but we would anticipate that we would continue to grow ahead of traffic growth. We're working now hard with our labs on the likes of personalisation, increasing conversion and revenue. How are fares performing in Q4?

Bookings at the moment are only about 1% ahead of where they were the same day last year, at modestly better than expected airfares. However, we would caution last year's Q4 that the comps are particularly soft, it was a particularly weak period, so we would continue to be cautious. And we don't have any presence of Easter at the back end of March.

Is the use improvement line-air specific or improving environment?

It's a combination of the two. Clearly the capacity coming out of the market has been helpful. We've seen a number of consolidations and failures and of course the max deliveries haven't made their way into Europe over the course of the last year into our fleet. We've taken a number of steps ourselves to reduce the underperforming bases and routes over the winter and we're also seeing the benefit of the new 10kg bag, product of checks 10kg bag that we introduced last year in the schedule revenue numbers

Are there any new developments from that? LAMS effectively rolled out the new digital platform in November. We've seen that continue to deliver superior conversion on some of the optional customer services like priority boarding and reserved seating. LAMS is now focused on increasing personalisation, particularly of the ancillary offers to guests. And car rental became our new CarHire partner in late 2019 and we believe they will help to grow revenues strongly in the CarHire sector or segment over the next three years.

How did the costs perform in Q3?

Really well. We saw a 1% increase in unit costs ex-fuel. The reasons for the increase are staff costs where pilot pay increased are continuing to annualise. We've also seen a slowdown in resignations and an increase in crewing ratios due to the non-delivery of the MAX aircraft. The MAX is also having an adverse impact on our maintenance costs as we were flying over aircraft for longer and having to shop for them more frequently. On the plus side, all the hard work that our Optum engineering team have done over the past year to improve on-time performance, which is now running at over 90% excluding ATC, led to a great improvement in our EU261 compensation and that's thankfully down to the new handling arrangements in Stansted, in Poland and in Spain.

Can you update on your fuel hedging?

Yeah, as you know we're 90% hedged in the current year to the end of March 2020 at about $71 per barrel. We took advantage of the recent dip in prices so we've now announced that we're 90% hedged for FY21 at a fraction over $60 per barrel.

Have you seen any customer reactions to the environmental process recently?

Yes, our flights are fully booked, 96% load factors and we're about 1% better booked than we were at this time last year. I think a big element of this is people realising that they can halve their CO2 emissions by switching from the legacy carriers to Ryanair. We have the lowest CO2 per passenger kilometre off any airline in Europe and indeed more of our customers, over 3% of them now, are opting for the voluntary carbon offset with a particularly high percentage of our German customers doing so.

You appointed a director of sustainability in December, what will they do?

His primary task, immediate task, is going to be improving fuel efficiency and to develop sustainable, lead our project to develop sustainable aviation fuel supplies into the future. He's also charged on a monthly basis with reporting on our ambitious emissions and green initiatives that we set out in our 2019 environmental policy document, which has the full support of the board of Ryder Holdings PLC.

Is there any update on the environmental taxes?

Well the French tax has already come in in January, the German with APD which is an 80% increase comes in in April of this year. I think an opportunity has been missed here to reflect and reward high performing airlines like ourselves with high load factors and young fleets with relatively low fuel burn and instead exempting connecting traffic for legacy carriers, which tends to burn more fuel. I think a lot of people miss the fact that Ryanair customers are paying over 11% of their ticket price in aviation taxes already, which is about 630 million on an annualised basis. So there's a big opportunity here. Aviation accounts for 2% of CO2 in Europe, which compares to about 6% on shipping, but there's a big opportunity here to encourage airlines like ourselves to invest in new technology like the MAX which has a 16% lower fuel burn rather than exempting connecting traffic and effectively giving subsidies to legacy carriers.

How would the group airlines develop this?

They are developing strongly. This summer, in the summer of 2020 for example, Lauda will grow to 36 aircraft in the fleet. It will open a new base at Zadar. Buzz in Poland will have grown its fleet to over 50 aircraft, 7 of which will be in the Polish charter market. The Balance will be flying and operating our sub-services for Ryanair at most of our Central and Eastern European bases. And Air Malta is growing strongly. It is taking over most of the Ryanair bases in Italy, Germany and France and will rise to a fleet of almost 100 aircraft by the summer of 2020.

Would you consider M&A?

It wouldn't be the first thing on our list. We plan to grow organically over the next few years with 210 aircraft coming into the fleet and that's what we do well. That said, I think there will be opportunities where this competition will overlap. as more airlines either go out of business or consolidate over the next number of months and years. We already have a process in Italy where Alitalia are up for sale, TAP in Portugal and recently we've seen the likes of Ernest Airlines in Italy who have business. So there will be opportunities but we'll primarily grow organically.

Mike, with Eddie Wilson and the other airline CEOs now in situ, what's your day-to-day focus?

Pretty quickly my focus is four key areas. One, management development, getting the new airline management teams in place and working well. Two, driving cost efficiencies and really charging up the group with delivering on cost-cutting initiatives. the timing and delivery of the MAX aircraft and the Boeing relationship recently back from Chicago where we met the new team in Boeing, and fortunately capital allocation going forward. Where should the aircraft and the capital best be invested? Who can deliver us the lowest cost lift and the most efficient prices?

Is there any update on the MAX aircraft?

It looks now as if it will be the middle of the year before the MAX returns to service, which for us sadly means we won't see any MAXs in our fleet this summer. We're looking at least September or October before we take delivery of the first aircraft, which means we're looking at a 2% increase in traffic this year, which will be delivered primarily from our Airbus fleet.

Boeing has closed the 737 MAX production line. Will this impact your long-term growth?

We can delay it. There's two issues here. First thing, we're now running 12 months behind the original delivery schedule. We had hoped to have 55 aircraft in the fleet for the summer of 2020. We'll have none. I think what's likely is that we'll push out that delivery profile with Boeing by at least 12 months. So we would hope to get 55 aircraft in for the summer 21 schedule, 22, 23 and 24. At best that means we will have to kind of roll forward. Our plan to reach 200 million passengers per year was probably going to be today at least 12 months, possibly 24, so we're now about either FY25 or FY26.

You closed some bases this year due to the max delay. Is there a risk of more closures? It can never be ruled out. How quickly can you take max deliveries when the aircraft is all grounded?

Well, we can take them reasonably quickly because we're one of the few airlines that has its own Boeing MAX simulators. But the challenge for us, we've never taken more than eight aircraft in a month before. That's really as many aircraft as we would want to take. And so I think our cap would be taking eight deliveries a month and no more than 50 aircraft in time for the next summer peak. So I think it's reasonable. We're working on a plan now, 50 aircraft for summer 21, 50 for summer 22 and thereafter.

How are the talks with Boeing going?

They're going well. We've been to Chicago to meet the new management team. Our focus and theirs is to get the Boeing MAX back into service as quickly as possible, hopefully by the end of June this year. Then to certify the MAX 200s, which are the stretch versions that we take delivery of. And we would hope to take the first deliveries of those in September or October of this year. That is more than sufficient time for us to take 50 aircraft for the summer of 2021. We are having discussions then with Boeing both on the pricing of those aircraft and also on, you know, Boeing reimbursing Ryanair our costs and losses for these delayed deliveries. And those discussions continue, but they can't really be finalised until we have a revised delivery schedule that's, you know, real and credible because the aircraft are back to life.

Neil, when is the impact of IFRS 16 lease accounting standing on your balance sheet?

It was fairly modest around there, only 6% of our fleet is leased at this point in time. So the impact at the end of the quarter was 230 million increased for our next debt. In fact our next debt having taken the impact of IFRS 16 and 370 million euros of share buybacks was just 700 million at the end of the quarter.

What is your capex guidance for FY20 and FY21?

It's very difficult to be certain on the CapEx guidance at the moment until we have a certain, or you know, someone to reassert some confidence or certainty over the max delivery programme. Clearly we have postponed all PDP payments because of the delays. clearly PEDOS PD payment will restart once we have a schedule of deliveries which we hope will start as early as September or October of this year and then we'll update the market at that point in time with an up-to-date view or outlook on our CapEx for the next number of years.

Yeah, I think that's fair and we're probably going to be into paid CapEx over the next 18 months but we'll give you more colour on that in May. How is the buyback progressing? It's going well, we're about €440 million through the buyback at this point in time. However, as we wait for firm delivery schedules on the max and as we start to focus on the repayment of debt, particularly our first bonds in 2021, we think we'll slow down the buyback programme. So this one will run out to the end of July and then we'll start to focus on debt because we have an opportunity over the next 18 months. to pay down about 1.3 billion of debt, which will strengthen up the balance sheet and take some of the more expensive interest off the P&L, about 2% interest rate. So that again will be positive for the numbers coming through.

Can you update on FY20 guidance?

Yeah, we guided on the 10th of January, so we expect our profit after tax to be in a new range now of 0.95 to 1.05 billion. Based on current trading, we're probably somewhere close to the middle of that range. Traffic will grow by about 8%, 154 million guests. Our fuel bill will be up about 440 million on a full year basis. Unit costs ex-fuel will be up just 2%. It's like the fact that we haven't taken delivery of any maxes yet. And depending on where close in bookings end up, We think revenue driven by the strong ancillaries will be up somewhere between plus 3 and plus 4% on a full year basis and this as always is predicated on no unforeseen events in the market.

Can you provide any guidance for FY21? No, it's far too early still to be looking at guidance for FY21, we're still working on finalising the budget, we hope to have that done maybe in the next month or two but it's I mean, it's a movable feat based on the outcome of the MAX delivery discussions. I think we would hope to be in a position to update the market at the time of the full year results in May, but again, it would be heavily driven by the date on when we take delivery of the MAX aircraft and how many MAX aircraft we can take over the next financial year to March 2021. Michael Nielsen.