Ryanair Holdings plc

Hello and welcome to the Ryanair full-year results conference call. Throughout the call, all participants will be in a listen-only mode. Afterwards, there will be a question-and-answer session. And just to remind you, this conference call is being recorded. Today, I'm pleased to present Michael O'Leary, CEO. Please go ahead with your meeting.

Okay, good morning, ladies and gentlemen. You're welcome to the Full Year Results Conference call. You'll have all seen this morning we released the results at 7 a.m. together with a Q&A video with myself and Neil Saar in the group CFO. So we'll take it off. This is great. I'm joined here in Dublin by the full team and pleased to welcome Tracy McCann here, who's also been appointed in recent weeks as the CFO Brian Ayer-Dak. Tracy, you're welcome and congratulations on the much-deserved appointment. A couple of quick thoughts on this. You're seeing today or this morning's numbers, you know, we were heading for a terrific full year to the end of March 2020. Had March not been disrupted by the COVID-19, it's likely we would have seen traffic grow to about 154 million passengers and full year net profits would be towards the upper end of the range, somewhere between a billion and a billion fifty. As it was, COVID and the government mandated groundings of the fleet through from essentially mid-March. meant that we carried 149 million passengers, up 4% on the previous year, and profits came in at the higher end of the current rate, a tad over a billion euros. Much, however, of what happened last year is obviously now historic, and so I won't dwell on it. A couple of things on the COVID situation, just a couple of key thoughts. Clearly, we're grounded and expect to be grounded fully through April, May and June. We're guiding that they, you know, thanks to significant cost savings and cash preservation measures, we think there'll be a Q1 loss somewhere above 200 million, but under 300 million. We are already, though, have announced that we expect to go back to some level of flying from the 1st of July. We are promoting at the moment about 1,000 flights daily, which would be about 40% of our normal operations. We took considerable comfort from the evolving situation over the weekend where the Italians have returned or opened up the economy to tourism again from the 3rd of June. They have removed in its entirety this utterly ineffective and nonsensical 14-day isolation, which no government has yet been able to explain how it operates or how they would even police it. We are pushing hard, though, for effective health measures, and we think that comprises generally face masks in all public transport situations, in busy train stations, undergrounds, airport terminals, and onboard aircraft. Face masks are effective at eliminating about 98.5% of the risk of the spread of COVID-19, and it seems to me it's the only way you could allow most of our economies to recurrent some kind of activity during the summer months. Already last week, since we announced that, we've seen a significant spike up in bookings. Now, I wouldn't want to get too excited, but this weekend, for example, our bookings were up 60% over the previous weekend, but that was off a very small base. But we are seeing a significant number of hits and surges over the weekend, particularly, I think, from families looking at going on the two-week summer holiday from Northern Europe to places in Italy, Spain, Portugal, etc., And in all of those countries we've seen the cases of COVID-19 are significantly lower in the beach and the resorts than they are in the heavily populated cities. So we would hope that there will be a reasonable relaxation of restrictions and that they'll wipe out, that they'll completely remove the things like 14-day isolation, which are bonkers and unimplementable anyway. over the next couple of weeks and that there would be a reasonable return to passenger movement from 1 July onwards. It's still six weeks away. We haven't yet begun to aggressively price promoters. What we're doing at the moment from last week and this week is encouraging the health measures, health prevention measures, hand sanitization and face masks. The concern, I mean, I think if you put this in some context, clearly there's going to be a lot of short-term pain in the airline industry. We would be lucky, I think, if we see a 50% load factor through the second quarter. We are expecting maybe a 75% load factor in the winter, but we're guessing and we're making this up as we go along. We are saying now that the traffic for the 4U will be less than 80 million passengers, but we really can't put an accurate figure on at the moment. Our gut instinct, though, and it's something we share generally, is that once people begin to move, is that the traffic will return pretty quickly because there will be aggressive price stimulation both by the airlines, by the tourism providers, the resorts, the hotels across Spain, Portugal, Italy and Greece. They will try to rescue what's left of their tourism season on the back of price. But that also means that while we're looking at a reasonable return to traffic volumes, we think it will be on the back of much lower airfares and yields. We're really flying blind at the moment. We hope to be able to go back flying on the 1st of July. We think that's reasonable. We think that the traffic volumes will return pretty quickly, but on the back of pricing. And that's why, honestly, and I know the first 15 questions on this call are going to be, what do we think the yield downturn will be for the year and the profit loss? We have a deposed notion, so please don't ask us. But what we can give you is what we think we're doing on Kite. Over the medium term, we see this as a huge opportunity. Ryanair has entered this with a number of other airlines in a well-managed situation. We had 3.8 billion in cash on the balance sheet at the end of March. We're up to 4.1 billion of cash today. Admittedly, most of that was the 600 million drawdown from the UK government and transparent loan scheme. Our cash burn is about 60 million a week. About three quarters of that, about $45 million of that is the fuel hedge payment. So that actually, if you strip that out, it will decline as we move through the year. In actual fact, the cash burden is down to almost zero, not quite, but close to zero, which means we can continue this in this environment for a year or two at this point in time. Obviously, we want to get the business back moving. We think as long as we could get to a 50% or 60% load factor on flights, we'd be operating close to break-even. But again, that much depends on what assumptions you make on yield and on ancillary sales as we return to flight. Other than that, the big challenge though, so over the medium term, there's a huge opportunity here. We're going to face into a number of years of trading where we'll have much lower oil prices. Airports will be very aggressive because they've lost a huge amount of traffic. They will be introducing very significant discounts for growth. We're already in active negotiations with the airports on those stimulus measures. Our payroll bill will be a lot smaller. One of the tragedies of this is, I think it's inevitable, we are facing very significant job losses at the front end, pilots and cabin crew. We'll only carry 80 million masters this year. That would be about 50% of our normal volume. There's simply no way that we can continue to employ the numbers of pilots and cabin crew we do, and they are going to be broad spread redundancies, pilots and cabin crew in countries all over Europe, the UK, Spain, Italy, and Spain, Italy, and some of the other large countries who've already initiated that process. The unions, as usual, are kind of sticking their head in the sand and looking for more information There is a lot more information you need. We're facing an existential crisis in the airline industry. So there's going to be job losses and pay cuts. And if we don't get agreements on pay cuts quickly, there will be even greater job losses. That will be accentuated later on this week when in Vienna, we've already announced that we will close the Vienna A320 base if the union and the Verdi union don't agree to revise T's and C's for pilots and cabin crew in Lauda. We don't expect them to because at the moment they represent about 6,000 members in Austrian Airlines. We had a first meeting with them last week, which was a shambles. They wasted 40 minutes arguing and discussing why our proposals were in English language and not in the German language. So we explained that we don't have time to be pissing about over languages. 300 job losses and a base closure, whether it's in English or in German, but still have the same impact on our cruise pilots and cabin crew in Vienna. We're pleased and heartened by the support we've received from our pilots and cabin crew in Vienna. As of this weekend, over 95% of the pilots and more than 66%, more than two-thirds of the cabin crew, have already signed up for these changes. The tragedy, though, is that the structure of labour agreements in Austria means, unless it's signed up by the Union, the pilots and cabin crew can't agree to these changes. So we have massive and overwhelming support from the Lauda pilots and camp group for the changes. But an Austrian Airlines Union can effectively block any of those concessions, which means in our view it's inevitable that the NA820 base will close at the end of May. The decision will be made on Thursday when the Berlin Union don't sign this agreement. The only reason it was closed was because the Verdi Union won't sign the agreement. And, sorry, the Vita Union, my apologies to Verdi, who are their German cousins, the Vita Union won't sign the agreement. And what will happen in that situation is we will not withdraw from Vienna. Vienna will be, we still have three Ryanair 737s based in Vienna. When Vienna reopens, we will fly the base using the Ryanair aircraft. And we will backfill an awful lot of the routes and flights on Ryanair aircraft based elsewhere that will now fly to and serve Vienna. So they will, in actual fact, which puts us in better shape to compete into the future with the state-aided Austrian airlines. We'll be competing with them with a much lower cost Ryanair operation than the high cost Lauda operation. But we hope that even now the Vita Union in Austria will agree these changes, which will save the pilot and cabin crew jobs in Vienna. The fundamental issue is there is a medium-term huge opportunity here. We will have lower-cost fuel, lower-cost labor, lower-cost aircraft. We are renegotiating aircraft leases for Lauda. We're also discussing with Boeing pushing back any deliveries on the Max aircraft. We'll probably extend some of our 737NG leases. Those discussions are continuing, but can't be finalized at Boeing until the MAX comes back to service. But I think you're going to see enormous cost opportunities here for the next four or five years, and Ryanair well poised to take advantage of them. The downside is we'll need to take advantage of those costs, though, because we are facing a massively distorted market across Europe, I think, for the next four or five years. The strong, well-run airlines like Ryanair and ECJS BA going into this crisis are going to emerge much more weakened and facing competition from state aid airlines, massive state aid being given to SAS, Alitalia, Air France and LaPanza. Airlines who couldn't make any money before the crisis but will now emerge out of COVID-19 vastly stronger with unlimited funds to engage in below-cost selling or M&A activity where they just buy out the competition in their domestic or regional markets. And that, I think, is going to be a real challenge for us going forward. I think we're facing a very strong return to passenger volumes, but in a very weakened pricing marketplace. And that's why it's critical that we work with the unions, we work with all of our other suppliers, airports, aircraft, etc., because there's going to be a fairly torrid pricing environment going forward for the next number of years. Alitalia this morning was approved. Alitalia, an airline, by the way, that has never made money for 75 years, has been teetering on the edge of bankruptcy for the last three or four years, has not alone been nationalized, but this morning received 3 billion in state aid from the Italian government. And to put that in some context, this morning the Italian government awarded 1 billion of aid to the Italian education system. So they seem to think that protecting the jobs in Alitalia is far more important than educating the children of Italy and shows how distorted this is going to be. Lufthansa, Air France, KLM. And by the way, it's not that we are opposed to all forms of state aid. We accept and we hold our hands up. We have participated in job payroll support schemes for the last number of weeks. We're very grateful for those schemes across all EU countries. We've also drawn down the loan that we're entitled to in the UK, arm's length transaction. We got 600 million because we're a triple B rated operator in the UK. What's different with those supports is that they're transparent and they're available to everybody. What's manifestly unfair is, for example, in France, the French government issuing some edict that says they will refund the French taxes, aviation taxes, but only to French airlines. So Air France, receives back hundreds of billions of aviation taxes, whereas we, Ryanair, we're the third largest airline in France, ECGF and others, are not allowed to receive nothing, but we're told we have to keep paying these aviation taxes. We have the bizarre edict coming out of Italy last week. Not only are the Italian government going to give Alitalia three billion in state aid, but they're also now attempting to impose the Alitalia terms and conditions labor pay rates on all other airlines in Italy. massive distortion of the level playing field, a massive distortion of competition, and a flagrant abuse by the Italian government of not just the state aid rules, but also breaching or tearing up the competition of the level playing field rules in Italy. We have no choice that we and other airlines would continue to oppose these kind of measures because they are going to distort the market for the next three or four years. However, Ryanair with a 4 billion in cash, a net weekly cash burn of about 10 to 15 million a week, excluding fuel surcharges. With a fleet of aircraft, we've got 350 aircraft entirely unencumbered, a value of about 7 billion on the balance sheet. We're very strongly positioned to weather not just the COVID-19 pandemic, but also to emerge out of that pandemic stronger, with a lower cost base, with far more growth opportunities But those growth opportunities will be in a marketplace for the next year or two where I think fares and yields will be significantly lower as we're forced to compete with state aid junkies like Air France, Lufthansa and Alitalia who will use this money on top of the payroll support schemes and the tax refunds they're already getting to engage in below-cost selling or in massive M&A activity. A quick touch on the Boeing MAX, as I said, we now expect Boeing to tell us now that the MAX return to service will take place in North America sometime in Q3. That is between sometime in August or September. We still think there's a reasonable prospect that they would be able to deliver some of our MAX aircraft to us in the calendar fourth quarter or the first quarter of next year. These are still great aircraft. I mean, they have 4% more seats. They burn 16% less fuel. We are great fans of the Boeing MAX 200. It would be critical, I think, as well to us being able to exploit growth opportunities into the summer of 2021 that we have additional aircraft deliveries. And I think certainly David and the commercial team are in active negotiations with airports. who are very concerned about the amount of traffic they're going to lose either through failures or capacity cuts among the legacy carriers, and will create more opportunities for growth going forward. Other than that, again, as I said, for the remainder of this year, we can't give you any guidance on traffic. We can't give you any guidance on the full-year outturn, other than we expect a Q1 loss of about $200 million. Q2... based on our current assumptions, could be a break-even, small loss. But again, that's really in the lap of the gods. But the more we see European governments roll back on restrictions in the next couple of weeks, up to about the middle of June, and we believe that we'll see further developments with the Spanish, Portuguese, Greek governments not imposing 14-day isolation, we think the UK government will also be embarrassed into saying withdrawing their 14-day isolation. When they're asked questions like, how do you ask international air passengers arriving into Heathrow and Gatwick to self-isolate for 14 days when the first thing they do is get an underground train or a Gatwick Express into the centre of London? Are you now going to ask all the passengers on the Gatwick Express and the London Underground to self-isolate for 14 days? And of course, it completely falls apart. they generally move back on to it's all science-based until you ask them, well, what was the science that says the Irish and the French can be exempted from the 14-day lockdown? Now, we think the Irish are incredibly special, but even we can't find any science that would exempt the Irish from a 14-day lockdown. So it's all just nonsense that's being made up on the hoof by the UK government. It's completely ineffective. And the concern is they're using this give the illusion or fig leaf of taking some scientific action, when really the action that we're calling for and that would be effective is encouraging people using public transport, the London Underground, commuter trains, airports, and aircraft to wear face masks. Face masks, widely used face masks would eliminate about 98.5% of the risk of the spread of COVID-19, and we think that's the way forward, not just for mass transport, but also for retail and for allowing people to move about more freely over the next couple of months. So we're encouraging that and trying to discourage idiotic ideas like 14-day isolation, which are completely unimplementable, and the UK government can't even explain where the hell you'd isolate in the first place. Sorry, that went on a little longer than I thought. I'm going to hand over to Neil to give us a couple of quick thoughts and themes on the finances.

Thanks, Michael. As you said, a relatively good year last year. I'm not going to dwell too long on it. 13% profit after tax before exceptionals. The balance sheet in very good shape was 330 unencumbered Boeing 737s with a book value of just over 7 billion and the market value well in excess of that. Cash very strong at 4.1 billion, and the work that we've been doing over the past number of months to get the cash burn down has seen us go from 200 million per week, all expenses, including CapEx and everything else out the door, down to 60 million per week, currently going out the door on average. A slight clarification on the fuel figure, it's somewhere just under about 25 million a week going out based on the mark-to-mark and depending on the spots. on an individual day. Hedge ineffectiveness, because we had hedged 90% of our fuel coming into FY21 pre-COVID, a big chunk of that has now gone ineffective as we're not gonna use that fuel. So we have an exceptional charge of about 390 million on jet fuel offset by currency, favorable currency, primarily on delayed CapEx aircraft offsetting that, giving a net charge of about 353 million in the FY20 accounts. There will be a little bit of volatility on the P&L this year as we mark to market those ineffective hedges, but that will run off over the next number of months as the hedges settle. And that's pretty much the key things I wanted to highlight, Michael.