Ryanair Holdings plc

Okay, good morning, ladies and gentlemen. Welcome to the Ryanair Q1 results conference call. I'm joined this morning by our Group CFO, Neil Sorohan, and we'll move straight through. As you'll have seen this morning, we released our Q1 results for the quarter ended the 30th of June. We reported a Q1 loss of 186 million compared to a Q1 profit of 243 million in the prior year. Traffic in the quarter fell by 99% as all of our fleet was essentially grounded from the middle of March until the end of June. Our Q1 traffic fell from 42 million passengers last year to just under half a million passengers this year. Cash preservation has been prioritised by the company in the last quarter and I'm pleased to report that our closing cash balance is 3.9 billion. This will be important going forward. Cost reduction measures are being successfully implemented across not just Ryanair but all of the group airlines. and we have initiated what we believe was a very successful return to flying at the end of June. We expect to accomplish about 40% of the normal July schedule during July. As I say, we plan to operate about 40% of the normal July schedule, We hope to grow that to about 60% of the schedule in August and then hopefully, subject to there being no spikes in COVID-19 across Europe, that we would get to 70% of the normal schedule in September. One of the biggest challenges posed to us by COVID-19, apart from the fleet grounding, has been dealing with customer service and a huge backlog of refunds caused by these government mandated groundings. I'm pleased to report that our customer service team are doing an extraordinary job and we expect to have about 90% of all of the cash refund requests from customers processed by the end of July. At this time we expect the full year traffic to fall by about 60%. We'll fall from 149 million passengers last year to at best 60 million passengers this year. That will be entirely contingent on there being no second wave of COVID-19 in the autumn or the winter. And obviously, we've seen some recent spikes in places like Barcelona, and that is impacting short-term bookings. However, over the medium term, we have seen the closure of a significant number of airlines. We've seen Flybe disappear, German wings close, Level in Austria has filed for insolvency, and Sun Express in Germany. However, going forward, the competition in Europe will be distorted by the wave of state aid subsidies, or subsidies being poured by some EU governments into their inefficient flag carriers, most notably Alitalia, Air France KLM, Lufthansa. and TAP, and that is going to pose a challenge over the medium term where we're going to be competing with these flag carrier subsidised airlines who will be engaged in below cost selling. However, this poses a significant opportunity for Ryanair, the Ryanair Group of Airlines and our airlines. We are lowering our costs. We will face lower fares and yields for the coming years, but we think we have the business model to sustain it. To touch briefly on the quarter, as I said, revenue fell by 95% from €2.2 billion last year to just €125 million this year. We've managed an 85% reduction in costs during Q1, but that clearly wasn't sufficient to make up for all the revenue loss, which is why we're reporting a quarterly loss of €185 million. Our cost leadership is where we've been focusing our energies over the last quarter, and that will be vital if our group airlines are to compete against these hugely subsidised flag carriers in Europe for the next number of years. And this is what underpins a lot of the cost reduction measures we've been negotiating lower cost pay deals, modest pay cuts with our pilots and cabin crew as a better alternative to widespread job losses. And that process continues successfully, I might add. We're talking to our aircraft lessors and also Boeing about lowering the cost of the new aircraft orders we're purchasing. We're in active negotiations, but with Boeing on compensation for the delay in aircraft. And the relationships we have with our aircraft lessors, we're renegotiating monthly aircraft lease rates to reflect the harsh environment and certainly the more competitive lease market environment caused by COVID-19. We remain a devoted or committed supporter of the Boeing MAX aircraft. We're pleased to see the recent progress that Boeing have made with the test flights of the MAX aircraft. And we are increasingly confident that Boeing will achieve their return to service date in North America sometime at the end of Q3. We hope that will be sufficient to allow us to take some deliveries of MAX aircraft before the end of calendar 2020. And if that's the case, then we would be hopeful of being able to take delivery of the first 40 of those aircraft in time for summer 21 and that would be key because in summer 21 we want to be able to offer our airport partners across Europe growth potential, work with them to reverse the significant and in some cases catastrophic traffic losses that they've suffered as a result of COVID-19 and we think there's opportunities to do so. The balance sheet in Ryanair remains strong. As I said, our year-end, our quarter-end cash balance is £3.9 billion. So we remain in good shape, but clearly we're facing into what would be a difficult winter. And cash preservation and paying down debt, both to the UK government and the first bond as it falls due in mid-2021, will remain key priorities. The challenge of Brexit hasn't gone away. The UK will leave the European Union in December of 2020. We continue to hope that this will be done in a managed or by agreement, certainly where air travel is concerned. I think the experience of the UK during the COVID-19 outbreak and the priority with which they gave the return of air bridges will hopefully serve as a lesson or a reminder that the UK needs to have open air access with the rest of the European Union and will spur at least a trade deal at least that will cover the air travel segment. However, if there is a hard Brexit, we have a series of airlines, most of which have European AOCs, and therefore we think we'll be far less impacted than UK AOC holders will be. In terms of outlook, I'm afraid it's too early to say. We really can't give any guidance for the full year. We think 60 million passengers for the full year at this point in time is an ambitious target. The risk to that is on the downside if there are spikes in COVID-19, particularly towards the end of the autumn or early winter as flu season. spreads across Europe, we may suffer some cutbacks on that. That traffic will only be delivered on the back of lower airfares and I'm convinced that in actual fact the way to get Europe air travel moving again is with lower fares and price stimulation and that's why it's utterly key that we negotiate lower costs across every cost line with our people, with our aircraft suppliers, with our maintenance providers and that process is underway. Those are the opening remarks. And I'm now going to take you through, myself and Niamh, take you through the quarterly side presentation. So unchanged in many respects, we are the lowest fare, lowest cost airline group in Europe. We're number one for traffic. While that meant 149 million passengers last year, we think we'll do well to carry 60 million passengers in the current year. We remain the number one airline for coverage across Europe, 240 airports, over 2,000 routes. We have, I think, delivered a very successful return to serve flight services from the 1st of July, but that return and that recovery of our flight schedules remains dependent upon the European government's continued to successfully combat the spread of COVID-19. We have a very strong triple B rated balance sheet and we believe our combination of financial strength and lowest costs will make Ryanair the long-term winner. As you're well aware, Ryanair offers the lowest fares. Our fares are lower than any other European airline and that's why we believe we will recover strongly coming out of the COVID-19 pandemic. Allied to those low fares, we have by far and away the lowest unit costs. Our unit costs per passenger excluding fuel is at least 26% below our nearest challenger in Europe and materially up to 71% or 100% lower than most of the other so-called low-cost airlines in Europe. Neil, you want to take the floor?

I will. It was a very challenging quarter for the Ryanair Group. We saw our fleet grounded for almost four months from the end of March until the back end of June and that meant the traffic dropped by 99% to just half a million customers within the quarter. Load factors were just over 60% compared to a 96% load factor last year and revenue was very heavily hit. We saw a 2.2 billion reduction in revenue to just 125 million. We did a lot of work on our costs which led to an 85% reduction in costs over the quarter but unfortunately that didn't offset the reduction in revenues and we recorded a net loss of 185 million in the quarter. As I look over to the balance sheet, we've got a very, very strong balance sheet, triple B plus rate by Fitch and S&P. Our cash was up in the quarter compared to year end. We had a cash balance of just over 3.9 billion compared to 3.8 billion at the end of the last financial year. We also have a very high number of unencumbered debt-free aircraft on the balance sheet, 333 Boeing 737s, with a conservative book value of about 7 billion, so market value somewhat higher than that. So one of the strongest balance sheets in the sector. Michael, back over to you.

So in terms of current developments, as you know, we returned to service in the 1st of July, 40% of our July capacity, covering about 90% of the network, but obviously with reduced frequencies. In August, we expect that to grow to about 60%, and in September, we're hopeful, particularly if there's a successful return of the schools across Europe, that we'll see about 70% of our normal September capacity. The big challenge facing us going forward is going to be the illegal state aid that has exploded all over Europe and those airlines engaged in the low cost selling to the damage of the level playing field in European aviation. We and Ryanair remains Europe's low cost leader, but even we are right-sizing our business now, right-sizing the cost base to reflect the lower fare environment we expect for the next couple of years. We are hopeful that the first MAX deliveries will take place in the winter of 2020. That is subject to the aircraft, the Boeing MAX aircraft successfully returning into service in North America at the end of Q3. I couldn't be more excited about the post-COVID-19 growth opportunities that will emerge all across Europe. We are in the initial discussions with airports, but some airports are losing enormous amounts of their existing traffic. and will have to respond competitively to that loss. The Brexit risk has intensified, but everybody's aware of that. Therefore, we think our outlook, really, we can't give you guidance on the full year in terms of profitability, but we think 60 million on traffic is a reasonable stab, but that could be impacted if there's any significant second wave of COVID-19, either across the continent of Europe this winter or spikes in different European countries. Just to briefly touch on the successful return to service on the 1st of July, we're running about 40% of the normal July schedule, covering 90% of the routes, but with much lower frequencies on those routes. And we're hopeful, we're on track, I think, to exceed a 70% load factor, whereas the initial guesstimate was that we'd do a 60% load factor. Some of that success has been delivered with the comprehensive health measures that we've rolled out for both our crews and our passengers on board. many eu governments are easing the lockdown restrictions in fact there's now largely free travel between most of the eu 27 members the only exception that has been ireland which has been slow and is not managing the the reopening of its economy particularly well they produced a green list in recent weeks which uh you know is very restrictive uh and we think not sensibly based and we will continue to call on the irish government to open up short-haul travel between Ireland and the other EU 27 member states. On-time performance has been excellent during July. We're running on-time performance of over 95%, combination of very good fleet reliability and also very good European ATC performance given the lower volumes of flights across Europe. We would expect, though, to continue to have a controlled return, controlling that capacity growth. And where we see outbreaks of COVID-19 or a dip in passenger bookings, we have the flexibility to sit those aircraft on the ground. So our capacity and our load factor will be controlled into H2, but may be kind of bumpy. Traffic is very heavily dependent on there being no material second wave of COVID-19 across Europe in the second half of the year. And that's why our passenger traffic figure of 60 million is very tentative. We will look where we see opportunities use seed sales to stimulate demand, to recover traffic, to try to build load factors and restore ancillary sales, because we think a good strong winter will actually gear the way or pave the way for hopefully a strong return to normality in the summer of 2021 but obviously much of that will depend on there being a successful vaccine emerging for COVID-19. Just a quick summary of where we are on the illegal state aid to the legacy carriers. Lufthansa has received combined almost 11 billion euros. Even Carsten Spohr has admitted that this is more money than they needed or wanted, but he's happy to take as much as he can get. Air France, KLM, Alitalia, an airline that has been bankrupt and should have been bankrupt, it has now received 3.5 billion euros from the Italian government. Ryanair remains the EU's cost leader, but we're taking advantage of the crisis to try to reduce costs wherever we can. We have rolled out significant pay deals with most of our pilots and cabin crews across Europe. Working with our people to lower pay, we're looking at pay cuts of up to 20% for the best paid pilots, down to as little as 5% for the lower paid cabin crew. That's a much better solution than just job losses or thousands of job losses. And our people, I think, are working with us on that. There will be headcount reductions, however, such as in Germany, where the pilots' union remarkably voted against this deal, and we've now announced the closure of three German bases in Tegel, Niederrhein-Wietze, and in Frankfurt-Hahn. We are in the early stage of discussions with airports around growth deals. We haven't made as much progress as I would like to have made at this stage but a lot of that is because the airports themselves aren't really sure of where they're going to suffer the biggest capacity cuts because the legacy carriers haven't laid them out yet. We're also working with our suppliers to improve terms on maintenance, marketing and almost every other cost line. Lauda and the management team in Lauda have done terrific work over the last two months. They faced down the closure. They had actually announced the closure of the Vienna base because the local Austrian unions wouldn't agree to the new CLA. Thanks to the heroic efforts of the pilots and the cabin crew in Lauda, that decision was reversed and the union was embarrassed, I think, into leaving. supporting the agreement that had already been supported by over 92% of Lauda's pilots and more than 67% of Lauda's cabin crew. However, the Lauda Stuttgart pilots voted against the deal in Stuttgart and as a result that base will close at the end of October. Lauda has also negotiated new lower aircraft lease rates and with the new pay deal and lower costs, we think Lauda in the next 12 months we hope will break even or will go very close to break even. the big driver for us in terms of costs going forward though is going to be the new lower cost max aircraft which we hope to take deliver of this winter this aircraft will deliver us 40 percent or sorry will deliver us four percent more seats per flight it will deliver a 16 percent lower fuel burn and also 40 reduction in emissions this aircraft is the key uh to a really seismic reduction in ryanair's unit operating costs for the next three or four years And we couldn't be more excited about the game changer aircraft or its deliveries, which hopefully will happen before the end of this year. In terms of the growth opportunities, as I said, there are huge gaps emerging across European aviation as a result of the failure of certain airlines, Flybe, Germanwings, Level, SunExpress and others. Competitors will retrench in some cases in return for the state aid. Air France, for example, has announced that its capacity will be cut by 20% in 2021. And similar capacity cuts have been announced by a number of the other EU flag carriers. We would hope to exploit those cuts. particularly where we were able to show our airport partners that we have up to 40 new aircraft coming for the summer of 2021 and that we can reverse or deliver them traffic growth in circumstances where some of their incumbent carriers are withdrawing from the marketplace. Touch briefly on Brexit. As I said already, we expect the UK is leaving the European Union at the end of December. We hope that some common sense will prevail and that they will see the benefit of Europe and the UK negotiating a trade deal that covers air travel. I think the impact on the UK economy of the grounding of the flights for the three months during the COVID period has been, I think, would have helped, I think, to firm up the political view that air travel is a necessity and they won't want to repeat the shock of that or have any interruption to flights. So we're hopeful that there will be a trade deal that will cover air travel and therefore there will be no impact on air travel at least of a no-deal Brexit. Neil?