Ryanair Holdings plc

Hello, and welcome to the Ryanair H1 FY21 results conference call. Throughout the call, all participants will be in lesson mode only, and afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present Michael O'Leary, Group CEO. Please go ahead with your meetings.

Okay, good morning, ladies and gentlemen. Welcome to the Ryanair Half Year Results Conference Call. You'll have seen this morning that we have released the half year results on the website. There is a comprehensive slide presentation and a Q&A on the website, so I would take all that as read or seen. And then I'll just give you some comments on top of that. So as you've seen, the results this morning covered a six-month period to the end of September. The first quarter, we were essentially grounded, successfully returned to service in the first of July. We've run with about 60% of that capacity through the summer season, following all the ECDC and EASA health measures, and that has been successfully implemented. conscious of the need to prioritise the balance sheet in cash. In September, we raised €1.25 billion, a €400 million equity placing, which was led by the management team, and we've also raised an €850 million Euro bond. That means that today, we've got the half year, we've got a closing cash position just in over €4.5 billion. We will need that because in the next 12 months, we have over €1.5 billion of debt repayments due The UK government's $600 million loan is due for repayment in March, and we have our 2014, the first of our commercial bonds, the 2014 $850 million issue is due for repayment in June. Some of the key challenges over the last six months, the Reiner customer service teams and labs have cleared an unprecedented backlog of customer flight changes, COVID-19 cancellations, refunds, and voucher issues. All of that backlog has now been eliminated. We have refunded or vouchered 1.5 billion worth of bookings. We have no backlog in refunds now. And if there are customers out there who still haven't received a refund, it's because they haven't requested it or they're one of that small number that are stuck having moved and made bookings through screen scraper, unlicensed screen scrapers. where we have fake customer contact details and fake payment details, and we've set up a procedure whereby they can apply directly to us and bypass the overcharging scam artists, screen scrapers, and obtain their refund directly from us. COVID-19 crisis, though, has clearly caused the closure of a number of EU airlines, huge long-term capacity reductions at many of Europe's legacy carriers who are receiving unbelievable quantums of state aid, Air France, KLM, Lufthansa receiving over €10 billion each, Alitalia over €3.5 billion and similar sums or equivalent sums in SAS, TAP and others. We believe this illegal state aid will distort competition for many years to come and allow those flag carriers, failed flag carriers to engage in below-cost selling for many years. We have already initiated the first two legal cases in Europe against the SAS state aid and the French refund of aviation taxes, but only to French airlines. We expect to receive decisions on those cases this side of Christmas. However, I think it's important today we don't get stuck in the details or the short-term kind of details of the current situation with Europe moving back into second lockdown. There is a bright future ahead. We have taken advantage of the COVID or used the period of the COVID-19 crisis to radically restructure our cost base. We have now reached agreements, I'd say, with almost all of our pilots and cabin crew that will involve painful pay cuts and productivity pay reductions through the winter period. But it's a much better alternative than job losses. We have minimized the number of jobs and losses we have. We can't rule out further job losses. particularly on some bases in Spain and Portugal, Belgium, where the chemical unions frankly have their head in the sand and are still trying to insist on not taking pay cuts or opposing pay cuts. And in those circumstances, I think it's inevitable we will have job losses in some of those smaller countries. We're also looking to, in extensive negotiations with airports about growth incentives, returning or where we can return traffic quite quickly. I think we took great comfort from the recent experience with the UK Canaries market when the UK added the Canaries to their green list two weeks ago. Our daily target of 2,000 bookings was exceeded by a 14-fold. We took 28,000 bookings in the first day, 25,000 in the second day. I think if anything confirms our view that there will be a very strong snapback There is huge pent-up demand for air travel across Europe, particularly short-haul European air travel. We think the long-haul recovery will take longer. But the short-haul snapback will be strong and it will be immediate. And we are well-placed to cater to that. Again, we saw, for example, tour operators and charter airlines being slow to respond to that reopening of the Canaries, where we were able to add extras for Christmas travel almost immediately and responded strongly to that. A couple of other key themes. We are clearly in continuing dialogue with our partners, Boeing. We are now confident, as are they and the FAA and the AASA, that the MAX 8 will return to service probably sometime in late November, early December. That, we believe, will lead to our aircraft, the MAX 200, the Game Changer, being certified probably in early 2021. We are hoping to take the first delivery of those aircraft at the end of sometime in February. That would allow us to take, we have a limited capacity to take new aircraft deliveries at about eight a month. It would allow us to take something of the order of about 30 aircraft between February and early summer. That figure might fall to 25 or so, but it depends on when we can get the first ones. We have extensive MAX simulators up and running and extensive training programs for our pilots. We still think this is a great aircraft. All of the pilots who have flown it and flown the sim think it's a terrific aircraft. Operationally, they understand it well. It flies and handles very well. But from a financial perspective, it gives us 4% more seats and a compelling 16% lower fuel consumption per seat, as well as delivering 40% lower noise emissions. And we think that the game-changer aircraft will be a key component of us significantly lowering our aircraft ownership cost base for the next number of years. And I contrast that with many of our competitors who are engaging in sale and leasebacks of their fleet at distressed prices and paying high financing costs, which will significantly widen the cost gap between us and all other EU airlines over the next, I think, five or ten years, widening the gap between Ryanair and our competitors across Europe. We will therefore, I think, respond or emerge out of the COVID-19 crisis with a lower cost base, with a compelling growth model, with significant incentives in place across many airports. Many even want to recover their lost traffic quickly. And those that come up with the best incentives will recover that traffic faster than others. And in a marketplace in Europe where structurally a huge amount of capacity has been taken out and will not return. We aim, particularly with the game-changer aircraft order, to be able to fill those gaps and deliver or restore traffic at many of Europe's airports. The risk of a no-deal Brexit remains high. We hope before the end of the transition period that the UK and Europe will at least agree a trade deal to cover air travel. They had a bilateral arrangement agreed before the end of 2019, which was at the 1st. Brexit, but we believe that there will be a trade deal, at least one that will cover air travel, that will allow the free movement of people and the deregulated airline market in the UK and Europe to continue. In terms of outlook, and I know we'll have lots of questions, it is impossible in the current climate to give you any kind of outlook for the remainder of this year. You will have seen over the weekend the UK returning to a second lockdown. Ireland was already entering a second lockdown two weeks ago. We draw your attention to the fact that lockdowns are completely ineffective, and I would quote the WHO, who have said governments should do everything possible to avoid brutal lockdowns because it doesn't actually get rid of the virus. We've already learned that from the first ineffective lockdown, and we'll learn it again from the second ineffective lockdown. Nevertheless, I remain an optimist. I do take my lead from Dr. Fauci in the U.S., who has predicted that there will be one or more vaccines probably approved by the health authorities this side of Christmas. The key issue then is when will there be commercially available or widespread availability of a vaccine, at least to cover the high risk groups, the over 70s, the people working in the health service and in nursing homes. And we would hope that that will be by the end of Q1 or Q2 of next year. That would allow us at least to rescue most, but not all of the summer peak travel period. And hopefully then we see finally leave the COVID-19 crisis behind us. But at this point in time, as you know, our last guide, which we gave out in October, was for traffic of 38 million for the remainder of this year. I think that will probably get pared backwards. but not as a result of the second wave of lockdowns. We've been asked frequently this morning, will we be cancelling more flights to and from the UK? The answer is we don't expect to. We had already done severe surgery to our November and the first half of December flight schedules. It is likely, though, that we will not be able to run a 70% load factor through that period. We might see the load factor fall to 60%. There might be some judicious changes capacity culling within that, but we're talking maybe a couple of million passengers below the 38 million, and we will continue to manage that on a weekly basis. FY21 will continue to be hugely challenging, and for that reason, we can't provide any updated guidance. We do expect to still carry 38 million or slightly less, but maybe it's between 38 and 35 million passengers in FY21. A lot depends on how strong the Christmas is. And there is reasonable bookings there for Christmas, but it depends on whether European countries are out of lockdown at that point in time or not. We do need an end to these failed lockdowns. We are calling on European governments to be much more aggressive on test and tracing. For example, in Ireland, we're testing, have a capacity test, 100,000 people a week. We should be testing a million people a week. And that's what this government in Ireland should have done during the first lockdown back in the spring. But unfortunately, in Ireland, we're being run by a bunch of doctors and not by a government here. And the doctors continue to mismanage everything from nursing homes to meat factories to face masks, as well as lockdowns. But nevertheless, we are where we are. And as an airline, we'll have to continue to try and manage our way around it. Our key objectives during this period have been to conserve cash, strengthen the balance sheet, preserve as many jobs as possible, even if the price of that job preservation will be a pay cut for management for our frontline people, less flying hours for our frontline people, it is better that they are less busy during this winter but still in a job so that together we can all respond aggressively and grow strongly once we emerge out of the COVID-19 pandemic. The Reiner Group will emerge from this period with a lower cost base, a stronger balance sheet, we will be able to fund lower fares and add new lower-cost aircraft to capitalise on these growth opportunities, which will inevitably emerge once we emerge from the COVID-19 pandemic. Neil, do you want to add anything on the MD&A?

I don't have a lot to add, Mike, other than to emphasise the work that we've done on the cost saving over the past number of months. I think that came through in the half. We saw operating costs down to 67%, albeit not enough to assess the 58% reduction. in revenue, but we worked very hard to improve what was already the lowest cost base of any airline in Europe. The balance sheet, also underpinned by the equity rates and the Eurobond that we did last month, put us in a relatively good position as we go over the next 12 months or so. All refinancing risk now removed. I would flag that there was some more hedging effectiveness In the quarter, we took an after-tax charge of $214 million, primarily due to the fact that we pulled back our winter capacity from 60% prior to 40% prior capacity, so effectively moving what would have been a charge of Q4 or Q3 into the second quarter. sorry, in the first half of the year. We're probably coming near the end of the hedging effectiveness, particularly as we look into next year, where we're relatively under-hedged. We wouldn't anticipate any hedging effectiveness next year. And from a cash perspective, we've already settled about 70% of the gas worth hedging this year. So balance sheet in good shape, cost base getting better, and maxes hopefully coming next year, which will improve the cost base further.