Ryanair Holdings plc

Okay, good morning, ladies and gentlemen. You're welcome this morning to this presentation of Ryanair's full year results for the year ended 31 March 2021. I'm Michael O'Leary, the Group CEO, and I'm joined this morning by Neil Sauron, the Group CFO. As you'll have seen this morning on the Ryanair.com website, we announced a full year loss of €815 million for the last 12 months, compared to a prior year profit of just over €1 billion. Almost all of this was due to the impact of COVID-19 in our business, which has seen our traffic in the last year fall 81% down to just 27.5 million passengers. We have been prioritising liquidity preservation. We're pleased to say that we closed the year with 3.15 billion of cash. We have introduced extensive cost reduction measures across all four of our group airlines. We have eliminated an unprecedented backlog of customer requests and refunds as a result of the COVID-19 disruptions to our schedules. We've minimized job losses thanks to active engagement and pay cut negotiations with our people and our unions across all of our main EU countries. We've announced an increase in the Boeing 737 Game Changer aircraft order, which has increased from 135 to 210 units in return for a modest price reduction on the cost of those aircraft. We continue to invest heavily in our environmental and social and governance programs. We're pleased that we've received a first ever B-minus score from CDP, which is the Carbon Disclosure Project, an independent ratings agency. And we've committed ourselves to increasing that from a B-minus to an A over the next two years. And as a result of Brexit on the 31st of December 2020, we've had to limit the voting rights of non-EU shareholders and restrict their ability to sell ordinary shares since then. Just turning to a couple of themes over the last 12 months. So clearly COVID has devastated the business, but I think we have worked hard over the last year and effectively to reduce costs, to assist millions of passengers who were disrupted. We've laid a platform, I think, by lowering our cost base and engaging with our airports so that we can recover strongly in a post-COVID environment. The COVID-19 has seen the collapse of a number of EU airlines, including Flybe, Norwegian, German Wings and Level. A number of flag carriers have announced very significant cuts to their capacity, with the result that I think in a post-COVID world, Europe for the next number of years will be operating at about 75% to 80% of its pre-COVID capacity. This is why our game changer order is so important. We'll be taking delivery of 50 to 60 aircraft a year each year for the next four years. That means that we can offer our airports and some airports who we presently don't operate at, not just traffic recovery, but growth into the medium term. And in that regard, we've announced eight new bases for the coming fiscal year, a range of secondary airports, but also new bases at primary airports like Orlando in Stockholm, Zagreb, Riga in Latvia. And we intend to continue to look for these growth opportunities within Europe where we can, working with airport partners, restore the traffic that they've lost due to the capacity cuts or failures of their incumbent airlines. We've been very heartened by the rollout of the vaccine programme in Europe. Clearly, the UK has led the way. But most European countries have now confirmed that they expect to vaccinate typically around 80% of their adult population with at least the first dose of the vaccine by the end of June. And that, we believe, allows for a removal of many of the travel restrictions into the July, August, September peak travel period. And we expect to see our traffic recover strongly into that period. On environmental issues, we've shown in recent years that we can grow our traffic while reducing our impact on the environment. Every passenger that switches to Ryanair from a legacy carrier in Europe reduces their carbon footprint by approximately 50% per journey. Our new 737 Game Changer aircraft order means we will be taking delivery of aircraft for the next four years that offer us 4% more seats but burn 16% less fuel and also deliver 40% lower noise emissions. And this will help us continue to lower our CO2 footprint as we expand and grow across Europe. I won't deal on the revenues and costs because we've dealt with most of that on the slides, but I'd like to turn now to our thoughts on outlook. The next year ended March 2022 will be challenging. There's considerable uncertainty about the rate and timing of the post-COVID recovery. We are somewhat optimistic. We think that if Europe vaccinates most of its adult population and certainly all of its high risk groups by the end of June, then there will be increasingly very little justification for the type of travel restrictions, home quarantine or hotel quarantines that we've seen over the last year. Q1 traffic will, however, be still heavily curtailed. We expect to carry between five and six million passengers in the June quarter. But we're hopeful that the September quarter will see a significant recovery of traffic and that we'll be able to build on that into the third and fourth quarter of the current year. As a result of that, we're still operating on the basis that our full year travel figures this year would be somewhere between 80 to 120 million passengers. We're at the lower end of that range, but there is a possibility that we could get to the midpoint or higher than the midpoint of that range. At this point in time, on the basis of the costs we've already taken out and subject to, obviously, whatever the yields will be, means we think we're operating at somewhere between a small loss to break even for FY 2022. Obviously, there's huge uncertainty around those forecasts and that guidance. But subject to the vaccination programme continuing to successfully roll out in Europe, to the removal of most travel restrictions by the end of June, and there being no emergence of any unforeseen variants, then we think those numbers are achievable over the next 12 months. Looking further out and beyond the COVID-19 crisis, Ryanair has used the last 12 months to significantly reduce our operating costs. We're going to expand our ability to grow in the next four or five years with the Game Changer order. We will be expanding in a market in Europe where significant capacity has been taken out by airline competitors that have either failed or that have significantly cut capacity. And we will be competing in the next number of years with a whole series of legacy airlines in Europe who have received huge quantums of state aid. But as a result of receiving that state aid, they've been unable to tackle their high cost base. They will be unable to compete with Ryanair into the future from a cost perspective. Although in the short term, it's undoubted that we will be facing below cost selling by some of those airlines. We expect to see a strong rebound this summer. There's significant pent-up demand for air travel from families in particular who've been locked up for the last 12 months. And we hope to be able to provide low-cost, on-time, friendly services for those families as the business recovers through the second quarter. And then we would hope that into the third and fourth quarters or the second half of this year, we'll see a return to 80% or 90% of our pre-COVID traffic volumes. The uncertainty is at what the fares will be and will continue to be load factor active, yield passive. But I have no doubt that Ryanair is going to emerge leaner, stronger and probably with an accelerated growth profile from the COVID-19 pandemic. And that will in time lead to more secure jobs for our people, lower fares and more choice for our customers and stronger and better returns for our shareholders. Neil, you want to take us through the slide presentation?

Thank you very much. Ryanair has the lowest fares and lowest costs of any airline. We're number one for traffic, customer service and on-time performance. Our environmental credentials have improved with our CDP B-minus first time rating of which we're very pleased. We've 210 Boeing game changers arriving in the next number of weeks. This will help see us grow to 200 million customers by FY26. Our balance sheet, which is BBB rated by both Fitch and S&P remains one of the strongest in the industry. And this financial strength, coupled with our lowest costs, will make us the long term winner. As you can see, we're number one for choice and coverage. And indeed, we've already started growing with eight new bases already launched for summer 21 and into winter 21. We've got the lowest cost of any airline in Europe, €31 per passenger ex-fueled pre-COVID, 26% lower than Wizz, over 70% lower than EasyJet, and the gap is widening. On financial results, last year was one of the most challenging, in fact, it was the most challenging in our 35 year history. We saw an 81% reduction in traffic due to government lockdowns and travel restrictions. It's just 27 and a half million guests from 149 million pre-COVID. Revenue tracked down by a similar amount, down 81%. And while we did a very good job on reducing costs, we saw a 66% reduction in costs. This unfortunately wasn't enough to offset the lost revenue. And as a result, we posted a pre-exceptional loss of 815 million euro, the exceptionals being a 200 million fuel ineffectiveness charge that we took in the year. Our balance sheet, which, as I've already said, is BBB rated by Fitch and S&P, is one of the strongest in the industry. In a very challenging year, we finished with 3.15 billion cash, which I think was a very strong performance. Lots of liquidity in the business. And indeed, we've got lots of assets available to us as well. 85% of our Boeing fleet. Practically all of our fleet is unencumbered at this point in time. And that's on the balance sheet at a very conservative 7.3 billion book value. So we're in a very strong position as we look towards debt maturities over the course of the next 12 months. And with that, Michael, I'll maybe ask you to run through current developments, please.

OK, thanks, Neil. Just touching on current developments briefly, we see a very strong post-COVID pent-up demand. We're strong recovery of traffic subject to the continuing success of the vaccine rollout programme through summer 21. There are significant growth opportunities for Ryanair in the current year. We've announced eight new bases. Long term, our EU cost leadership has been extended and enhanced by our experience in the last 12 months. We hope to take delivery of the first game changer aircraft in May of this year, although we are losing confidence in Boeing's ability to deliver within that latest deadline. We've established a clear pathway to 200 million passengers by FY26. We're investing, as Neil has already pointed out, heavily in our ESG improvements under a new Director of Sustainability. We are taking steps to enhance our EU ownership and control post Brexit. And the FY22 outlook is for traffic to be at the lower end of our 80 to 120 million range. In terms of demand, clearly COVID-19 uncertainty continues. Travel restrictions and lockdowns are widespread across Europe in Q1, as most of many European countries deal with a third wave. However, the rollout of vaccines will, we believe, replace lockdowns and testing into summer of 2021. We've seen a very strong booking recovery in just the last six weeks. As I've said previously, the first week of April, we had only 500,000 bookings. Last week, that had tripled to 1.5 million bookings. And we hope to see that strong growth recovery continue. We will be matching capacity with demand through H1, the remainder of H1 and into H2. We've already are taking steps to make it easier for people to travel with us. We now have a document wallet on the mobile app to which customers can upload their COVID documents, whether it's vaccination certificates or negative PCR tests before travel. And many of our European countries will accept that on arrival. And we're continuing, obviously, for the sake of our crews and our passengers to maintain our healthy flying measures. Touching briefly on cost efficiencies over the last 12 months, we have pay deals agreed with most of our pilots and cabin crew. Pay cuts are between 5% to 20% in the first two years, restored over years three to five. Airport and handling deals are being extended and improved upon. And I would point particularly to the three larger bases at Stansted, Bergamo and Brussels, Charleroi, where those deals have now been extended out at various different times, but between 2028 to 2030. On the ownership and maintenance costs, I think the new 210 game changer aircraft order, where we're taking delivery of aircraft for the next four years with 4% more seats, but that burns 16% less fuel and also 40% lower noise emissions, is a huge step forward in our cost efficiency, not just for the next year or two, but for the next decade. We will be selling some of the older aircraft and returning aircraft as they mature from leases. And in terms of sales, marketing and other costs, Labs continues to lower our marketing spend, and we're seeing a significant or steep reduction in our EU261 costs, admittedly as a result of an artificially high on-time performance over recent months due to COVID. And fuel, we believe, will kick in further savings as well, particularly as we're 50% hedged into the next fiscal year at about $55 per barrel. Touch briefly on the game changer. We hope to receive the first delivery in late May of 2021. We have been disappointed by Boeing's repeated moving back of the first delivery date. It was originally scheduled in early April when it was certified by the FAA and EASA. But eight weeks later, we're still to receive the first aircraft. However, we are confident we'll take 60 of those deliveries next winter in advance of peak summer 2022. These are phenomenal aircraft. Any aircraft that has 4% more seats but burns 16% less fuel will transform Ryanair's cost base in our economics. They will also make us a much more environmentally friendly aircraft. This is the most scrutinized, most audited aircraft in history. So we think now it's been back flying for almost four or five months. Your passenger safety concerns have been ameliorated as it racks up more and more flights across North America, Latin America and Europe. but the lower-cost game-changer aircraft will help us to drive market share gains into a post-COVID-19 recovery. And as our fleet grows to 600 aircraft over the next five years, we're confident that we can grow our traffic to 200 million passengers. That pathway is already well established. We have huge opportunities as a result of airline failures and retrenchment into COVID. Airports are actively approaching us seeking to recover their traffic and to lay down a platform for their own growth into the next four or five years. We have eight new base deals already announced for later this summer and this winter, which shows, I think, the vibrancy of the growth opportunity that's available uniquely to Ryanair. The game changer aircraft deliveries will facilitate this growth. And I think you'll see us capitalise on this pent up demand with our lower cost of operations, enabling us to make market share gains across Europe for the coming years. And we'll do so all off the back of our very strong triple B rated balance sheet. We have made enormous strides in our environmental performance over the last 12 months. I've set out there on the slide briefly 11 initiatives that have been rolled out in the last year, and we're very heartened by receiving an industry-leading B-minus score, our first ever rating from the CDP, the Carbon Disclosure Project, and we've committed ourselves to increasing that rating from a B-minus to an A rating over the next two years. We have set ourselves further ambitious environmental targets. We hope to reduce CO2 per RPK by 10% by 2030. We've now set a goal to use sustainable aviation fuels to power about 12.5% of all of our Ryanair flights by 2030. And we're well on our way. In fact, we're 80% complete on our original five-year plan to be plastic-free on board our flights within five years. And I'm particularly pleased with the new partnership we've recently announced with Trinity College Dublin, where we're funding a 1.5 million euro sustainable aviation research centre with Trinity College to help us to develop new technologies and new fuels to help us reduce our environmental footprint as we continue to grow. We've also made significant progress on our social and governmental objectives in the last 12 months. Jobs have been saved through active engagement with our people in our unions. Pay cuts and furloughs have been a much better alternative to job losses that have been announced by many of our competitors in Europe. We've gone to incredible lengths to keep our pilots, our cabin crew and our engineers current, even during the COVID lockdowns when we had very few passengers. We continue to make great strides on diversity. We have appointed more female non-executive directors and we're very proud of the great strides we've made in promoting more female senior managers within the group. Safety remains our number one priority. The chairmanship of the board and our board committees have been refreshed over the last year. We've appointed a non-executive director in charge of workforce engagement, Roisin Brennan, who's already commenced that work. And all of our non-executive directors are independent in full compliance with the UK Corporate Governance Code. We've improved our communications for customers with disrupted or COVID cancelled bookings. We have launched our first ever customer focus panel where we're going to be inviting customers, real Ryanair customers, to come meet with us twice a year, summer and winter. and take on board their advice as to how they'd like to see us improve our services, improve our communications, and improve the way we interact with our customers. We've developed new online cash form that makes cash refunds easier. We've also established an online travel agent verification process So people who have mistakenly have been duped into booking through these unauthorized third party screen scrapers can now come to us directly to get their refund directly from us rather than having it lost or misdirected through these unauthorized agents. And I think one of the key features of recent months has been our zero change fee initiative, which has given passengers much more flexibility and created much more confidence about bookings during the remainder of the COVID-19 pandemic. EU ownership and control post Brexit remains a challenge. We're currently about one third EU owned, although by restricting the voting ability of the non-EU shareholders, we're clearly fully EU controlled. We will keep effective control in the hands of our EU shareholders. We are enhancing and protecting EU ownership. Non-EU nationals can no longer acquire ordinary shares. They can clearly continue to trade in the ADRs, but not ordinary shares. We've extended the restrictions on the trading of ordinary shares so that even if they're owned by non-EU nationals, they can only be sold to EU nationals going forward. And the board has taken further powers so that we are in future, in the coming months, going to be able to write to non-EU purchasers of our ordinary shares, asking them to sell down those shares, or if need be, forcing them to sell down those shares where we have non-compliance with those requests. We intend to grow our EU shareholding back over 50% over the next 12 months, and we're well on our way to achieving that objective. Neil, do you want to finish up on the outlook?

Thanks very much. Yeah, I'll run through the outlook for FY22. There still continues to be a huge amount of uncertainty. And at this point in time, as we've previously stated, we think our traffic will be somewhere towards the lower end of the range, 80 million to 120 million. Closer in, in Q1, we're looking at somewhere in the range of 5 million to 6 million customers for that quarter. Very difficult to say where yield is going to end up, although we have been encouraged on bookings over the past number of weeks. But we will cautiously indicate at this point in time that we may end up somewhere close to break even, possibly a small loss for the full year. But if you look beyond FY22 and beyond COVID, our costs are in a very strong position. We've done great work on cash preservation within the business, and we've got one of the strongest balance sheets out there. So we're in a very, very strong position to deliver on our targets to grow to 200 million customers and 600 aircraft by FY26. We have the financial strength, we have the lowest costs, and we are the long-term winner in this sector. So with that, I would like to thank you all. We'll be on the road this week. If you haven't got a meeting already, please contact Peter Larkin, our Head of Investor Relations, and we'll try to get you. Thank you. Bye-bye.

Okay, Michael, Neil, can I ask about FY21? I mean, the guidance was for a recent loss of $800 million to $850 million. You've beaten that, but nevertheless, it's still a loss of $815 million. You might just talk about it, please.

Look, I mean, the last year has been clearly the most challenging in our 35-year history in Ryanair. European government restrictions, the COVID restrictions to protect public health have collapsed our business over the last year, as it has every other airline. We see an 81% decline in traffic, an 81% decline in revenues. And while we had a very strong cost performance, costs were down 66%, it wasn't enough to offset the loss of revenues, which is why... In the prior year, we may record a profit of just over a billion, and this fell to a loss of 815 million this year. Better than we had originally predicted, but nevertheless, a fairly traumatic loss for an airline that's been consistently profitable for our 35-year history.

One area that has consistently done well has been ancillary revenues. And again, this year, relatively, maybe what's behind that?

Yeah, you know, we did have a strong year, Stephen, about just €22 per passenger spend in ancillaries. Standouts for me would be the conversion on the reserve seating and the priority boarding. They performed very well. And that nicely offset a collapse in our onboard spend.

And just talking about ancillaries, where do you see this going post-COVID? I mean, clearly there's investments in Reiner Labs and things like that.

We expect it to recover strongly. I mean, you know, the key products, which is priority boarding, reserve seating, has held up remarkably well during COVID off a low passenger base. But we see no reason why that will change. Reiner Labs continues to roll out dynamic pricing models. We continue to evolve and improve the way our customers select and pay for ancillary products. And we think there is an element later on this year whereby the onboard spend will be helped by the reintroduction of duty-free on flights to and from the UK.

There's a lot of exceptional charges with hedge in effect with this, Neil. Maybe you could talk about them.

Yeah, I mean, we did 200 million exceptional charge in the year. This was all down to, or most of it was down to the traffic declines. We had hedged our fuel on pre-COVID traffic volumes. So as a result, a good chunk of our fuel hedges went ineffective. And then, of course, we had ongoing delays in aircraft deliveries, and we renegotiated slight reductions that, again, made some of our CAPEX hedges ineffective. But that's behind us now, and we're moving on.

In terms of just going to ask about the fuel hedging position and actually the policy around fuel hedging, it comes up quite often with investors. Also, if I ask about the layered in carbon cost in there and counteract with fuel efficiency. So just generally about fuel, because obviously it's a huge cost item.

Well, I mean, the key issue, you know, for the next 12 months, we're 50% hedged at about $54 per barrel. Current spot's about $68 a barrel. I mean, I think our hedging philosophy will change into the future. You know, with the experience of COVID, I think we'll never hedge 90% of our rolling requirement again. will probably hedge between 50% to 70% on an ongoing basis. And we're also looking at the possibility of hedging some of the carbon, as you rightly point, the carbon exposures going forward. We have a surplus this year, so it's not an issue for us. But certainly into FY22 or FY23, FY23 or FY24, we'll look to start hedging those carbon tax exposures as well.

In terms of just COVID, obviously, and in terms of preparing for the ramp up into the summer, it must be challenging with closing bookings and just operationally.

Yeah, it has been very challenging, Stephen. But we've remained very flexible. We're matching our capacity against the demand that's in the market. We've launched a number of new bases for this year. We've made new bases for the summer and into the winter of FY22. And since the start of COVID, we've worked on keeping our crews, our aircraft current, which means that when we do get back flying and there's huge pent-up demand out there, that we're ready to go at almost a moment's notice.

And in terms of the booking curve, it must be very close in, Michael.

It is. As travel restrictions are lifted, the booking curve is remarkably close in. I would say that over the last six weeks, particularly as the UK has lifted restrictions, we've seen a dramatic spring back in bookings. The first week of April, for example, we took just over 500,000 bookings. Last week, we exceeded 1.5 million. So it's trebled in the space of six weeks. Now, clearly, it won't continue to grow at that rate, but it does show that there's a very strong pent-up demand for low-fare air travel. And I think we would hope to capitalise on that, particularly families booking summer holidays through the peak period.

I guess a question that often comes up is in terms of the fare levels and with the close booking curve. Maybe you could talk about that.

Yeah, well, as you said, Stephen, as Michael already pointed out, the booking curve is hugely close in, so it's impossible to say where the fares are going to end out. on this year. Our objective will be to build the loads again. We're load active, yield passive. That strategy hasn't changed. A lot of good reasons for doing that. It helps the unit costs and the business. It helps recover traffic for the airports around Europe. And importantly, it helps us grow our market share. So look, I can't give any guidance on FERS at this point in time.

But I think it's fair to say we'd expect volumes to recover first and then followed by pricing. And that would be very much the way we'll be running the business over the next six months. Yeah.

Well, I mean, if I could ask just related to that, the whole issue of PCR testing and the cost of that, clearly that may affect airfares. And maybe could you review, Michael, a wider question on the EU green certs or even the UK traffic light system and how you think this kind of blockages play out?

I mean, I'm not sure we don't believe a lot of it just gets overtaken by the rollout of the vaccinations. Like most EU countries expect to have about 80% of their adult population receive a first vaccine by the end of June. When you have widespread population vaccination, particularly in Europe, we see no reason for testing whether it's antigen or PCR. It adds nothing. But I think, you know, we're cautious. You know, I worry about government passports and things that are issued by government. But what we've created in Ryanair is you're able to upload to our mobile app either your vaccine certificate or your negative PCR document. But that needs to be something simple. It needs to be either paperwork that's uploaded or something, for example, the NHS app in the UK, which you're able to identify. And most of the European countries have already announced that they're willing to accept that for entry this year. So I think we don't have time and governments won't get their act together on a kind of a Europe-wide passport. But accepting verifiable vaccination confirmations or negative PCR testing would be fine for this summer.

Okay, maybe just talk about growth plans and potential. I mean, there's a number of new bases and what type of airport should we be looking at?

Yeah, I mean, there's huge growth plans out there at the moment and huge opportunities, particularly as we take delivery of the MAX Game Changer aircraft over the summer. In the next four or five years, we've already announced eight bases, including the likes of Billings, Orlando, Stockholm, Zadar, Zagreb, and many others. I think there's going to be huge opportunities, particularly with the capacity that's come out of the market. We've had a number of airline failures in the past few months. I think there'll be more. We've seen a lot of capacity come out, and we're the only airline that's actually growing with any significant numbers over the next few years. So we would have good confidence that we'll deliver on our target of the 200 million guests by FY26 as we move the aircraft around at the various bases in Europe and grow new bases and opportunities.

Michael Neil, can you talk about the cost leadership of Ryanair and what the initiatives you've done over the last number of years to maintain and indeed enhance that as we go into the next couple of years?

Yeah, I think we've done very good work in the last 12 months on the cost base. I mean, the obvious ones, you know, we've negotiated to pay cuts not just with the managers, but most of our employees across all bases. Between 5% to 20% pay cuts, they'll be restored through years one and two and then restored back to them in years three, four and five. We've repriced the Boeing game changer aircraft order, which will deliver further modest savings in aircraft costs for the next decade. We're seeing a significant uptick in airports out there looking to recover traffic putting in place growth incentives. I mean, the three key ones we point to are at three of our largest bases, which is Stansted, Bergamo in Milan, and Brussels in Charleroi. We've now extended low-cost deals at those airports out to 2028 or to 2030. So, you know, you won't see a lot of these cost savings arriving in immediately. But the fact that we have extended and lengthened those kind of cost deals means we will retain a huge cost advantage over every other airline in Europe, I think, for the next decade. There are going to be some cost pressures. I mean, we think there's a real risk that the Eurocontrol ATC providers will be attempting to pass on their losses to the airlines as we recover coming out of COVID. Some of the monopoly airports are going to try to do likewise. You know, we've called for regulators around Europe to be wary of that. You know, we've all suffered huge losses in the last 12 months. But the airlines can't be the insurer of last resort for monopoly providers of either air traffic control services or monopoly airports. Where the market functions efficiently, we're seeing lower costs, airports working, partners working with us to recover lost traffic and also to look forward for growth, as Neil said. You know, we've announced eight new bases in this fiscal year, including some very exciting primary airports, Arlanda in Stockholm, Riga in Latvia and Zagreb in Croatia.

Maybe you can talk about the Boeing, the MAX, the A200. I mean, it's the raison d'etre now going forward of the cost structure. What's the delivery profile? When is it coming?

It was supposed to come in January. Then it was licensed and approved by the EASA and the FAA on the 6th of April. And we're quite upset with Boeing that eight weeks later we're still waiting for the first delivery. The management in Seattle have continuously missed promised deadlines for the first delivery. We're now being told by them that the first delivery will be in late May. I'm not sure we necessarily believe that, but originally we had hoped to take delivery of 14 of these aircraft in advance of summer 2021. But as the management team in Seattle continues to mismanage that process, I think there's a real risk now that we may not see any of these aircraft in advance of summer 2021. Over the medium term, we expect those delivery problems to be resolved. And we're confident that we'll take. at least 60 of those aircraft in advance of summer 2022. So in the short term, there's nothing but problems. And the problems lie not with the FAA or with IASA, but with Boeing. But over the medium term, we think this is a very exciting aircraft. We're looking forward to taking those deliveries. And we will be one of the few airlines in Europe with 60 new aircraft for summer 2022, able to restore traffic or deliver new growth to those airports that are willing to work with us to achieve that.

I mean, in talking about growth, where are those aircraft going to be based? Is there already planned?

Initially, Stephen, the first number of aircraft to come in, we put them into the kind of key maintenance bases for the likes of Buzz, Malta Air and Ryanair across Europe. And thereafter, the airlines are competing with each other to try and get capacity. They want to grow. They're all very keen to get their hands on these new efficient aircraft. So there'll be plenty of opportunities across Europe to place them.

And you have the pilots being trained on them with the simulators, maybe?

Yeah, we're one of the few airlines. We have three MAX simulators already in Dublin and Stansted. And so we're actually already putting pilots through the simulators. We already have them trained for the MAX aircraft. What we need now is the aircraft.

Okay. What about the fleet plans in terms of leases you have or sales process?

Well, the key fleet plans we've just discussed is the delivery of the 210 game changers. And that now enables us to hand back. the remaining Boeing 737 leases that we have. We've two, for example, going back towards the back end of this month. We'll also be able to sell some of the older aircraft out of the fleet, which again had been slowed down due to the delay of the Maxis. So that'll help keep the average age youngest move forward. We've got 29 A320s in the fleet. That's pretty much frozen. And we start returning the first A320 from the winter of 2022. So over a kind of three to four year period, that fleet will wind down as well. And we'd be left with about 600 aircraft and 200 million passengers per annum at that stage, which would be roughly around FY26.

I mean, one thing comes up again is the MAX 10, which is the larger Boeing aircraft. That's still in the thought process down the road.

I mean, you know, we've already confirmed that we're in discussions with Boeing on a follow on MAX 10 order. Boeing have committed that we'll be first in the queue. But we're not there yet. The pricing isn't yet right. Once we get the game changer aircraft delivery issues resolved, we can then focus our energies and those of Boeing on negotiating what I hope would be a follow on order for MAX 10s, which would take us out into deliveries in the period from 26 through to 2030.

Maybe you could talk about the dip in airlines in terms of within the group, whether that's buzz or loud or multi-air.

Yeah, well, they're all performing well. Last year was a challenging year for them, but in fairness, they stepped up to the plate. They cut costs across all of the airlines. They preserved cash as we needed. And now there's positivity. They're looking forward to the delivery of the first aircraft. coming in and starting to grow again, buzz of just under 50 aircraft in their fleet and keen to add to that. We have 120 Boeings now in Malta Air and Lauda, as we already discussed, have 29 H320s and would hope to get their hands on some Boeings in due course.

One question that comes up a lot, of course, is the balance sheet and liquidity and where that is going forward. Obviously, you have a triple B rated balance sheet, but obviously that's kind of a significant issue at the current time.

Yeah, sure. I mean, as you say, the balance sheet is where BBB rated airline industry leading, world industry leading rating. We at the end of the year had 3.15 billion in cash, you know, which was a very credible performance in a year when, you know, our traffic collapsed by over 80%. And I think it demonstrates the strength of our business model today. Now, clearly net debt has jumped and we'll be very focused in the next number of years about repairing the balance sheet, paying back net debt. But we continue to look to that balance sheet strength with 3.15 billion in cash and 85% of the own fleet is entirely unencumbered. Unlike a number of competitors, we haven't been out there doing sale and leasebacks at distressed prices. We haven't needed to, thankfully, and we will emerge out of this COVID-19 pandemic with one of the strongest airline balance sheets in the world.

And the obvious question is in terms of cash per annum, which, you know, how is that being lowered during the year? And I guess we're all waiting for working capital to turn positive.

Yeah, well, you know, we reacted very quickly at the start of the COVID crisis and we could cross right across all of the airlines within the group. That was important. We participated in the various furlough and government payroll support schemes again, which was hugely beneficial. The share buyback, as you'll remember, was cancelled last March and we deferred non-essential CapEx. And then, of course, to strengthen the balance sheet, We went to our shareholders in September, where we raised 400 million. We did an 850 million bond and we tapped the CCFF for 600 million sterling, which we've now extended out to 2022. And I suppose the cash burn now at the moment, we're seeing the last couple of weeks, thanks to the improvement in bookings, that operational cash flow has gone marginally positive. So we'd be hopeful that as we go out over the course of the year, we will see some improvements there.

And in terms of CapEx going forward, I mean, obviously with the Boeing deal, I mean, maybe you can give some flavour, Michael, of where gross CapEx is at least.

Sure. I mean, yeah, obviously with these delivery delays, the number keeps moving backwards. But subject to taking 60 of those aircraft before summer 2022, we expect kind of gross CapEx in the second half of the current fiscal year of about 1.2, 1.3 billion euros, including maintenance CapEx. And then the capex will ramp up over the next four years. We should hit peak capex in FY23 or FY24 at between 2.3, 2.4 billion euros. We're confident that we can actually finance all of that through our own cash generation and our debt instruments over that period.

In terms of financing the aircraft, Neil, it's like the bond market, the preferred route, would you say, given the rating?

As Michael just alluded to there, we'd expect to do some of it out of our own cash resources. But we do have an extremely strong balance sheet, BBB investment grade, 85% of the fleet unencumbered, which means we can be opportunistic in what we do. We're interested in the lowest cost of financing. I think it'll be a combination of cash resources, bonds, bank debt. It could be secured or unsecured, probably more likely unsecured. And indeed, none of the key lessors have exposure to us now on Boeing's at this stage for sailing leaseback. So, you know, we'll have lots of opportunities over the next few years to come up with the lowest cost of financing for the fleet.

Obviously, very topical is ESG. And, you know, you got this CDP B minus rating, but environmental, maybe you can go through that and SAF, you know, it's again, obviously, very in front of people's minds at the moment, Neil.

Yeah, since we appointed a director of sustainability earlier on this year, we've made significant improvements. As you said, the CDP B- rating was something that we're very pleased with, but more to do on that front. We've set aggressive targets for ourselves where we want to reduce CO2 per passenger kilometre by 10% to 60 grams over the next decade. And, you know, key to achieving that will be the game changer aircraft, which are starting to come into the fleet, 16%. more fuel efficient and lower CO2. But we're also actively now looking at SAF, sustainable aviation fuels, and we've set a goal for ourselves to have about 12.5% of our fuel requirements dealt with through SAFs by 2030. To help get there and to make sure we've got the right blend, we've invested with Trinity College Dublin to set up a sustainable aviation Research Centre, which will look at this and hopefully make SAF more readily available. And of course, we're leading from the front with a lot of other initiatives as well. We're the launch partner with CNBC on their ESG panel, which includes 35 global leaders. We've been involved in the sustainable aviation research with Trinity and we're doing a number of other things with Eurocontrol, the EU and various other parties. So, you know, I think we've made huge progress, but, you know, there's more to be done.

I mean, can I just come back on SAF? I mean, the industry has been talking about it. It seems to be now the topic of focus. Do you think the industry is minded to get the cost and the availability of SAF. So it's a credible alternative, really.

We think so. I mean, I think there's a renewed impetus behind the development of SAF. The European Commission is pushing it very hard. The airlines are working very cooperatively together. I mean, the big challenge and the issue for us is can we produce or can we source enough availability by 2030? to replace 12.5% of our own fuel. There's no doubt that's a challenging target, but the technology is advancing at pace. We think the cost of SAF will come down significantly. And so we've set that ambitious goal. Whether we'll get there or not, who knows? But if we don't start on this journey, we won't get there.

Yeah, and I think it's encouraging. The number of fuel companies have contacted us since we announced our target to see where they can help us to get there has been huge. So, you know, I think The industry wants to get there. We want to get there. So we just have to work on it now over the next decade.

And in terms of just to talk about the unions, which are, I guess, the... working and engaging them through the crisis?

I think it's been remarkable. If you look around Europe at the number of carriers that have gone bust, legacy airlines who have let go, thousands of employees. We've managed this process over the last 12 months, largely by negotiation with our people and their unions. We've put in place sensible pay cut arrangements or pay deals with our people generally around pay cuts in years one and two, but being restored back in years three, four and five. And they were all reasonably modest between five and 20 percent. Five percent at the lower paid, 20 percent for the higher paid people. Management have taken pay cuts in the last 12 months. Any bonus payments have been cancelled in the current year. So I think we've done it sensibly, working with unions and with our people. And the other thing that we've managed to do is to minimise job losses. We originally set out a target of between 3,000 and 5,000 job losses. I think it's less than 1,000 over the last 12 months. And I think the other thing I would point to is we have worked very hard to keep all of our pilots and cabin crew current during the last 12 months, even if in some cases that meant flying empty aircraft. We've managed to keep people from current so that they don't have to go back in and do very long simulator retraining or refresher courses. We're ready to go back into service as quickly as we can as soon as the vaccine rollout allows us to return to service this summer.

In thinking about the industry in more longer term, do you think when capacity or when COVID, post-COVID, the capacity in the market comes back or there's a lot of retrenching, you see Alitalia and others. And I'm really thinking, you know, the way the U.S. market consolidated and whether the European market can at least accelerate that consolidation.

I mean, I think there's a lot of capacity simply can't come back. You know, you've seen if you take the airlines that have gone bust, the Thomas Cooks, Germanwings, Norwegian effectively, you know, there are huge amounts of capacity that simply cannot return. Even within the state-aided carriers, you've seen Lufthansa significantly reduced the short haul fleet. Alitalia has reduced the fleet by 25%. TAP has taken out 30 aircraft, nearly 20% of its fleet. Those planes can't come back. So I think we're looking at a medium term environment in Europe, certainly for the next three or four years, where at best the available capacity will be between 75 and 80 percent of its pre-COVID numbers. And I think that's why it's so key that we have, with Boeing, put together this order of the 210 game-changer deliveries delivered over the next four or five years. It puts us in the box seat to begin to make up that capacity shortfall. But it will take three or four years at least before Europe returns to the pre-COVID capacity that was there.

What do you think, Neil? No, I'd agree totally with you, Michael. And in fact, some of the other airlines that are growing are actually moving their capacity outside of Europe as well. We're seeing that with Wizz, for example, where they're going more into the Middle East and down towards Pakistan and India. So we'll be the only real airline growing with any numbers for the next few years, which is why I think we'll have no difficulty hitting the 200 million customers and having lots of choice in where we place the aircraft.

Neil, what's the risks of... cost increases in the industry, say environmental taxes, for example?

There's a number of risks out there. We already talked about, for example, we could see upward pressure on the Euro control, but environmental taxes are something that are coming, but I think there's a desire within the EU and among the airline groups to invest more in sustainable aviation fuels, which might reduce the impact. There's a chance that they maybe use some form of state aid, as we've seen already in Schiphol, where long-haul connecting traffic has been exempted. So, you know, there are real risks, but I think it's important, and that's why the airlines are working hard to reduce the CO2 across the industry. But there is a real risk in the next few years. There'll be more APDs, there'll be more environmental taxes coming down the tracks.

And obviously, to the extent that there isn't environmental taxes, we would say to the European Commission, well, by all means, if you're going to have environmental tax, can we please have back the 630 million in environmental taxes we already pay on an annual basis? UK APD, German APD, ETS scheme. Like, We can't have two and three, double and triple environmental taxes. And the other big issue, you know, in that area is at the moment, the environmental taxes are only levy on the intra-EU travel. You know, the legacy airlines are not paying environmental taxes on their long haul flights, nor are the non-EU airlines, despite the fact that that long haul travel is far more environmentally damaging than the short haul efficient low cost, the short haul efficient low fare carriers in Europe.

Yeah, there was a very good report out of Europe Control back in January, which proved that point where it showed something like 5% of the traffic the long haul was causing 51% of the emissions. And as they design Corsia and move on, it's imperative that that's included within any scheme that's put in place.

Maybe just talk about the outlook, you know, Michael.

Yeah, OK. Look, there's huge uncertainty for the next 12 months, Stephen. And much of it revolves around how fast vaccine rollouts across Europe allow for removal of travel restrictions and recovery, particularly into the peak summer travel period. Q1 has been low. We expect we're guiding somewhere between five and six million passengers in Q1. But there's been a very dramatic recovery in bookings in just the last five weeks. If that continues and we think it will through into the remainder of June, July, then we think, you know, we're on track certainly to hit the lower end of our current guidance, which is full year traffic up between 80 to 120 million. And I think as long as there's no recurrence of outbreaks or variants that the vaccinations don't deal with, then I think we can look forward with some degree of optimism into that year. We at this point in time think we're somewhere between 80 to 100 million passengers. The likely outturn subject to yields, obviously, is that we're looking at something between a very small loss and break even for the next 12 months. But there's a lot of moving parts and there's a lot of uncertainty. And most of the uncertainty revolves around the timing of the recovery and the fares that people will pay into the key kind of June, July, August, September travel period. Okay, well, thanks, Neil. Thanks, Michael.

Thanks, Stephen. Pleasure.