Ryanair Holdings plc

Welcome to the Ryanair H1FY23 results conference call. Throughout the call, all participants will be in listen-only mode, and afterwards there will be a question-and-answer session. During the Q&A, in the interest of time and fairness, please limit yourself to two questions per person. Just to remind you, this call is being recorded. Today, I am pleased to present Michael O'Leary. Please begin your meeting.

Okay, good morning, ladies and gentlemen. You're all very welcome to the Ryanair half-year results conference call. I'm in London with a portion of the team. Eddie Wilson is in Dublin with another portion of the team. Neil Thorne is in New York, all joining us on the call this morning. I'm going to take the results and the MD&A and everything else that's read so that I think we'll maximize time for the Q&A here. A couple of quick themes. I would point you to the slide presentation on the website. I think the two key issues coming out of COVID and coming out of the half year is slide four, which shows the unit cost X fuel gap widening considerably between us and every other airline in Europe. We went into COVID with a unit cost X fuel of 31 euros. We come out of COVID and that number has slipped down to just under 30 euros. whereas almost all of our EU competitors have emerged out of COVID with significantly higher ex-fuel unit costs rising. And that gap is widening. I think that's one of the reasons why we're seeing such a strong recovery in Ryanair this summer. We were fully staffed into the summer. We operated 115% of pre-COVID capacity. Fares in the first quarter were under pressure because of the Ukrainian invasion, which damaged Easter. But into the second quarter, the September quarter, we've seen traffic growth of 11-12%, capacity growth of 15%, but airfares, average fares were up 14% in the second quarter. We don't expect that to continue into the winter, but we have been quite surprised at the strength of forward bookings into the third quarter. We had a very strong October midterm. Christmas looked strong, both at volume and at the average fare level. And, you know, this weekend's bookings were stronger than the previous weekend's bookings, which is remarkable. given all of the kind of coverage of recession, inflation, consumer price pressures. I think we're seeing something at the moment. I don't know how long it continues, but we are seeing one, and I would point you to slide 10, which is competitors cutting capacity as Ryanair grows. We're going into the second half of the year, the December and March quarter, operating at 110% of pre-COVID capacity. all of our competitors are still running at less than their pre-covid capacity the one exception being the small smaller hungarian airline but uh our experience with them in recent quarters has been that they talk about offering capacity but then they cut frequently and close in so they actually operate probably only 10 15 more than pre-covid but off a much smaller base than us so what we're seeing at the moment i think is a combination of three things one A lot of people booking with Ryanair because we had delivered a very reliable service this summer and they know they can trust us to not cancel the flights and we'll get the baggage and the flight there more on time without risk of cancellation. Two, we're adding capacity. We're taking big market shares across Europe in all markets because we have new aircraft, fuel efficient aircraft, and we are still growing at a time when others are cutting capacity. And three, we have significantly lower airfares than the competition. And I think if that continues through this winter, we could have a very strong winter. Now, we're still forecasting we could lose something between 100 and 200 million this winter. You know, we still have challenges out there. We've had a very strong first half of the year. But I think if we get through the winter with strong growth, 10% pre-COVID, with a reasonably strong pricing performance, and we have no disruptions from COVID or Ukraine, then I would hope we'll be at the lower end of that 100 to 200 million loss in the second half of the year, but it will still be a loss. But that would leave us in a very strong position going into the summer of 2023 when we think with the likely recovery of Asian traffic coming to Europe, the transatlantic traffic is very strong given the strength of the dollar. The strength of the dollar will keep more families at home holidaying in Europe next year because they can't go transatlantic given the strength of the dollar. And I think we're looking at a year, if the Asian traffic returns to Europe, summer 2020 could well be quite strong. And we would hope to see a second year of mid to high single digit fare growth, which would help us pay for the higher oil prices. So we're seeing continuing strong recovery. We're cautious that the second half of the year, remember this time last year, we were looking at a very strong Christmas and Omicron emerged out of South Africa in the last week in November and cancelled Christmas. We were looking at a very strong Easter and then Putin invaded Ukraine and that kind of crushed Easter and also damaged our Central Eastern European traffic for a couple of months. But we have recovered very strongly out of that. In a marketplace where most of our competitors were challenged on the staffing side this summer, they still haven't restored their pre-COVID capacity. Most of them are not as well hedged as we are on fuel or on the dollar. And I think the strength of the dollar is going to be a key challenge for EU airlines for the next couple of years. Whereas Ryanair has fully hedged our CapEx on all the new aircraft deliveries out to 2026. We're well hedged on our OpEx for this year and into next year. And we are in a market where we've a widening cost leadership over everybody else. So I think we've reasons to be proud of our recovery in the first half of the year. I think we want to recognize the contribution our people have played in that. We've been in communication with all of our union partners over the weekend. to confirm that we are going to restore, bring forward the pay restoration from April 23 to December 22. Over 90% of our pilots and cabin crew are covered by those pay restoration and pay agreements which run out to 26 and 27. By bringing it forward, it means they will all go back to their pre-COVID fully pay restored in the Christmas payroll. There's a couple of smaller unions out there, the Belgian pilots, the Irish pilots, who we have invited to return to pay restoration negotiations for various different reasons, none of which are really explicable. They are continuing to deny their members the pay restoration that over 90% of our pilots and cabin crew have agreed elsewhere in Europe, but that's a matter for them. We would like to see the pay of our Belgian and Irish pilots restored pre-Christmas. but it can't be done unless the unions agree a medium-term pay agreement like everybody else. With that said, I think we are the only other kind of blemish on the horizon is Boeing. We're due to get 51 aircraft from them before the end of April next year. We do not think we'll get those 51 aircraft. Having come back from Seattle two weeks ago, I'm hopeful that we'll get between 40 to 45 aircraft by the end of June. We will not take aircraft deliveries after the end of June because we can't put them on sale for the peak period. But if we get between 40 to 45 aircraft by the end of June, I think that still puts us on track to hit our 185 million passenger target for FY 2024. There is some concern out there that we have higher oil prices into next year. We've hedged 50% of our fuel bill at $93 a barrel. I think there's a reasonable prospect, if there's no negative news flow out of COVID in Ukraine this winter, that actually fares will be modestly up into the summer of next year because we will still be short, European short haul will still be short capacity compared to pre-COVID, but there will be stronger demand because of the strength of the dollar and the return of Asian traffic. All in all, that leads us this year to restore guidance. We're cautiously guiding a return to full-year PAT of between 1 to 1.2 billion, which is just about where we were pre-COVID. That's allowed us and given us the confidence to restore pay this side of Christmas. But it could still be derailed if there's negative news flow on COVID or Ukraine this winter. And therefore, I'd like everybody to keep their feet on the ground and remain cautious. But there's no doubt that Ryanair, the management team and our people have recovered faster, stronger and better than any other airline in Europe. And we would expect that outperformance to continue. Neil, do you want to add something? And maybe touch briefly on, I think, particularly currency, dollar hedging and CapEx, please.

Yeah, and balance sheet as well. Just before I get into it, I think the balance sheet has performed very well. We finished the quarter with $4.6 billion in cash. And importantly, net debt dropped from $1.5 billion to just over half a billion. And that was despite nearly $1.9 billion in CapEx. in the first half of the year. As Michael has already said, hedging, we're in a very strong position there, particularly on the CapEx, hedged out at the end of the order book at EUR$1.24, which confers very favorably to 98 spots this morning. Equally, Jet, for the second half of the year, we're 87% hedged at just under $70 a barrel, and we're well hedged, 115 on the EUR$ for the second half. of this financial year and about 20% hedged on the euro dollar at 1.08 into next year with 50% of our jet hedged away at approximately $93 a barrel. I think it's important as well to note that we own all of our 737 aircraft. They're unencumbered and in a rising interest rate environment and release rates are going up. We won't have the challenges of other airlines out there, which again will help from a cost perspective over the next number of years. Michael, that's about all I want to add.

Okay, that's fine. And Eddie, maybe you want to give us a quick couple of lines on the outlook for growth into this winter and into next summer.

Yeah, unlike our competitors, we plan to grow close to 10% this winter. Plenty of opportunities out there. We've done long-term low-cost deals at our major hubs in Stansted, Charlevoix, Bergamo and we continue to leverage lower costs at airports and those airports which are an increasingly smaller proportion of the spread of airports that we have there, if you've got cost increases well then you won't be rewarded with any capacity growth whatsoever and we have an excellent pipeline of people joining from pilots and cabin crew to support that growth over the next number of years. So, you know, as Michael was saying there about like fares being strong this weekend, I think that really it's a function of less capacity with our competitors and also I wouldn't underestimate the story of reliability. I was in the UK the last week and extending our deal to Birmingham and the background over there is that we're the most reliable airline and I think that's feeding into bookings.

Okay, do you want to touch briefly or maybe ask Daryl, give us a quick briefing on how they did, just the flavour of the discussions with the unions over the weekend went on the pay restoration?

Yeah, I mean, they've gone quite well. We briefed the unions and what essentially we have is that we got into discussions from April just gone, whereby we pushed out the pay deals for the next two to three years out of 26 and in some cases 27. And we were able to restore pay earlier. That was going to come in in April where there was normally going to be a review clause. So now today on the back of a strong operational performance, we think it's the right thing to do at the right time, even though there is uncertainty over the winter, to get pay fully restored for all of our people. And Michael's already referred to the two countries where we still need to do that. I'm pretty reasonably confident that we can do it at the same level and get that up to 100%. But that's is a matter for the two unions there. So there is predictability on pay over the next three to four years. Generally speaking the unions came back very positively and the idea that it was brought forward from April into the Christmas payroll I think was welcomed.

Good. Okay. All right. With that, let's open up to Q&A, please. And we're tight for time, so we're limited until about 11 or just after 11 o'clock when various people have to go to meetings. But let's run. We'll keep it as tight as we can, please.

Thank you. Our first question comes from the line of Jamie Rowbotham at Bulletin Bank. Please go ahead. Your line is open.

Morning, guys. Two from me. Firstly, on the non-fuel unit costs, the move on pay restoration is clearly a commendable one. Can you give us a rough estimate of the incremental cost to Ryanair of bringing that forward? Clearly, you've had to bake something into your full year guidance for this. And perhaps you could tell us where you think it leaves you on non-fuel unit costs for the year to March 24. Second question, Michael, you mentioned fares could still be up next summer, potentially offsetting fuel if that stays high. Do you mean you know, fares up YOY next summer or still up versus pre-crisis? And within that, any areas where the supply-demand imbalance is giving you particular confidence or areas where you're less confident? Thanks.

I'll do the fares, Neil. Maybe you do the non-fuel unit fares. Sure, yeah. In terms of fares, look, we're in the realm of speculation here, but there's no doubt in my mind, and again, I'll point you to slide 10, where you see we're competitive cutting capacity this winter. You've looked at ANZA operating at 80% pre-COVID, IEG 87%, AF 85%, and EasyJet at 90%. I mean, people are unhedged, are significantly unhedged for fuel this winter. Oil is an increasing cost, and people are, I think, sensibly... Cutting capacity into the winter, you know, the days of land grabs and, you know, fighting for growth are over. People are much more sensible. I think management of European airlines are much more sensible now. Even Wales, who are diverting all of their growth out into the Middle East and further away to avoid competition with Ryanair, is a good, sensible strategy. And I think that's likely to lead to what we, if we go through a winter where there is, we are meaningfully short the capacity in short haul Europe is operating at 80, 85% of pre-COVID. Ryanair is operating at 110% of pre-COVID with load factors in the low 90%. That creates, I think, a space into next summer where I think I'm reasonably optimistic that fares will rise. And it's year on year, not on pre-crisis. We're already up on pre-COVID fares. I think fares will rise year on year by another, I would say, mid to high single digit through next summer. That's driven by two things. One, Easter is in Q1 next year. So that gives you a very strong springboard through Q1. I can see no other alternative that there will still be very strong demand for holidays, families, traveling abroad next summer within Europe. Asian traffic will hopefully recover and that will underpin short haul connecting traffic on the legacy carriers. The transatlantic market is incredibly strong. And while there's some short-term concern about inflation, recession, I mean, try booking a restaurant, booking a hotel in London, Dublin, most of the European cities. We're still in full employment and people are still spending. And certainly this Christmas is going to be very strong. And if we have Easter in Q1, a reasonably strong or robust Q2, I think it's very reasonable to predict that, certainly for the first half of next year, especially if oil prices, spot jet stays up at around $110 a barrel, that there will be significant upward pressure on airfares with less than pre-COVID capacity recovery across Europe into the summer of 2023. That's my view, and I think... As long as there is no adverse developments on COVID or Ukraine this winter, then I think the trends we're seeing this summer and into the third quarter will continue into the fourth quarter and the first two quarters of next year. Neil, maybe you want to comment on the non-fuel unit cost development?

Yeah, sure, Jamie. I'm not going to give exact figures around what the payroll is going to be over the second half of the year, but we've previously guided that unit cost ex-fuel will be approximately 31%. In the current financial year, we're not deviating away from that. We see slightly lower load factors into the second half of the year, and we'll see that step up on the staff costs, the route charges. But we're sticking to that 31, and then if we get the extra game changers into the fleet next year, we hope to start seeing unit costs ex-fuel coming down again.

Thanks, both. Thanks, Neil. Next question, please.

Thank you. That comes from the line of Alex Irvine at Bernstein. Please go ahead. Your line is open.

Alex, hi. Hi. Morning, gentlemen. Two from me, please. So first of all, digging in on staff cost a little bit, I saw that your unit staff cost went up between your Q1 and your Q2, even as productivity rose. It looks like it was about €5.60 a seat in Q1 and €6 in Q2. I'm wondering what's behind this. Were you rostering extra hours this summer to handle potential ATC delays? Is it changing pay levels? Is there something else? My second question, please. Looks like it's starting to hit a new sort of steady state growth in the low single digits annually. Do you have the ability to accelerate this either by pricing up closer to inflation by introducing any new products? What's the size of the opportunity here going forward? Thank you.

Sorry, Alex. Just wanted Neil to answer. You broke up at the start of the second half, the second question. Just repeat the second question, please.

On ancillaries, what growth opportunities do you have going forward? It looks like we're starting to normalise at a low two-digit growth per passenger per annum.

Yeah. Okay, Neil. You start and I'll do the ancillary.

Okay. Yeah, sure. On the staff, there's a number of factors there. Yes, we were ramping up as aircraft came in. We also had seen the likes of the payroll support rolling off and the start of pay restoration, which we'd agreed with people, starting to kick in over the course of the summer. So it was a combination of all of that, which led to the increase and obviously increased activity, increased sector pay for people. And then, of course, we'll now have the full pay restoration, the balance of it coming in into the second half of the year.

And on ancillaries, I think you're right. I think we expect it to normalise now growth of low single digit on the per passenger basis. We're still seeing a conversion on the big ticket items, priority boarding, reserved seating. We are beginning to yield manage some of that with some degree of success. And we are still seeing a strong recovery, but there's more to go on the in-flight sales, particularly with duty-free on 40% of the flights operating to and from the UK. We are still struggling with... kind of supply issues or, you know, some of the bar providers or the duty-free providers, you know, the supply is a bit hit and miss. We will spend, I think, this winter trying to sort out the labor staffing at our, the in-flight suppliers and having a much more reliable delivery of duty-free supply and product. We're having a lot of sellouts and in some cases stockouts on some of that. So I think there's more to go, but I think it's reasonable for the next two or three years to expect modest low single-digit growth in ancillaries per passenger.

Thanks, Alex.

Next question, please.

Thank you. That comes from the line of Savvy Sith, Roman James. Please go ahead. The line is open.

Hey, good morning. Quickly on the fiscal year 24 capacity growth, I was just wondering if you could talk about what your expectations there are You mentioned you think you can hit that 185 even if there are 5 to 10 max delays, but does that mean you have a range for next year or you can hit utilization or something like that to get there? And then just a second question, just beyond strong demand, are you seeing any new booking patterns that are showing up in your numbers or is this going to environment strong just as you pointed out, capacity is low and demand is strong?

Let me start with the second one first. There's a couple of new trends, but how sustainable they are, we're not sure. Firstly, we have a much bigger market share, a lot of European markets, so we're seeing much more, you have a much bigger position in the Spanish domestic, Italy domestic, Ireland, UK to Europe, but we're growing strongly, particularly in the provinces. We're seeing, I think, stronger off-peak demand and pricing in those domestic markets where, you know, it's not subject to leisure. It's not leisure. It's just kind of continuous year-round traffic, particularly in markets like Italy where Alitalia are in retreat, Wizz are in retreat. Vienna, we're growing strongly again. Level, Wizz have all retreated out of Vienna. And we think that will continue. we are undoubtedly then benefiting, but certainly in the short term, from a very strong reliability this summer, giving us a kind of glow of being a more reliable provider. Competitors cutting capacity strongly this winter at a time when we're expanding capacity. And I would suspect maybe we're seeing the beginning of people becoming nervous about recession, consumer price index, inflation, et cetera, and that Maybe more and more people are beginning to turn to the lowest cost provider, which in air travel is Ryanair in Europe, the kind of IKEA, Lidl or Aldi effect. And I think that will continue. Now, how they play out, we don't really know. But certainly, I think it's fair. We have been surprised by the strength of bookings and pricing. coming out of the peak summer period through uh we expected to tail off a little bit or have to get more aggressive on pricing through september we didn't through october we didn't then into november at the moment we still haven't done any great seat promotions and we don't have to but again i would argue that's fragile and if we have an omicron or a ukraine or some negative development that could fall over very quickly so i think we're right to be cautious if we get through to the spring without any negative developments then We could have a reasonable second half of the year, but we should be cautious rather than optimistic. Summer 24 capacity. If Boeing delivers 40 to 45 aircraft instead of the 51, we will still just about hit the 185 million passengers. We will get a little bit more aircraft utilization. We are opportunistic. We've done a deal for one additional NG that's being offered back to us that we use to operate on an operating lease. We've got a long-term low-cost lease rate on that. The load factor will probably go up maybe 1% next summer. So there's a combination of different things, but we won't kill ourselves to get to 185. If Boeing leave us short of aircraft and we have to come back to Mars and say, look, it'll be 183, 184, 182 million passengers, that's what it will be. we would be more mindful next year that, you know, we continue to recover our business, that we continue to carry people across Europe, particularly during the peak period, Q1 with Easter and Q2. But, you know, airfares that are up mid to high single digit, I don't think we'll get a second year of double digit, but certainly single digit, mid to high single digit is, I think, entirely... rational and reasonable next year as long as there's no outside or adverse outside factors and with a mixture of aircraft deliveries from boeing timing of those deliveries aircraft utilization a bit more on load factor we can still get to from 168 million this year to 185 million next year thanks savvy next question please that's from james hollins at bmp paribas james hi

Hey, Marcel, how are you doing? Yeah, one for you, one for Neil. The one for Neil is on your little video there earlier. It seems to me very clear that you plan on just using cash to repay the bonds in the next nine months. Just wondering, just thoughts from Neil on what's the right liquidity level for Ryanair going forward as we come out of COVID? And am I right in thinking it looks like cash rather than refi? And then the second one, probably for you, Michael. Again, on your video, you're talking about 110% capacity this winter, but you sort of hinted at a bit of scheduling and productivity improvements around higher weekend capacity, maybe flattish on the weekdays. Just let us know what you're doing on that, please. Thanks.

Okay, Neil, maybe you do the first one. Eddie, I'll ask you rather than take the second one on the winter. I might get Jason McGinnis, who's here as well, to give some comments on that as well. So, Neil, uses of cash.

Okay. James, thanks. Well, the use of cash for the next 12 to 18 months is paying down those bonds and peak capex. If there is an opportunity in the market to do something at very low levels, we'll look at it. But the working assumption is very much that we will use the cash and we want to get down to that net zero debt position by the end of next year. We still like holding a fair bit of cash on the balance sheet, you know, the 4.6 billion dollar at the end of September. Not sure if it needs to be $4.6 billion at the end of the item, but it's important to have somewhere between $3.5 or $4 billion on a long-term basis in case you get hit by further shocks over the next number of years.

Just to point out, of that $4.6 billion, $1.6 of that is for debt repayment next year, and then we're in peak capex, so we're spending about $2 billion a year. We don't have $4.6 billion spare lying around We have uses for that. But the opportunity that we're paying, we will pay down bonds next year that are funded at 1.2%, 1.5%. If we were to refinance at the moment, even for us, we're looking at 5%, 6%. So I think it's in our interest as an airline to pay down debt while our competitors will either be looking at additional equity raises or refinancing bonds in debt markets that have moved materially adverse. So it's more sensible for us to use the cash and pay down debt. Eddie?

Yeah, I think there's two points there, just on the utilization. While we made some strides this summer on utilization, given the backdrop of ATC, a lot of that was just eaten up into longer hours, which our crew would know about in certain basis. But we were able to do that in the winter to tweak up the utilization. use of those aircraft and also we've moved a couple of percentage points when you look back to where we were back into particularly 2018 on the proportion of flying moving out of the Tuesdays and Wednesdays and maximizing the number of aircraft at the weekends on higher yielding flights. So nothing radical there but just sort of that shift to the left on The ability to be able to do higher utilization in the wintertime and then that shift from midweek into weekend flying.

And maybe Jason McGinnis here had a commercial. Do you want to just comment on the kind of profile of the winter schedule, lighter midweek, heavier weekends?

Yeah, James. So we spent a lot of time, the schedule team spent a lot of time this summer preparing for winter in terms of focusing the growth on weekend traffic. Historically, we would have flown about 40% of our winter capacity on midweek. That's down to 35% this year. So weekend traffic is up to 65%. So that's been hugely beneficial in terms of yields and load factors and contributing to a strong Q3. And that continues on through the rest of the winter as well. So it's been hugely beneficial this winter and something we're going to try and improve across next winter as well.

And it also helps crew utilization. You know, we're still getting good crew utilization by flying people, you know, over four or five days of duties across weekends rather than having them sitting around on Tuesdays and Wednesdays rostered on home standby. So generally speaking, more efficient. We couldn't do that if we were having a big land grab or capacity wars with other airlines. But the fact is, as all the others cut back this winter and we grow, it gives us the latitude to kind of target our growth on the days of the week or the weekends when people want to fly rather than just having to be very aggressive on capacity and pricing in the middle of the week. Again, we would hope that that would translate into a better than forecast performance in the third and fourth quarters. But again, caution, fourth quarter is no Easter and the third and fourth quarter are hugely exposed to any adverse negativity on COVID or Ukraine. Next question, please.

Thank you. That's from Susan Furlong at Bayview.

Stephen, hi. Yeah, hi, Michael. Just go through again slide four there in terms of the ex-fuel cost, in terms of where you see, I mean, it's a big theme, of course, inflation of the cost base across not just this sector but other sectors. So that's not hopping in Ryanair. Just go through that again. And then secondly, on Boeing, just talking then about your relationship there, how is it going, what they're doing, or is there U.S. Airlines, for example, calling for – some resolution on the MAX 10 in terms of what's happening there. Thanks.

Thanks very much. Okay, I mean, very briefly, if you run through slide four, you know, what we've seen compared to pre-COVID, you know, we've done an update based on the half-year results or disclosures of the main competitor airlines. There's been a huge widening of the gap on unit costs. Historically, we've been significantly more efficient than other airlines. Airports and handling costs are materially lower. Our ownership and maintenance costs are very materially lower than with EasyJet, even Southwest in the States. That gap seems to have widened quite dramatically during COVID. As we emerged out of COVID, we had the benefit of the sensible kind of pay cuts that we agreed in return for keeping people current and employed during COVID. Some of our competitors were understaffed this year and went out with panicked pay increases and desperate deals, sign-on bonus to get people to join. We have negotiated sensible extensions of long-term growth and traffic recovery deals at airports. We're not exposed, as many of our competitors are, to kind of monopoly airports at Gatwick, Charles de Gaulle, Switzerland, some of the Eastern European capital city airports where they are price takers. we are very aggressive. You know, we've closed bases this summer. We've closed Frankfurt, Maine. We have, where's the other one? Where? Brussels, Aventon. We've closed this winter again in the face of cost increases at a time when those airports were facing traffic declines. So we continue to be very disciplined and that means, you know, If you take most of our biggest bases, Stansted, Bergamo, Charlevoix, we've extended our traffic growth deals there over the medium to long term. Many of them now run out to 2028, 29, 30. Ownership and maintenance costs, I think that was going to be the seismic difference post-COVID. We own all of our fleet, 90% unencumbered. We could sit the aircraft on the ground during COVID. We didn't have to pay lease rentals there. And most of our competitors who went into COVID owning a significant proportion of their fleet have come out of COVID now with owning very little of their fleet. Some, most, if not all of the fleet now on operating leases. Therefore, I think subject to ongoing cash drains in terms of monthly operating leases, much more expensive costs than we have, maintenance provisions. And then as interest rates rising, I think challenged on some of their operating lease costs will rise as well. So I think the gap between us and that competition is widening, and I expect that, I'm not sure we'll stay under €30 a passenger ex-fuel unit cost, but I think the next three or four years, that cost, our €30 might go, you know, it will stay at a low €30, €31, €32, €33, but at a time when our competitors will all go above €50, or in some cases above €60 or €70 ex-fuel, they will be under much more pressure to get airfares up and therefore to control capacity growth, And that would give us, I think, quite a significant headroom for us to expand our capacity, but see fares rise modestly to cover our unit costs. In fact, we'll have much more headroom than any of our competitors will. Boeing relationship, look, it's challenged at the moment. It is very difficult. But, you know, we've come to the realization we have to work with Boeing. They are, you know, continuing. They are challenged with production in Seattle. We accept now we won't get the 51 aircraft that they had originally contracted to deliver to us by the end of April. I think if we get to 40 or 45 aircraft by the end of June, that still allows us to maintain our ambitious traffic projection, our traffic load projections out to FY24. I think over that period of time, their production blockages will work their way out of the system. We are back having discussions with them about new aircraft. I think we would be very strong supporters of Boeing and the other American Airlines kind of campaigns with Congress that Boeing do have to get an extension on the MAX 10 certification. Nobody, it is not in anybody's interest that you have two different cockpits on the existing MAX aircraft and the new MAX 10s. We need to have similar cockpits. We do not want to have pilots trying to learn two different type of cockpits. And I think we would be very strongly supportive of Boeing's calls to Congress to extend the certification program for the MAX-10s out to maybe the end of 2023. We are nowhere close to a price agreement on pricing. I think we're not at anywhere in terms of new aircraft discussions, but we don't need new aircraft until 2026 anyway. We're very comfortable where we are at the moment. We are receiving some modest compensation from Boeing for these delivery delays, but really compensation is not that attractive to us. We take compensation payments through the balance sheet. It does help to reduce capex, but we would much prefer to take the aircraft and be able to deliver headline growth in scheduled revenues and ancillary revenues. But I think the Boeing relationship is fraught at the moment. It is difficult because they are continuously failing to meet their delivery obligations to us. But I think we're at a stage where we recognize we have to work with Boeing as best we can. We have to help them get those aircraft delivered to us. In some cases, we're going to provide them with some of our spares so they can deliver some of our aircraft And we're both working towards delivering, getting 40, 45 aircraft to Ryanair by the end of June of 2023, which will be sufficient for us to at least try to hit our 185 traffic target for FY24. We might finish a million, two million passengers short of that. But to the extent we finish short on traffic, I think we'll see some uplift or benefit on fares and yields. Got it, Michael. Thanks, Stephen.

Thanks. That comes from the line of Satish Sivakumar at Citigroup.

Satish, hi. Hi, Michael. Yeah, I got two questions here. So first, maybe on the working capital into Q3 and Q4, is it sad to say that we go back to the similar seasonality levels that we've seen before pandemic, or is there anything that should we think about into H2? And second one is around the Italian market. Given your market share gains there, Are you seeing better pricing power, i.e. that the pricing within both domestic and intra-Europe, part of Italy, is outperforming your entire network? Any color on that would be helpful. Thank you.

Okay, maybe I'll give you a working capital question to Neil Saurhan. We might have one of the Treasury team, John Norton, maybe add a word to it. And the Italian market, again, Eddie, I might ask you to lead off on that, and I'll get Jason here to add a couple of words at the end of yours. So, Neil.

Okay, Satish, how are you doing? On the working capital, bookings are still a bit closer in than they would have been pre-COVID, which means at this time of year when our cash would normally be dropping back, it's not dropping back as extremely. And in fact, as Michael has said, bookings are very strong up into Christmas. Very limited visibility into Q4, but barring any COVID shocks or untowards geopolitical events, we would hope that we'll start to see a more normalised booking curve at that stage with people starting coming back in January and February and booking their Easter and their summer holidays at that point in time. But it's a little bit too soon to say that we're seeing that yet with limited visibility to Q4 at this point in time.

John Norton, you want to add anything on that? Yeah, no.

just liquidity is still proven to be very strong to teach. And, you know, as we build into Q1, during the January period, we'll start seeing the bookings for the summer and the cash starting to come back as part of the cycle for country.

Okay, and Eddie, maybe followed by Jason, on the Italian market, market share and pricing power.

Yeah, I think, like, on the Italian market... you know, particularly like post-COVID, we had a sort of a rush of Italian airports who, you know, it dawned on them there was nobody else going to fill those capacity gaps except Ryanair, and we were the sort of go-to airline on that. And that has reflected itself in, you know, higher frequencies, you know, better schedules, and that does sort of lead into some pricing power on certain routes, but domestics are still very competitive. We have seen that where we've come up against competition, that like in the first instance we've seen over the last number of years where ETH have sort of melted away from a lot of those core routes and then more frequently you see where more recently we have seen WIVs come on some of the routes and now pulling back out of places like Maltenza, Naples and Palermo on those domestic routes and with less competition on that that's going to reflect into higher pricing in the medium term.

And Jason, you want to add anything on that? Yeah, we're very happy with the Italian market. Load factors are very strong across this summer and into winter. We're operating well over 600 routes. 100 of those are domestic routes. Our overall market share is 40%, but we're probably closer to 50% on the domestic market, and we're by far and away the number two airline in Italy is EasyJet on 12%. So we're by far and away the dominant carrier in Italy, and very happy with how the market is performing at the moment. In particular, I'm going to say in off-season and winter, we see that very strong domestic traffic continues. And we're continuing to see competitors cut capacity via buoys on the likes of Rome, Catania, cancelling that route, EasyJet pulling back in Venice and Naples. So we're very happy with the Italian market and the growth that we've put in there over the last two years. And we plan to grow there again next year? We do. Okay.

Next question, please.

Thanks. That's from the line of Maniba Piani at Bank of America. Maniba, hi.

Hi, good morning. So just a clarification on fares, mid single-digit to high single-digit in the year. How much of that is based on the bookings you're seeing? Or is that what you're seeing in bookings right now? Or is that your kind of assumption for the year? That's my first question. And then secondly, fuel hedging on slide 18. The disclosure is different from what you had before, which had caps and slots broken out. So have you changed your strategy here?

You do the fuel hedging, Neil. So I'm not going to give any more guidance or break out, you know, what we're seeing at the moment here. We think it's reasonable for the full year to expect mid to high single digit fair and yield growth. And it's fair to say at the moment we're seeing better than that, but we're not sure whether this will continue through to Christmas and into Q4. And, you know, we continue to be very wary at the risk that this will get derailed by an adverse COVID or Ukraine development. And, you know, we're scarred by the experience of last November and last February, which, you know, derailed at very short notice what seemed to be a very strong post-COVID recovery. So mid-to-high single digit for the full year, I think, is optimistic enough. We don't want to be any more optimistic than that, but if there's a risk, I think there's a risk to the upside. And Neil, the fuel slide.

Yeah, I mean, Marie, but there's been no real change. We haven't added meaningfully. In fact, we haven't added to caps at all. And a lot of them have been exercised at this stage. So it felt more meaningful to give the blended jet figure on the understanding that we will be exercising what's left of the caps, which is why you're seeing 87 at approximately $700 a metric ton. We continue to hedge jets. as the key item. And then into next year, we're only using jet swaps at this point in time, so $900, $930 a metric ton. It was to make life easier for yourself and other analysts, I think, that struggled on some of the splits between the caps and the jet in the past.

It's reasonable. Some people have asked me this morning, why are we not more hedged for next year? I think we're genuinely concerned into next year. I think 50% hedging is the sensible place to be. We think there's as much risk to the downside or the upside on oil into next summer. You know, if recession is as deep and dark as predicted by the Bank of England, if China continues to struggle with COVID and economic demand, if the shale guys who are materially increasing rigs, there's a risk that oil prices could fall into next spring, next summer if Ukraine situation resolves itself. So we want to kind of stay where we are at the moment. 50% into next year is enough. and then see which way fuel is. If it rises into next summer because of the geopolitical situation, fine. We'll be facing higher oil, but we'll have hedged 50%. And if it falls, and again, one of the challenges there is that our competitors have inferior hedges to us. We don't want to be hedged 100% or 90% at $92 a barrel and see them pick up lower oil prices than us into a declining marketplace. So I think we're sensibly hedged. with the risk, as much risk to the upside as to the downside on oil into next year.

Thank you.

The difference is that we're one of the few areas that has the balance sheet to be able to hedge fully, both on the dollar and on oil. Thanks, David. Next question, please.

Thank you. That comes from the line of Mark Simpson, a good buddy.

Mark, hi. Yeah, hi, good morning. Two questions. One, I'm just wondering, within the target for zero net debt, by March 24. What's the assumption of the unearned revenues within that? Obviously, back in, say, 2019, it was at 1.9 billion. So I'm wondering if there's any guidance around that. And on the ancillary, one of the good things we saw, QMQ was another step up in the ancillary per pax number. With better loads anticipated over the next 18 months, Can we expect further leverage on that and Siri for PAC's performance?

Okay, I'm going to disappoint on both answers here. Look, I think it's enough there that we say we've set a target that by the end of FY24 we'll be back at zero net debt, and we will be. We will have paid down $1.6 billion worth of bonds. We will still have funded most of next year's CapEx out of our own cash flows. but we're not going to break down guidance on what's in unearned. I mean, I think as long as we're back in normal, we haven't had a negative COVID or Ukraine, you would expect there to be a normal build of unearned back to where it was similar to pre-COVID levels. Ancillaries per pax, again, I've already answered. I think I've answered the question. We expect there to be very modest, low single-digit growth in ancillary per pax for the next year or two. some increase. I don't think higher load, I mean, we're talking about a load factor maybe going up by 1% in the peak of next summer. It's not material. We still think we get a little bit of upside on conversions, a little bit of upside in yield management, and then certainly the duty-free sales on routes to and from the UK will be a feature of our ancillary revenue next year. It's certainly a very prominent, I mean, in the discussion we're having at airports at the moment, I mean, we're a number of airports reporting a very significant increase rebound in their airport retailing and commercial income as a result of the restoration of duty-free on UK services. I mean, the UK government is struggling to find, be able to identify any benefits of Brexit, but certainly the return of duty-free sales to and on duty-free sales both for airports and airlines on flights to and from the UK has been one of the very few and singular benefits of Brexit.

The reason I'm asking that is just the application of dynamic pricing and theory. I'm wondering if there's anything you can tell us about that within the labs projects.

Not really. We're working on it, but I don't want to over-promise here. We're continuing to work on conversion, yield management, and there's a little bit of dynamic pricing, but Unlike many of our competitors who were promising that data would provide everything that the future lay in data, we'd rather deliver first and we'll talk about it later. Fair enough. Next question, please.

Thank you. That comes from the line of Jared Castle at UBS.

Jared, hi. Hi. Hi, everyone. Just some clarification of the first question, if you don't mind. I mean, the question was asked about the pricing that you're seeing, but you did say, I think, in the release that you got most of summer on sale. at the moment, so any color relating to the summer. But also, is there a concern that you might be in a situation where you're mismanaging, sorry, mismanaging is the wrong word, is a mismatch rather between what you're currently selling now for summer versus what you've hedged on fuel? So what happens if the reverse happens, the fuel price spikes and you've sold based on today's prices for the summer? And then the second question, you know, for someone, or at least a company, which historically hasn't done much M&A, you know, there was a lot of conversation during this results season about M&A. So I'd be interested to get your view on how you see the landscape currently, Michael. Thanks.

Yeah, thanks, Sharon. I mean, look, at this point, we have most available, we've got, what, an 80% or 80%, 90% of Summer 23 on sale. But, you know, forward bookings would be down at low single digits. You're talking through the summer months of next year, 1% and 2% of the seats sold. Fuel could move against us. But to the extent that fuel moves against us, remember, we've already hedged 50% at $93 a barrel. Current jet fuel is a spot of about 110. So we're still saving money there. and fuel will move against our competitors much more violently than it will against us because we have the balance sheet to be able to take very long-term fuel hedge positions. I think our concern is more the opposite, is that we don't want to get caught having hedged 80% or 90% of fuel next year at $92 a barrel and then find the spot has fallen to $75 or $80 a barrel. I think we have plenty of insurance there with half of our fuel bill next year hedged, and if it goes up, we're covered on the hedges we have. And if it falls, we pick it up on the gain so that we might, you know, we're never going to beat the market with hedging, but we should certainly be able to eliminate the volatility. And that's as much as we want to do. I think, and, you know, fairs next year would be driven much more, I think, by rational capacity discipline this winter. And that's every sign of that continuing through the winter period. And I, you know, I would not, would want to emphasize again, Q4 will be challenging because there's no Easter in it, but Q1 next year will be all the better for having a full Easter in the middle of Q1, leading into what I think would be a strong Q2 because of transatlantic visitors coming to Europe with a strong dollar, Asian visitors returning, and the Europeans continuing to holiday. Even in a recession and with the price inflation, you try booking, getting accommodation, the tour operators are reporting very strong bookings into next summer. Flights and accommodation next summer in Europe, I think, will be materially higher than they were this year, despite the fact that this year was forward. I mean, certainly in our case, 14%, 15% ahead of where it was pre-COVID. So there may be a mismatch, but I think on balance, I like where we're positioned. And I think that the prospect is, you know, if there's going to be a mismatch, it will be to our upside. M&A, you know, we have more than sufficient organic growth for the next five years to grow to 225 million passengers a year. We do not see ourselves participating in M&A, although we may work with others. You know, I think others would be challenged in M&A that they may need to find kind of somebody to work with them for to come up with competitive, what's the phrase, Julius? Competition remedies or pre-competition remedies we could help assist some M&A in there. I have no doubt, I thought this result season was interesting, that both IAG, Lufthansa, Air France, KLM were all beginning to talk about M&A again. None of them, all of them putting their hat in the ring for TAP, Alitalia. Even extending the discussion, they're not denying an interest in Wins or EasyJet, both of which we think will be candidates for M&A over the next couple of years, because They're both well-run airlines, but they are stuck in a space where they are mid-airfare, mid-cost. They're not able to compete with us on cost or on pricing. EasyJet have built a very good business where they have very much a fortress position in expensive airports like Gatwick, Charles de Gaulle, Orly, Switzerland, but really retreating in airports in Italy, Portugal, and others, in Berlin, where they're largely not able to compete with us. with increasingly under threat from us in Central and Eastern Europe. I think they have shown in the last year or two with their expansions in Vienna and Italy that they're not able to compete or enter markets where Ryanair or the Ryanair group of airlines have a lower cost and lower fares. But I think with a sensible strategy of expanding into the Middle East, I like the idea that they're going to grow the market in Saudi Arabia and Dubai. they may well find some additional equity or debt out in those markets as well as they build their presence out in those markets. So I think everybody's behaving rationally. And I think it is inevitable in the next three to five years that Europe will consolidate further. Alitalia and TAP will get taken out because they can't continue with the state aid that they presently have. And I think it's a much more likely a rational outcome that WIS and EasyJet will participate in some way in that M&A process and that Europe is inexorably moving towards a similar outturn as North America where you will have three very large, somewhat higher cost, high fare connecting carriers and one very large low cost carrier, except in Europe that low cost carrier is going to be materially lower cost and lower fare than Southwest in the United States. I think we're now in that inexorable process. People may say otherwise, but, you know, and I have been predicting this for a number of years, and COVID and certainly the tsunami of state aid has postponed the timing of that, but I think it's an inevitable consequence.

Great. Thanks, Michael.

Thanks, Jared. Next question, please.

Thank you. That comes from the line of Johannes Brown at Stiefel. Please go ahead, Johannes.

Johannes, hi. Yes, hi. Good morning. Two questions from me also. Firstly, if I did the math right, I think free cash flow was slightly negative in Q2, which I think would also explain why net debt is slightly up to the 0.5 billion from the 0.4 billion that you reported at the end of Q1. I think that's a little bit at odds with other European carriers that still reported positive free cash flow for the quarter. I can see your CapEx was 500 million in Q2, slightly higher than Q1. But any other reason why free cash flow was negative for you? Is it maybe the working capital impact from the slightly weaker yield growth that you expect for the winter versus the last quarter? And then secondly, the pay deals that you mentioned, which were prolonged until I think 2026 or even 2027. Can you just remind us what the pay deals imply here? My last information was that it's a 2% to 3% wage increase per annum, but is this still the case? Thank you.

Yeah, I mean, that's correct on the pay deals. There was restoration in April, and April 23 and 24 brought forward to April 23, now brought forward to December 22, followed by multi-year kind of secured pay increases of 2%, 3% a year. Neil, negative cash flow, I mean, I assume most of that is capex.

I mean, I don't get where you're getting... Well, the prime reason for the difference that Johannes refers to there is we've extended, Johannes, the A320 leases out to 2028. So under accounting rules, IFRS 16, we have to capitalize or take the extra years off the deemed debt onto the balance sheet. So it's that kind of notional debt on leases that makes up the delta that you're trying to reconcile there.

Thank you. You know, I think the strength of the balance sheet is that we've reduced the net debt from 1.45 billion to 0.5 billion over the half year. I mean, I would not recognize your presentation there in terms of negative cash flow or declining yields. If anything, it's the opposite. But it is what it is. Next question, please.

Thank you. That's from the line of Harry Gose at J.P. Morgan.

Thank you. Yeah, just two quick ones if I can. I mean, first one, just on the visibility post-Christmas, maybe you can give us an insight into what percentage of Jan to March is booked currently and is that very different to what you'd expect at this point pre-COVID? And then just second quick one, any difference in bookings between the UK in terms of point of sale versus continental Europe currently or pretty equal patterns in terms of demand? Thanks.

I'll do the forward. Eddie, you can do the UK. At the moment, January to March, as of today, we are sitting with just under 10% of the seats sold January through to March. That would be marginally behind where we would have been in previous years. But again, some of that was because we've no Easter in March. The fact that Easter has moved into is in April or Q1 of the following year. Very limited visibility into Q4. limited bookings and the profile is slightly behind where it would have been pre-COVID. UK market at the moment is remarkably strong. UK outbound is strong to Europe, short haul weekend and business travel. Eddie, anything you want to add on that?

No, there's like no difference. I mean, as you've seen, like we've been put an extra capacity in for next summer into the UK. So nothing to add to what you've said there.

Particularly in provincial UK, we've already had very strong growth in Stansted, but we're adding capacity in Birmingham, in Bristol, in Manchester, in Liverpool, and we have a new base, Edinburgh, we have a new base coming in Belfast as well. So it's a marketplace, despite the challenges of Brexit, it is a marketplace where there's still significant growth. And it's one of the markets where there's been a lot of capacity has been taken out of the system. You know, the failure of Thomas Cook, FlyBE, EasyJet cutting back their capacity, or trimming their capacity, and BA, a significant, certainly on the short-haul side, capacity cuts. Next question, please.

Thank you. We have one further question in the queue. That's from the line of Dwayne Finney-Murph at Evcor ISI.

Dwayne, hi. Hey, good morning. Just one for me. Could you talk a little bit, does the MAX situation... change your thinking about the pace of retirements or actually going into the market and acquiring U737s? Are you investing in maintenance overhauls on aircraft that you'd otherwise be kissing goodbye?

No, I mean, I think the answer to that question is we have so much growth at the moment. I think we had thought we would be using some of our the game-changer deliveries to retire older aircraft. But actually, we have so much growth opportunity out there. We're growing faster than we originally thought we would at this time because we're not retiring older aircraft. In fact, as I used the example, one of the aircraft we'd returned off and operated at least two years ago has now been offered back to us at a very significant discount. And we will opportunistically add, you know, aircraft in ones and twos where you know, 737 sort of NGs, where there's a kind of a financial incentive to do so. We're not looking to the second-hand market, though, and there isn't much of a second-hand market out there at the moment on NGs. A lot of those aircraft have gone back into cargo conversion programs, et cetera, et cetera. You know, we have another 150, 160 aircraft deliveries to take from Boeing over the next three years. That gives us plenty of headline growth. And these aircraft, remember, one of the key efficiencies of these aircraft, they have 4% more seats but burning 16% less fuel. So not alone are they much more financially, from an operating point of view, much more efficient to fly, but they're also environmentally much more efficient as well. And I would continue to focus on those aircraft. I think it's inevitable by the time we get to sometime in 2024, 2025, We would like to be back in discussions with Boeing on a new aircraft deal, but Boeing have to sort out their own manufacturing challenges at the moment, and they've got to deliver what they've committed to first before we can actually start negotiating new aircraft orders with any sense of confidence with Boeing. In the meantime, Airbus are mocking up huge amounts of Boeing's market share. They're now converting a lot of Boeing customers in China, in the UK. Jet2 has gone to Airbus from Boeing. And I have no doubt that once they sort out the current production problems, Boeing will want to recapture market share. And when that timing comes about, they know we'll be there working with them, but only on pricing that makes it economic for us to continue to grow as Boeing's principal kind of standard bearer here in Europe.

Thanks for the thoughts.

Thanks, Wayne. Any other questions before we wrap it up?

No, that was the final question.

Okay, instead of me wrapping up, why don't you give us a couple of closing thoughts on balance sheet, cash flows, pay down of debt, and then I might ask Eddie Wilson to give us a couple of closing thoughts on summer 2023.

Okay, on the balance sheet itself, as I previously said, it's performing very well. We've recovered quite significantly, but we do have two big years of CapEx ahead of us. While we spent 900 million in the first half of this year, we do a 2.3 billion CapEx program in the current year. That will drop to somewhere in the region of about 2.1 to 2.2 billion next year. But I think the strength of the balance sheet is core and it's enabling us to pay at a time when interest rates are rising to pay off maturing debt and to fund ourselves from our own resources. So that's hugely important. It's also giving us the ability to to have a rock solid triple D rating, which enables us to put hedging in place for both the dollar and for the fuel, particularly on the CapEx, where we're extremely well hedged out at 124 at the end of the Boeing order book, which means we're locking in aircraft in Euro terms at very attractive levels, which enables us to grow over the next number of years. Costs in great shape, as Mike has already said as well, unit costs having come down quite significantly in the first half. guiding full year unit cost of 31 euro X fuel and then we'd hope to start seeing some reductions as we take more game changes into the fleet over the next couple of years.

And Eddie, maybe you could give us a last thought on summer 23 and kind of generally commercial development.

Yeah, I think I started off on just talking about the operation model. I mean, from what we've learned this summer, it's about being prepared for next summer as well. And, you know, we've had the backdrop of ATC this summer, which really add into sort of crew hours, and we're ahead of everyone else. But, you know, we've got to ensure that we're fully prepared, particularly with third party providers in advance of next summer, so that we can deliver what we promised. So I would always like to be able to say that we've got the people, the airports, and the aircraft, and the only one that has and some doubt that is the aircraft, but that we believe will be temporary in nature. We look at where we've got on fares, particularly the strong Q2 fares, and you look at the capacity that's coming out. I mean, you looked at places like Germany this summer where the market shrunk by about 25% in July and August. and where are those gaps going to be filled by next summer, and I think that's going to reflect itself hopefully in higher fares. So let's get the operation right, make sure we've got all our partners at the airport ready to go for next summer. We're not going to solve the ATC by next year, but I think it's a good environment in terms of capacity reductions in the market for fares into summer 2023.

Thanks, Eddie. Okay, I'll just leave you one final thought to be the party pooper. You know, we have recovered very strongly. We've had a very good first half of the year. We are still, though, forecasting a loss for the second half of the year. We're looking at something up to about a 200 million loss between Q3 and Q4. The absence of Easter will hit Q4. That could be worse if there is, I mean, again, I want to keep re-emphasizing the risks we face as we experienced last year with an adverse COVID development in November and with the Ukraine invasion of February. This recovery is strong, but it is fragile and it could still fall over. But if it doesn't fall over, I would be reasonably optimistic that we're heading into a strong summer of 2023. Our first priority will be to restore the pay of our people, recruit another couple of thousand pilots and cabin crew to service the summer 2023 growth. The next priority will be to use the cash to pay down 1.6 billion euros worth of debt next summer. And then we need another 2 billion just to continue to fund the CAPEX. So these are challenging times, but I think the management team at Ryanair and our unions and the people and our people have demonstrated a resilience through COVID, a flexibility through COVID that leaves us very well positioned coming out of COVID to grow strongly. If there is a recession, it will be good for our business. We will continue to grow much stronger into a recession than any other airline in Europe because of the widening cost and fare gap we have over every other European airline. And with that, can I say thank you to everybody who joined in this morning. We have extensive road shows on the road all week here in the UK, in Europe, in the US. If anybody wants a meeting or a one-on-one, please contact Davies or Citi and we'd be happy to fit one in. And in the meantime, I hope we'll see you all individually at some stage during the week. And if not, feel free to come to Dublin in November or December and boost the load factor all on your own. Thank you very much, everybody. Good to talk to you. God bless. Bye-bye.

Thank you all very much for attending. You can now disconnect your lines.