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.