Ryanair Holdings plc

Hello and welcome to the Ryanair Q3 FY23 results conference call. Throughout the call, all participants will be in listen-only mode, and afterwards there'll 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 conference 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 Q3 results conference call. I'm Michael O'Neill with the usual team here in Dublin, and Neil is joining us from London where he's doing the media stuff this morning. I'm not going to deal with the press release. The slideshow and the management MD&A is largely dealt with. I'll take those as read and point you to the investor relations page on the website. A couple of quick comments on the Q3 numbers and the kind of outlook going forward. So we reported a very strong Q3, a profit of 211 million, which contrasts markedly with the other alleged low fare carriers in Europe, all of whom reported a significant Q3 loss. Our traffic was up 24% to 38.4 million. That's up 7% on the pre-COVID figures of FY20. We're still the only airline that has materially returned to strong growth over our pre-COVID traffic numbers. We saw a strong rise in Q3 fares, up 14% on the pre-COVID levels. That was mainly due to a very strong October school midterm and the Christmas and New Year kind of period. We saw very strong traffic at higher than expected airfares. That was why we went out on the 4th of January with the trading upgrade. And thankfully for a change, the Christmas trading wasn't disrupted by any adverse news flow on COVID or Ukraine. So we had a reasonably undisturbed but very strong Christmas and New Year period. We spent a lot of time agreeing with our union partners, agreeing the pay restorations. Not alone have we agreed to pay restoration with almost all of our pilot and cabin crews. The only people outstanding are some of the Belgians. But we've also put in place multi-year pay agreements. We've taxed multi-year pay agreements onto the back of those deals so that our crews can look forward to kind of guaranteed pay increases over the next four years or four or five years. depending on which agreements they've done. I think it's an example of how we continue to work well with our unions and with our people, both to preserve jobs during COVID, but also to reward them as we emerge out of COVID, when hopefully we'll continue to avoid any further Black Swan events. Year-to-date unit costs. And I think this is the compelling store message, one of the two compelling messages this morning. There's been an extraordinary widening of the unit cost gap between us and every other airline in Europe. I would point you to slide four of our industry presentation. Before COVID, we were already Europe's lowest cost airline with a total cost per passenger, excluding fuel, a big cost per passenger of €31. Over the past nine months, we've managed to maintain that. Actually, it's gone down very marginally to €30 per seat, excluding fuel. But every other competitor has seen very significant cost increases. Wizz, we calculate their unit cost of fuel up 18%, EasyJet up 42%, Southwestern Estates up 25%, and even the legacy carriers who were already ridiculously high cost, prior to COVID, we think Lufthansa have seen seed costs up 16% and IAG up 16%. And I think there's such a widening of that cost gap between us and every other airline. It's one of the reasons why we are continuing to grow so strongly, but also why profitability has rebounded strongly this year. And we're... And I think that'll be one of the themes of this morning's call. Thus far, we've taken delivery of 84 game changes up to the end of December. There are still some uncertainties as to whether we'll get all 51 aircraft that Boeing are scheduled to deliver to us by the end of May. At the moment, we think we're somewhere around 44, 45 aircraft, but it's a kind of a daily and weekly thing we worry about with Boeing, because obviously some of our growth into the summer of 2023 will be disrupted if we don't get those 51 aircraft out of Boeing. Nevertheless, we're seeing strong growth in all markets. We have 223 new routes announced for FY24. We're seeing very strong market share gains. I think one of the things that we constantly decided to do was to go after market share, grab market share gains in those markets where incumbents were withdrawing capacity. So we've seen very strong gains in Italy, where ETA or Alitalia has reduced capacity, in Portugal, where TAB has reduced capacity, in Poland, where WINS appeared to be taking capacity out, and also in Ireland and Spain, where the incumbents were very slow to recover their capacity as Europe emerged out of COVID. I think the other thing we point to this morning is that in H1, we've increased our fuel hedging now from 50% to 60% cover. We were able to take advantage of some weaker pricing there over recent weeks. We brought down the fuel hedging cost from $92 a barrel to $90 a barrel. That's for H1 FY24. We remain 50% hedged at $92 a barrel for the H2 of FY24. So we think we are in reasonably good shape. A couple of other themes then I just want to talk to you about. Looking forward into this summer, we still see seat capacity constrained in Europe. It is quite clear that some of the legacy carriers are not restoring their pre-COVID capacity. Obviously, in Italy and Portugal, TAP and Alitalia are capacity constrained. Alitalia's fleet is reduced by almost 50%, TAP by 40%. We're seeing Lufthansa in Germany being very slow to restore pre-COVID capacity. The German market is a very interesting one this year. Recent figures suggest that it's only operating at 70% of its pre-COVID capacity. And we think that's a conscious decision by Lufthansa to constrain capacity so they can drive up airfares. And airfares are seeing their highest increases in the German market. We have reduced some of our capacity in the German market or reallocated some of it where Frankfurt Main were increasing charges. We reallocate deployed capacity to Frankfurt Han. We've increased capacity in Niederrhein and Nuremberg and some of the smaller bases there. But I think the German market is going to be one where Lufthansa will, being the national champion, will do what they generally do where they have a quasi-monopoly. They'll constrain capacity. They will increase pricing quite significantly. And we will be the beneficiary of that, even though Germany is one of our smaller markets. The other thing we point to is wins are seem to be taking more and more capacity out of markets where they compete with us. Austria, Central and Eastern Europe and Italy, regional and Italy domestics. They seem to be, I would have said, a flight of capacity out of those markets where they compete with us. And a lot of that capacity appears to be moving into the Middle East. which it would appear to us to be whiz on a kind of campaign to find a market where they don't have to compete with Ryanair, which is a good sensible strategy from their point of view. So I think there's going to be meaningly less capacity, short haul capacity in those markets as a result of whiz pivoting some of their capacity away from intra-EU and off to the Middle East. Allied with that into this summer that we think there's going to be very strong transatlantic traffic. And there's the beginning of a recovery of Asian traffic. Now, with the movement in the COVID restrictions, the Asians will start returning to Europe this summer. They won't reach their pre-COVID levels. But any recovery of the Asian traffic will, we believe, fill up a lot of the short haul connecting and transfer flights of the legacy carriers, the Lufthansa's IAG's and Air France KLM. the transatlantic traffic will also play a role in that. And therefore, we think and believe that there will be meaningfully less available capacity on European short haul this summer. Europeans will continue to holiday at home. I think the strength of the dollar will militate against them going transatlantic. Asia is still effectively closed and not very welcoming for long haul journeys from Europe. And so the outlook, I think, is reasonably robust for summer 2023. We're already seeing that in our forward bookings. As we've reported in the last couple of weeks, we see very strong forward bookings, both volumes and pricing into the February midterm, into the Easter, which is in Q1 of next year, which is in the middle of April. and in summer 2023. At the moment, our bookings are running at or above where they were pre-COVID for some of the peak months of the summer. It doesn't run right through the summer. And fares at the moment are running above where they were last summer. Now, I think, therefore, everything is set fair for a reasonably strong Easter and a reasonably strong summer 2023. How strong will that be? We have no idea. And I can answer 90% of the follow-on question, which would be, where do I think yields will be this summer? I don't know. But it looks at this point in time that they will be stronger. I think it is reasonable at this stage to expect that they will be a kind of mid to high single digit up on where they were in summer of 2022. But it's too early to say. We haven't yet finalised the budgets and we don't have an outlook for next year yet. But absent there being any adverse news flow on COVID, any adverse news flow in Ukraine or any other unforeseen black swan events, I think it is very reasonable at this point in time to suspect that we will have a second summer of rising fares. We will need a second summer of rising fares because we will have materially higher oil prices. We were very well hedged last year into summer 2022. We're reasonably well hedged but at higher price levels into summer 2023. But the outlook on forward bookings, constrained capacity, strong return of transatlantic and Asian traffic to Europe and Europeans holidaying at home for the second year in a row means I think we will continue to see significant market share gains from Ryanair in those major markets where we're allocating capacity, Portugal, Spain, Italy, Greece and Central and Eastern Europe. We're also seeing strong growth in Ireland and the U.K., Flybees failure over the weekend is not unhelpful, even though they don't have a lot of capacity. The failure is taking place at airports where we tend to be going into Belfast. Birmingham, we're the largest airline. They're not big, but it's reasonably helpful and it will help our expansion this year. We have very low costs going forward. The unit cost gap between us and all other airlines has materially widened as a result of COVID and the work we've done during COVID, extending airport deals and taking delivery of low-cost aircraft for Boeing, working closely with our people and our union partners to restore pay, lock and agree pay increases for the next coming years. And that work continues. So we are on track this year, as I said, we've raised the guidance to a range of 1.325 billion to 1.425 billion. We think, again, absent any disruptions in February or March, we will get to our 168 million traffic figure. And again, subject to getting reasonably close to 51 aircraft deliveries from Boeing, we think we are on track to get to 185 million passengers in FY24. But we haven't yet finalized our budgets. We know that fuel will be higher. And I think there's a reasonable prospect that this summer, average fares will be up mid to high single digits. It could be more. But generally speaking, when things look optimistic in this industry, some curveball is sent to keep us all, to keep our feet on the ground. So outlook is reasonably robust. There are challenges. Fuel will continue to be a challenge. I would caution any irrational exuberance here. We are going to lose money in the fourth quarter. We don't have Easter in the fourth quarter. We are hiring a lot more and training a lot more pilots and cabin crew. We expect a lot less disruption at European airports this summer. We think the airports themselves, the handling agents and the other airlines will be appropriately staffed when we get to the summer schedule at the end of March. We do think ATC will be a shambles, particularly through Q1. So April, May, June will be very difficult. The French will be engaging in their kind of recreational striking. There will be frequent ATC strikes in France. There will be ATC staff shortages on Saturday mornings when the French will not turn up to work. German ATC will also be a real pinch point. A lot more flights are being routed over German ATC because of the NATO exercises in southern Poland, because Russia being closed. And German ATC is not staffed up or geared up to handle these kind of volumes. We're working closely with Eurocontrol and the flow managers to try to route flights around Germany as best we can. But we think certainly in the first quarter and through the first half of the summer, ATC will be a major challenge will cause a lot of flight delays and disruptions, and we're pushing very hard together with our other fellow members in A4E. There is a simple solution to a lot of this, and that is to separate the upper airspace for the Eurocontrol to take control of the overflights, because if you could protect overflights during periods of national strikes, as they already do in Italy and in Greece, that would be a solution that would solve a lot of these problems, and yet we continue... to hear the European Commission come up with all sorts of excuses why this can't be done. And it is another example of where the European Commission is absolutely useless. They've had 24 years of abject failure on the single European sky. And when you give them a simple solution, like protect the overflights during strikes, they won't take it. So we'll keep pushing for some solution on that. Well, that's all I have to add. Neil, you want to take us through MD&A or highlight some themes you want to raise?

Yeah, I will. You've dealt with the unit cost advantage very well. We're still on track for our full year guidance. FY23 of about €31 per passenger X fuel. So very pleased with the cost performance year to date. Hedging again, Michael pointed out that we've increased our hedging into the summer of FY24, about 60% hedging out over $90 a barrel. But the other big differentiator between ourselves and everybody else is the strength of our balance sheet. Our balance sheet, strong investment grade, BBB, positive outlook. We had 4.1 billion cash at the end of the quarter. That has actually increased to over 4.4 billion today. And importantly, net debt, which is 960 million, down from 1.45 billion at the end of last year. And that's despite 1.3 billion in CapEx. So we've got another 700 million in CapEx between now and the back end of March. And then over the next 12 to 15 months, we'd be very busy paying off maturing bonds of 1.6 billion out of cash resources and financing another 2.5 billion of CapEx next year and hopefully get the balance sheet back to a broadly net cash, net debt position by the back end of FY24. I have nothing further to add, Michael.