Ryanair Holdings plc

Welcome to the Ryanair FY23 earnings call. My name is Maxine and I'll be coordinating the call today. If you would like to ask a question, you may do so by pressing star followed by 1 on your telephone keypad. I will now hand you over to your host, Michael O'Leary, Group CEO of Ryanair Holdings PLC to begin. Michael, please go ahead when you're ready.

Okay, good morning, ladies and gentlemen. Welcome to the Reiner Full Year Results investor call. We have extensive numbers of teams all dialing in because we have an extensive 12 teams on the roadshow this week. So anybody looking for a meeting, please call any of our brokers out of Davie, Citi or Goodbodies. I think the results have read that we have an extensive presentation Q&A on the Reiner.com website. Go there, while you're there, make some bookings. You'll need them this summer as prices are rising. To touch briefly on the last 12 months, we've seen a very strong recovery. Traffic grew to 168.6 million passengers, which is up 13% in our pre-COVID capacity. in a marketplace in Europe which was operating last year at less than 90% of pre-COVID capacity. So Ryanair has been taking enormous swathes of market share in almost all markets across Europe. While our traffic has recovered last year ahead of COVID, profits are still marginally behind where they were pre-COVID at 1.43 billion. Nevertheless, a very strong performance at a time when most of our, certainly the alleged low-code competitors in Europe are still reporting losses for the last year. Underpinning that was a very strong fuel hedge performance last year, and that poses a challenge for us going forward over the next 12 months. Looking out at a couple of broad themes, which I'd like to explore, I think, during the Q&A in particular, we're looking out into a year where we have embedded an enormous cost advantage over almost every other airline in Europe. I think one of the very significant results of COVID has been two things. One, a huge amount of capacity has been weeded out of Europe. You've seen a huge number of airlines with quite a considerable capacity go both to Thomas Coates, to IVEs, German Wings. The other incumbents to survive that COVID have either A, structurally reduced their capacity. Alitalia is operating at 60% pre-COVID capacity. TAP, about 50% pre-COVID capacity. Lufthansa, for example, this year in the German market, is still only operating at 80% of its pre-COVID capacity in the short haul market, and yet its prices have doubled. So there is heavily constrained capacity. The other feature of COVID, and particularly when we look back and rewrite the history of COVID, has been a seismic movement in the unit cost gap between Ryanair and every other airline in Europe. We have worked extraordinarily hard during COVID to keep our XQ unit cost down at around 30, 31 euros per passenger, but we've seen most of our competitors suffer very significant increases in their unit costs. Most of our local competitors had higher wages and labour before COVID. They're even higher now. Their airport and handling costs have materially moved upwards while we, thanks to our growth, have been able to maintain low and stable airport and handling costs. But on the ownership and maintenance side, Ryanair, thanks to the renegotiation with Boeing during the max groundings, we have seen a very substantial widening of our ownership and maintenance cost advantage over most of our competitors, almost all of whom who either are operating almost entirely leased fleets or went into COVID owning a significant proportion of their fleet but came out of COVID with most of their fleet refinanced on sales and leaseback. And as we move into an environment, a world environment of significantly higher rates and financing costs, Our competitors will be paying significantly higher aircraft and ownership costs going forward for the next number of years, whereas our aircraft and ownership costs will be low and will keep low. And I think if you look at where we stand now with a widening cost advantage, the ability to enter into markets all over Europe, regardless of who the incumbent is, where we can get slots at airports, I think we're looking at a fundamental shift in European aviation towards Ryanair. large market share gain. Looking out over the next 12 months, we expect to grow our traffic to 185 million passengers. And to put that in context, that's 25% more than our pre-COVID traffic in a marketplace where short haul capacity would be at best 90, 95% of pre-COVID capacity. And it is that constrained capacity is, in my view, what is delivering or what is sustaining this strong demand outlook. We and all of our competitors are seeing this summer. Capacity is still behind pre-COVID. Demand is significantly stronger. People who've been locked up for two, three, two and a half years are going back traveling. I think there's a very unusual scenario in Europe of essentially full employment. People are getting paid at the end of every month. And despite fears over energy costs, inflation, rising interest rates for spending money and travel, business travel, leisure travel, visiting friends and family is no longer a luxury. It appears to be a kind of a necessity. So we're looking out into this summer with, as we said, advanced bookings, stronger than they were pre-COVID, forward airfares slightly higher than they were pre-last year. Again, and that's why we have to be a little bit cautious on guidance here. An awful lot of the strengthening of airfares is the last 10, 15, 20% of passengers. We have spent most of this year urging passengers to book early because prices we think will rise. There will be no near-term short sell-off in airfares. Prices are rising. Demand is strong. Europe is being welcomed. It will be invaded by American visitors because of the strength of the dollar and we're also seeing Asian traffic recover. Well hedged on fuel, although our fuel bill this year would be about a billion euros higher than it was last year, thanks to the strength of our hedges last year. The Boeing delivery delays are getting resolved. I think we're now down to talking weeks instead of months for the remaining aircraft for this summer. We're now reasonably confident we're going to get all of the 51 aircraft by the end of July. There will be a disruption to... We've had to take out some capacity in June and July, but we don't expect it to cost us more than 600,000-800,000 passengers, which in a year when we're forecast to ride to 185 million passengers would be largely immaterial. With the benefit of our widening cost advantage, we're rolling out those 50 new aircraft across most markets across Europe, where competitors appear to be in retreat. Many of them are focusing on building up their capacity at their fortress airports. or they're switching capacity away from competing with Reiner to the Middle East, which I think is a good, sensible strategy. Over the medium term, we see that capacity constraint story being maintained. The OEMs are challenged. Obviously, they have large backlogs. Airbus is suffering significant delivery today, as is Boeing. There is little prospect, I think, given the challenge in the supply chain, that there will be a dramatic increase in monthly production for the next two or three years. It will creep upwards, but it will creep up in ones and twos, not tens and fifteens. And then, as you've seen, a surge of orders post, I mean, firstly, Airbus' order book was essentially full out to the early 2030s. Boeing have been doing great work in, I think, this year to date, signing up a number of very significant orders with Tata in India, our order for 300 new aircrafts, There's more coming at the IATA conference in Istanbul in June and at the Paris Airshow. And I think we're looking at an environment where essentially the OEM's order book are completely full out to the early 2030. The good news is in Ryanair, we still have access to 50 aircraft a year for the next three summers. We will continue to roll out growth. It's astonishing to me that we're the largest airline in Europe by some considerable distance, 185 million passengers, and yet we're still delivering 10% growth. That is the strength of the Ryanair model, the huge cost advantage we have over every other airline, and our ability to go in with very low fares stimulate growth. I think the the way all of our competitors, every time I listen to a competitor investor call when they're talking about, you know, very dramatic fare increases, fares rising by 20%, 30%, that is driving traffic towards Ryanair. We don't expect our airfares to rise by those very, I think, irrationally exuberant numbers this year. We do expect our airfares this summer to be stronger than they were last summer, but we need that to pay for the full restoration of our people's pay and the higher oil bill. Looking out over the medium term, in a constrained environment, I think one of the key features of the Ryanair story will now be the recently announced 300 Boeing MAX order. This order secures our growth out to the mid-2030s in an environment where there will be very scarce aircraft availability. The pricing is exceptional. Yes, we are paying a slightly higher price than we paid in our last order, but as I said previously, if you factor in The delivery delay compensation, the price per seat, comes out as a little bit less than our last order in 2014. So I think our timing was fortuitous. We're very pleased to have a long order book with Boeing, and we think and look forward that that will deliver very stable growth. The growth will slow down as we get to 2027 at the max 10 orders. We don't expect to be growing at 10% a year when we're 225 million passengers, but we do expect to be growing at mid-single digits, 5%, 6% a year. That means we'll still be able to offer our airport partners 10, 15 million passenger growth a year. We will be still the beneficiary of low-cost aircraft that we will be purchasing out of internally generated cash flow, so we're not going on some debt splurge, and it means we will be able to widen the unit cost gap between us and all of our competitors across Europe. So I think we will and hopefully be able to deliver a decade of sustained, careful, slower, profitable and remunerative growth. And I think it's critical that we've now established a new target of growing to 300 million passengers by 2034. And to put that in some context, that is 100% growth over our pre-COVID figure of 149 million passengers in our last year pre-COVID. It is astonishing the demand that is out there across Europe. There are some lazy analysts out there who believe that Europe is tapped out for growth. It isn't. We're still growing strongly, as Neil said this morning, in Italy, in Spain, in Portugal, even in mature markets like Ireland and the UK. We're seeing very significant growth. Central and Eastern Europe, there is enormous demand for Ryanair. People are fed up paying the high fares of our incumbent, of incumbent competitors. And we have more growth opportunities out there than we can handle, not just for the next 12 months, but certainly for the next five or six years. One parting cautionary note, and I know everybody will lose the run of themselves. Q1 is going to be very strong. Q1 is entirely distorted by the impact of the illegal Russian invasion in Ukraine last year, which collapsed Easter and badly damaged both traffic and fares into Q1 of FY23. We had to go out and dump yields and stimulate travel into Q1. So I caution, just a note that I want on the record, Q1 would be very strong. It would be distortedly strong because there's a weak prior year comparison. And when many of our competitors are out there telling you about the new paradigm and how wonderful it is, be cautious. Q1 would be very strong. We think FY24 will not be driven by Q1. We are cautiously guiding. If one were confident we'd grow to 185 million pastures, that would be approximately 10% growth over next year. We cannot give guidance today. Too much of the yield story depends on the last 20 or 30% of our passenger bookings. It looks like Q2 would be strong, certainly if there's nothing untoward. But at this point in time, we have less than 5% of the seats sold for the second half of the year, which is the December and March quarters. We see no reason why demand won't continue to be strong. But we're cautious. We think we're right to be cautious and that we... I think it's appropriate that we caution everybody. We've seen too much, I think, irrational exuberance from our competitors. But there's no doubt that there is a strong recovery underway in a market where Ryanair is taking huge market share, in a market where capacity will be constrained, not just for the next 12 months, but for the next four or five years. And only Ryanair has a decade of aircraft deliveries and sustainable growth to deliver over that period of time. Neil, do you want to take us through the highlights of the Q&A, please?

Sure, Michael. Thanks very much for that. It's covered off very nicely on the unit cost performance that we had. I think it's important to call out the strength of the balance sheet. We've seen a good recovery in our balance sheet over the course of the past year. We finished with very strong liquidity of $4.7 billion, but importantly, moved into a net cash position of just under $600 million from debt of $1.45 billion at the same time last year. I would caution, however, that that was flattered by the timing of aircraft deliveries, which meant that about 450 million of CapEx has now been timed from FY23 into FY24. The balance sheet, however, remains extremely strong. And last week, S&P upgraded us to a BBB+, which I think is in recognition of the fact that nearly all of the fleet is on balance sheet owned and unencumbered, which, as Michael already said, greatly enhances the financing gap that we have between ourselves and everybody else. The interest rates are rising, but yet we're paying maturing bonds out of our own cash resources. We're not taking on expensive leases. And over the course of the next year, we'll judiciously use that cash, having restored pay for our people. We will now deal with peak capex of $2.6 billion. over the course of the next year and pay down 1.5 billion bonds, of which 850 million was already paid off in March, just gone, and another 750 million in August of this year. And then, of course, with the new Max 10 order book coming, we will start to build up the war chest for that, with CapEx starting to rise from there on. But the balance sheet in a good place, costs in a good place.