Ryanair Holdings plc

Hello and welcome to the Ryanair Holdings PLC Q1 FY24 earnings release 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 the star followed by 1 on your telephone keypad. I will now hand over to your host, Michael O'Leary, Group CEO to begin. Michael, please go ahead when you are ready.

Okay, good morning, ladies and gentlemen. You're welcome to the Q1 results conference call. As usual this morning, we posted the results release, an extensive MD&A and a video Q&A with myself and Neil Sauron. That went up on the Reiner.com website at 7 o'clock this morning, so I refer you to that and I take it as read. I'll give you a couple of comments on the results and a few thoughts, and then we'll open it up. I'll ask Neil just to give his couple of comments on the MD&A, and then we'll open it up for Q&A. So you've seen this morning we reported a Q1 profit of $663 million. The number is materially distorted because it's compared to a Ukraine-affected prior year Q1 PAT of $170 million last year. Last year, you'll all recollect, Russia invaded Ukraine on the 24th of February. It caused a significant collapse in traffic through March and into Easter. And it also meant, if you recollect, we aggressively dumped prices in the Q1 of last year. Prices, we reported this time last year, average fares this time last year were down 4% on pre-COVID prices. as we were aggressively kind of trying to restore load factors through Q1 so that we could kind of underpin Q2. And I think that's important, and it's something I want to stress a couple of times today. So we very aggressively dumped prices in Q1 last year, and so the growth of $170 million to $663 million is a function of the very weak prior year comps. This year's Q1 was held by a very strong Easter, strong demand, good pricing. We had a second UK bank holiday in May, so we were the beneficiary of that. So over the quarter one, traffic rose 11% to 50 million passengers. Revenue per passenger was up 27%. Again, that kind of average fares were up 42%, but that's distorted by the fact that average fares were down 4% in the prior year Q1, and silly revenues were up 4% on a per passenger basis. At the end of the quarter, we're operating 119 Boeing 737-8200 game changers. The total fleet in June was 558 aircrafts. We've opened three new bases and 190 new routes for the summer 23. Three new bases in Belfast, Lanzarote and Tenerife, all of them performing well. We've extended our fuel hedging. We're 75% hedged for FY24 at $89 per barrel, a little bit above current spot rates. We're 27% hedged for FY25 at $74 a barrel. If we were able or willing to extend that hedges, if we could hedge all of FY25 at $74 a barrel, that would be a saving of almost €1 billion into next year's earnings, FY25 earnings. Net cash at the quarter end was strong at just under a billion euros, up from the half a billion euros at 31st of March. And again, thanks to the excellent work that Neil and the team have been doing, our rating has been upgraded by both Standard & Poor's and Fitch's from BBB to BBB+. The big development in the quarter was obviously the 300 MAX 10 aircraft order, which we signed with Boeing in May. This order gives us a decade of further growth in Europe in a marketplace where capacity is constrained. The industry is consolidating. Ryanair has access to another 400 very low-cost aircraft, another 100 game changers, and then 300 MAX 10s. which will enable us to renew the fleet, but also grow traffic at a more controlled rate to 300 million passengers by FY34. Just in terms of growth, again, I think we and the rest of our competitors continue to be a beneficiary of structural EU capacity reductions following COVID. There was numerous EU airline failures or fleet reductions during COVID. We continue this summer to see volatile oil prices and higher interest rates, which is discouraging weaker unhedged airlines from adding capacity. There is a shortage of aircraft, both new and leased. that I think will run on until the end of this decade, out to 2030. This summer in Europe, there's no doubt we're seeing the benefit of a very strong influx of American visitors to Europe, helped by the strong dollar. We're starting to see a meaningful return of Asian traffic to Europe, which means that European short-haul capacity remains constrained, but demand is high. And so through H1 this year, we're seeing strong demand, load factors high, airfares, which were very strong in Q1. They would be modestly up in Q2, but not by what we saw in Q1. Remember, Q2 last year, we had a very strong Q2. We reported after profit after tax in Q2 last year of 1.2 billion. And we expect average fares will be up, but it'll be a small double digit percent, something in the mid-teens. European Airlines will continue to consolidate over the next two or three years. Lufthansa are moving to take over ETA in Italy. The sale of TAP in Portugal is now actively underway. There's a large backlog of aircraft manufacturer, OEM aircraft deliveries, and we believe that's going to continue to constrain capacity growth in Europe for at least the next three or four years. and will assist us as we continue to expand our fleet, I think will mean we'll see growth with strong traffic demand, and I would hope to see modest airfare rises over the next two or three years. But I suspect they'll be modest compared to the very strong pricing we saw in Q1. The critical thing here is in Ryanair, our unit cost advantage over all EU competitors, our fuel hedging, our strong balance sheet and our low cost aircraft orders, which now will run out to 2020, 2033, a decade, coupled with our industry leading operational resilience will create very significant growth opportunities. And I think there'll be profitable growth opportunities for Ryanair over the coming years as we grow to 300 million passengers by FY2034. In terms of fleet, The Game Changer fleet stood at 119 aircraft at the quarter end. It will rise to 124 at the end of July. We've already taken the first four of those July deliveries. Boeing hopes to deliver the last aircraft either on the, we think, Friday the 27th or Monday the 31st of July. So we will just have all 51 aircraft in for the peak August travel period. Boeing has suffered multiple supply chain challenges, which has caused repeated delivery delays. We had hoped to be out of these at the end of July, but already we're seeing they've notified us of delivery delays in the autumn deliveries, which have been hit by the strike in spirit in Wichita, the collapse of the bridge over the Yellowstone River, etc. We already have agreed with Boeing that some deliveries will be delayed. Our last deliveries for FY20, for summer 24, which were to have been in April 24, will now be delayed to June 2024. But hopefully we can take all those aircraft by the end of June 24 and therefore benefit with that continuing growth through the peak months of July and August. In May, we signed the order with Boeing to purchase 300 Boeing MAX 10 aircraft. These aircraft are astonishingly efficient. The order is subject to shareholder approval at our September AGM, but these aircraft offer us 39 more seats, 228 seats versus 189 on the 737NG fleet, but deliver 20% lower fuel consumption, 20% less CO2 emissions, and they're 50% quieter. These aircraft will transform Ryanair's operating costs, will further widen our already considerable unit cost advantage over all competitor airlines in Europe, and will materially, I think, incentive, will materially improve our growth for the next decade. We think about half of this order will be used to replace older NGs, which will start hitting 24, 25 in 2028 and 2029. But half of the order will allow us to sustain controlled, although more modest growth into the early 2030s than we have delivered over the past 10 or 15 years. Just in terms of outlook, therefore, we expect FY24 traffic to grow to approximately 183.5 million passengers. We've had to step that down from the original 185 million forecast because of these point delivery delays through May and June. And what also looks like we're going to suffer some delivery delays in September and October as we start gearing up for maintenance. We'll be short some aircraft and we'll have to pare back some schedules. However, having said that, the cost gap between Ryanair and all of our competitors continues to widen materially in Europe. As previously guided, we expect to see a modest increase in our ex-fuel unit cost this year of about €2. This is due to the full year impact of annualised crew pay restoration. higher crew ratios, which is material this summer, where we are suffering the challenge of really lamentable ATC provision across Europe. We notice some competitors have already been cancelling flights through the peak travel months of July and August. We're not cancelling flights. We expect to complete our entire operation, but we need more standby crews to be able to make up the amount of ATC delays we're suffering. The route charges and the impact of the game-changer delivery delays will also impact unit costs this year. Q2 bookings are strong. We expect to run through Q2 with load factors of 95%, 96%. The fare increase in Q2 will be much lower than it was in Q1. The average fare in Q1 was up just over 40%. We expect in Q2 that it will be more modest because of a much tougher prior year Q2 pricing. We think low double digits, something in the low teens. And again, that's partly because peak summer travel snapped back very strongly in Q2 last year following the Ukraine invasion. We have noticed in the recent couple of weeks a slight softening in the close-in fares in late June and early July. Nothing that I would be overly worried about at the moment, but I think there's either a degree of customer resistance to the higher fares, but we are filling our aircraft at fares that are marginally higher than they were into Q2 last year. But the final H1 outcome, therefore, is highly dependent on the trends in close-in bookings for the remaining seats in August and September. As is usual this time of the year, we have no Q3 or Q4 visibility. We are cautious, though, that we enjoyed a bumper Christmas and New Year travel period last year. That was the first kind of full Christmas period that wasn't affected by COVID for three years. And we're conscious that this winter we're looking to grow. You know, we're operating at 125 percent of our pre-COVID capacity. And I would allow for the fact that we may have to engage in some price stimulation as we move into October, November. But we're not seeing that this summer, but we are expecting it later on this year. So I think we're trying to be cautious. We've had a very strong Q1. We think Q2 will be modestly ahead of where Q2 was last year. Therefore, we'll have a strong H1. But I would be cautious into the second half of the year. You know, consumers are facing challenges out there across Europe. Higher interest rates, higher mortgage payments. consumer price inflation is high. You won't have the benefit of the Asian and the American traffic in the second half of the year. And we are pushing 25% capacity growth in a market which this summer in Europe is operating at only 93% of pre-COVID capacity. We think that gets closer to 100% of pre-COVID capacity into the second half of the year. So I think we're right to be cautious. We are well crewed. We're getting through the summer well. Load factors are high, but pricing might just be at that kind of inflection point where it begins to soften a little bit. I would welcome softening in pricing. You know, we've had a very strong recovery over the last two summers. But with Ryanair's much lower cost base, I think you're going to see us continue to take market share from competitors. And we may need to do that this winter based on price. However, given the uncertainty we have over the H2 Boeing deliveries that have been accentuated by the collapse of the Yellowstone River Bridge in Montana, our significantly higher fuel bill this year, our fuel bill will be up a billion euros over last year, the continued volatility of unhedged oil prices, very limited H2 visibility, and our expectation that the risk of tighter consumer spending in the second half of the year We still remain cautiously optimistic that full-year profit after tax will be modestly ahead of last year. It is, however, still too early to provide any meaningful FY24 PDT guidance. We don't think that will change until we get to the H1 results in November. I would, two other, a couple of other closing points. I would look at the very strong growth profile we have here. We're very excited by our entry into the Albanian market this winter. Albania is a market that is, I think, ripe for exploitation. It's been hampered in recent years by only having one high fare carrier in the market. and I think our arrival into Turman and Albania to very low, materially lower fares than the incumbent carrier will mean pretty dramatic growth in that marketplace. We were pleased and delighted last week. Eddie Wilson, Jason McGuinness, our Director of Commerce and myself, we spent Wednesday, Thursday in Ukraine, where we met with all the main airports, Boryspil and Kiev, Lviv, Odessa. We were, I think, inspired was the right word by the state of readiness of those airports. They really have kept their people employed. The airports are ready to rock and roll the minute it is safe to do so. They're hoping to reopen some air routes into the main airports in Lviv and Kiev. Maybe by the end of this year, they're looking at a kind of Israeli type Iron Dome solution over Lviv and Kiev. And if they could achieve that, we'd be hopeful that the European authorities would allow a limited flight presumption. I think it's important for Ukraine and the people of Ukraine. I mean, we endured a 10-hour train journey from Poland into Ukraine, in and out. The one thing that's missing in Ukraine, Kiev, feels remarkably normal. But what they're missing is air travel. And we I think it's incumbent on all of us in Europe to support Ukraine as best we can. And I think the best way we can support Ukraine is by leading the return to air travel. So we continue to work closely with the EASA, the FAA to encourage them to reopen, at least even if it's only on a limited basis, the return of flights into Kiev and Lviv. Once the war ends, and we all hope it will be sooner rather than later, we will charge back into Ukraine. We've committed to basing up to 30 aircraft in Kiev, Lviv and Odessa. Kherson, Kharkiv will be later because those airports have suffered significant damage. But we intend to return back in there within four to six weeks of being allowed to do so. We expect to be connecting Kiev and Lviv with up to 25 or 30 European cities. Ukraine was a big and growing market for Ryanair prior to the invasion. And after they have successfully repulsed the Russians, we expect that Ryanair will be the number one airline in Ukraine. And in reasonably short order, we'll be the number one airline in Albania as well. I think this underscores the strength of the growth that is still ahead of us, in front of us in Ryanair, not just in Western Europe, but in Central and Eastern Europe, where the more we push into those markets, the more we take market share from our high fare competitors. One last thought. There is, I think, a slightly over-optimistic, we are looking forward to, we're holding a capital market day on the first week of September. The purpose that day is to take everybody through the MAX 10 aircraft order, a detailed drill down into the very exciting growth opportunities we have all over Europe for the next, and in those countries close to Europe for the next decade. We will not be updating profitability. We will not be discussing dividends or anything else. We really want to have a drill down into just the growth, the max 10 and what it will do for our costs. We will be sometime before the middle end of August issuing the Class 1 document together with the AGM notice for the max 10 order. And that will limit any commentary we will have between it and the AGM when we hope shareholders will back our vision and support the order for the MAX 10 aircraft. So I just want to make sure that we have punctured any irrational expectation that the capital markets, there will be some dramatic reveal it won't. But there will be very exciting, I think, news and communications on our decade of growth. which rolls out before us in a marketplace in Europe where capacity is constrained and where all of our incumbent competitors have seen are emerging out with COVID with materially higher unit costs than Ryanair is. I am astonished, never cease to be amazed. I looked at the numbers last week. Our PE multiple currently is 11. The PE multiples of Wizz and EasyJet who can neither match our profitability, our growth or our unit costs are also 10 and 11. So either they're materially overvalued or we're materially undervalued. But I'm sure the markets will work it out in due course. We look forward to seeing you all here at the Capital Markets Day in September. I think we have a very exciting story to tell on our new aircraft order and on growth for the next decade. But that will be the height of it on that day. Neil, you want to take us through the Q&A or any points you want to raise on cost of a handover?

I'll very briefly just run through, because in fairness, you covered off everything quite comprehensively. I think it's clear that we continue to have the unit cost advantage over everybody else, although there is a bit of price inflation coming through in the first quarter as we annualise the pay restoration and the pay increases that we've awarded our people. And as Michael said, we've invested very heavily in crewing ratios. This summer, we were operating up to about 5.8%. sets of crews per aircraft up from 5.4 sets of crews last year. So you're seeing that coming through. An increase in local ATC charges also coming through in the airport and handling line. So I think that that's apparent in the numbers this morning. The balance sheet in very good shape. We finished with 4.84 billion gross cash. And as Michael said, just under a billion in net cash, and that was after a billion in CapEx, including a $250 million signing fee on the Max 10, which we signed back in May. So we've got another $1.8 billion to go for the balance of this year. Our balance sheet became fully unencumbered last Friday when we paid off our final Ex-Im loan. So all of the 737, 800s, now fully unencumbered, which I think is unique. And that's reflected in the ratings that we got from Fitch and S&P up to BBB+. Hedging, again, as Michael said, very well hedged for the year, up just under 85% hedging, of which 75% is through swaps and the balance through options. So we've got about 25% of our fuel floating. And then as we look into next year, we've got about 40% of the first half of the year hedged out at approximately 75%. dollars a barrel and then some modest hedging into the second half of the year. Just some other bits and pieces, the Class 1 circular will be issued in the next couple of weeks and this morning we published our annual report for 2023 and our 2023 sustainability report on our website which sets out our ambitious targets for the next decade there as well and that's pretty much it for me Michael.