Ryanair Holdings plc

Hello and welcome to the Ryanair Holdings PLC H1 FY24 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 over to your host, Michael O'Leary, Group CEO, to begin. Michael, please go ahead when you are ready.

Okay, good morning everybody and welcome to the Ryanair H1 results analyst call. You'll have seen this morning on our website we loaded the half-won results. There's a full MD&A and a Q&A with myself and CFO Neil Sorohan. But just to focus on some highlight pieces, obviously we've had a very strong Easter and record summer traffic. That resulted in a very strong half-year profit rising to $2.18 billion. and we expect over the full year now that a profit after tax of about €10 per passenger is likely to be achieved, and we've declared our first ordinary dividend. It's not a first dividend, but it's certainly our first ordinary dividend that's been declared this morning. Highlights of the half. One, traffic grew 11% to 105 million. We maintained a very strong 95% load factor through the summer period. Again, I keep coming back to the point, you know, we're operating in a constrained market in Europe, and that is good for Traffic is good for load factors and it's certainly been good for average fares. Revenue per passenger is up 17%. That's a combination of average fares up 24% and ancillary revenues up 3%. We opened three new bases and 194 new routes in summer 2023. The fleet of game changers is now up to 124 aircraft. The total fleet at the end of September is 563 aircraft. Our fuel bill rose sharply because we were so well hedged in the prior year. So in the half year, our fuel bill rose 600 million. That's up 29% to 2.8 billion. However, we've continued to judiciously extend our fuel hedging program. We remain 85% hedged for FY24 at about $89 per barrel, well below the current spot. But we're happy to report that we're now about 53% hedged for FY25 at about $79 per barrel. locking in a saving of about $300 million on the first half of the fuel we need for FY25. Net cash at the half-year end stood at $840 million. That was up from $560 million at the 31st of March, despite the fact that we've repaid over a billion in debt during the six-month period. We remain committed to Boeing. The new 300 Boeing MAX 10 order will, we believe, underpin low fare profitable growth for decades to 300 million passengers by FY34 and this morning the board has announced a 400 million made in ordinary dividend and has also rolled out a dividend policy which I'll ask Neil just to comment on further in this call. Turning briefly to growth and fleet, this winter we'll operate six new bases Athens, Belfast, Copenhagen, Barcelona, Girona, Lanzarote and Tenerife. We're returning to bases in the Canary Islands. We will operate over 60 new routes, including our first 17 routes to Tirana in Albania, which opened last week with some success, high load factors and strong customer impact. To date, over 90% of our summer 24 capacity is already on sale, including over 180 new routes. While Boeing are suffering delivery problems, particularly with their fuselage supplier Spirit, we continue to work with them to minimize these delivery delays ahead of 2024. Boeing have contracted to deliver us 57 Boeing MAX aircraft between now and the end of April. We're not sure they'll deliver all 57, but we're certainly confident that we'll get about 45 to 50 of those aircraft by the end of June, which will be in time for the summer peak in 2024. And that will be critical to our traffic growth next year. We continue to see a constrained supply situation across Europe. And I think that's fundamental, not just for Ryanair's strong results in this half year, but also the very strong results reported by many of our competitors in recent weeks. Eurocontrol have confirmed about Europe is operating, short-haul Europe, into Europe is operating about 94% of its pre-COVID capacity. We see no danger that it will return to 100% of its pre-COVID capacity for the next two or three years. Consolidation continues to be a theme of Europe. We see Lufthansa closing in on the takeover of ETA. TAP in Portugal is now up for sale and the SAS refinancing sale is already underway and it looks like Air France KLM will take a 20% stake in a refinanced SAS, leaving fewer and fewer independent players out there. I continue to believe that Europe is ineligibly moving towards a situation that has prevailed in North America for the last decade of having probably four large airline groups, each of them capable of carrying about 200 million passengers a year, and three of the big legacy guys, the Panzer Air France, KLM and IAG, and Reiner being the large low-fare point-to-point carrier, much like Southwest in the States. Added to that capacity constraint story, though, is the continuing inability of the OEMs, the manufacturers, both Airbus and Boeing, to accelerate delivery. They remain challenged on their existing deliveries. Both Airbus and Boeing are running materially behind because of supply chain challenges. Boeing also with their production issues with Spirit. And I think also the Pratt & Whitney engine issue is a large and as yet not well factored into capacity story for summer 2024. Europe is the home of A320s. Ryanair is the only significant 737 operator across Europe. And the fact in which the engine is fundamentally an A320 issue. We expect there to be material groundings of competitor capacity through the summer of 2024. And we think that will run into 2025 as well. Again, because of the pressure on engine jobs. So we see very little prospect of Europe returning to its pre-COVID capacity between 2024 and 2026. and we think, therefore, that will continue to underpin strong pricing. Even if consumer demand is challenged, there will be less capacity than there was pre-COVID, and I think the price of that capacity will be higher. We've certainly seen that amongst the legacy airlines in Europe, the Franza, Air France, KLM and IAG, materially increasing airfares. They're already high airfares, and that puts quite a high ceiling over which Ryanair is seeing passengers trade down towards Ryanair but at higher fares. And that's reflected in our outlook and guidance where in the third quarter, for example, at the end of December, we are seeing average airfares currently running at mid team ahead of prior year. We're clearly growing strongly. We're carrying a lot of traffic. Costs are well under control. And our cash generation is strong. That means the board has now begun to, again, look at capital allocation policy. We set out a clear policy since COVID that as we recovered from COVID, the first priority was pay restoration and multi-year pay increases for our people. That's now been done. Secondly, we set out to pay down our remaining debt, and we've paid down two bonds of over $2 billion over the last two years. We have two bonds left in 2025 and 2026 of about $2 billion, and we intend to pay those down in their entirety. which will make Ryanair remarkably a debt-free company in Europe in the next two years at a time when the higher for longer interest rates or bond yields looks like it's going to drive up financing costs for our competitors, most of whom have very significant net debt positions in Europe. Once that's done, we also then want to continue to fund our aggressive Capadec CapEx program, and we're taking delivery of 50, we hope 57 aircraft between now and summer of 2024. and that will lead us then to another 30 aircraft in time for summer of 2025. The plan is to maintain a strong balance sheet and investment grade rating. The MAX 10 order book will deliver annual traffic of growth to 300 million. We think we'll do that largely out of internally generated cash flows, but we will continue to be opportunistic. I think it's interesting that between FY08 and FY20, Ryanair has returned 6.74 billion to shareholders via buybacks of special dividends, And we're turning now to an ordinary dividend policy, as well as today returning the $400 million by way of dividends to our shareholders, which is the $400 million they invested in Ryanair during the peak of the COVID crisis. And that, Neil, is just a comment on the dividend policy and his remarks. In terms of outlook, we continue to target approximately 183.5 million passengers in the year to March 24. That's up 9%. The final figure might vary a little bit. It depends on Boeing meeting some or most of this delivery commitment between now and the end of April, and they are running behind. We had hoped to have 20 of these aircraft delivered before Christmas. We are now thinking it looks like we'll only get about 10 of them. As previously guided, exterior unit costs will increase by about €2 this year, but that still means that we will have a materially wider cost gap between Ryanair and competitor airlines across Europe. Forward bookings, both traffic and fares, are robust over the late October midterms and into the peak Christmas travel period. And with the benefit of this constrained EU capacity this winter, we currently expect Q3 average fares to be ahead of the prior Q3 by about a mid-teens percent. Unhedged fuel costs will be significantly higher, but that's only 15% of our fuel for the remainder of this year. As is normal this time of year, we have very limited Q4 visibility. Q4 is traditionally the weakest quarter, and this year will be impacted by the partial unwind of free ETS carbon credit from January, although it will benefit from the first half of the Easter period at the end of March. Despite uncertainty over Boeing deliveries, a significantly higher fuel bill, very limited Q4 visibility, and the risk of weaker consumer spending over the coming months, we now expect that full year 24 will pre-profit after-tax will finish in a range between 1.85 billion to 2.05 billion, assuming modest losses over the second half winter period. This guidance obviously remains hugely dependent on the absence of unforeseen adverse events, for example, such as the war in Ukraine or in Gaza between now and the end of March 2024. As I said, I think we're on track to return to what we believe is our normal profit after tax of about €10 per passenger, carrying 183 or 183.5 million passengers. This is a very strong performance, but while the number looks big, a profit of €10 per passenger is reasonably modest given the capital and the human resources that go into delivering an exceptional service to our customers, high on-time performance and a very low cost base. which enables us to continue to pass on markedly lower airfare to our customers at a time when due to capacity constraints in Europe, our competitors are all pricing upwards very aggressively. Neil, do you want to add some remarks on dividend and take us through the MD&A, please?

Yeah, sure. Thanks, Michael. Well, as you pointed out there, we're well along the road on our path to achieving all of our capital allocation priorities. The next step is to look at some form of a dividend. In the past, as Michael said, we engaged in kind of ad hoc distributions, buybacks and ad hoc one-off dividends. We're now at a size and scale and I think a maturity where we can sustain an ongoing dividend policy and the board have this morning agreed that The first maiden dividend will be €400 million, which is marginally above our long-term prior payout ratio, but reflective of the €400 million which our shareholders contributed in the depths of COVID, which enabled us to raise that €850 million bond and come out of COVID strongly. So that's approximately €0.35 per share. Half of that will be paid in February as an interim dividend. The balance will be paid after our AGM period. in September. And then when we look into next year, FY25 onwards, we're looking at a payout ratio of approximately 25% of prior year profit after tax, again, roughly 50-50 interim final dividends in February or March of each year and after the AGM each year. So I think that underpins the board's commitment to return funds to our shareholders, but they've also left the door open. So to the extent that we continue to have a very strong balance sheet, lots of liquidity, and we're meeting all of our other commitments, if to resurface cash, then the door is left open to look at other forms of distributions, be that buybacks and or ad hoc dividends, depending on where the market's at at that point in time. Just to briefly build on a couple of the other points that Michael touched on, the balance sheet is in phenomenal shape. Triple B plus rate is over 530 aircraft unencumbered at period end, which gives us a huge flexibility in what we do. And importantly, thanks to the strong cash in the business, we're in a unique position where we're paying down debt rapidly. We paid down a billion alone in August, just gone, a 750 million maturing bond. and 260 million are revolving credit facility. So that gives us a huge competitive advantage over everybody else when they're extending leases at high lease rate factors due to the Pratt & Whitney GTF issue and indeed refinancing themselves into rising interest rate environments. We're paying out of our own cash resources. So balance sheet in great shape and has enabled the board this morning to engage in that dividend policy. I've nothing further really to add, Michael.