Ryanair Holdings plc

Welcome everyone to the Ryanair Holdings plc H1 FY27 earnings release. My name is Seb and I'll be coordinating the call today. If you'd like to ask a question, you may do so by pressing star followed by one on your telephone keypad. I will now hand you over to Michael O'Leary, Group CEO of Ryanair Holdings to begin. Michael, please go ahead when you're ready.

Okay, thank you. Ladies and gentlemen, good morning. Welcome to the Ryanair H1 analyst call. as you see this morning we've released half year results so profits have fallen 15% to 2.15 billion for the half year primarily due to the cost of unhedged oil which has doubled over our hedge price of $67 per barrel however we've delivered another strong operating performance traffic in the half year is up 6% mainly by virtue of the fact that fares have fallen 4% during the peak summer period H1 fares fell although some of that was also April didn't have a full Easter in it but mainly we think we attribute that to the Middle East conflict which in the early parts of summer led to consumer hesitancy later bookings and we did need to price down to stimulate travel and volumes operating costs in the half year risen 10% to 7.7 billion the price of our 20% unhedged jet fuel doubled and supplier compensation fees following the delivery of the final Game Changers last year. FY27 jet fuel prices remain 80% heads at $67 a bar, so that has insulated both our earnings and our passengers from the alarming spike upwards in oil price. It's also significantly widened the cost advantage over other EU competitors, as well as boosting current year earnings. While oil prices remain volatile, We've taken advantage of recent dips to extend our FY28 cover, which has now risen from 15% to 25% at an average price of $95 per barrel, but that will still be a 50% increase in this year's hedge. The balance sheet remains strong industry leading. We've paid down our bond debt. The balance sheet is supported by an unencumbered fleet of 620 Boeing 737 aircraft and strong liquidity. Gross cash at the half-year end was $2.6 billion, even after paying down $1.3 billion in debt, $800 million of capex, and $400 million of shareholder distributions. In September, you'll have seen we completed our latest $750 million buyback. We've now retired over 40% of Brianair's issued share capital since 2008. The board remains committed, however, to shareholder returns. and so in addition to an interim dividend of 27.3 cents per share, tabled in late February 2027, the board has decided to launch another 800 million share buyback. That is time to start next February, which is when our cash flows are strong, cash flows are strongly positive from January onwards and we expect this latest buyback will run for about a 10 month period, so from February to the end of December 2027. We see the current share price as a buying opportunity and by extending the share buybacks we think it will be accretive for shareholders over the medium to long term when the current oil destruction settles down. On fleet, we warmly welcome the FAA's recent certification of the MAX A10. We expect and hope that EASTA will certify this before the end of December which will enable Reiner to take delivery of the first of our 16 MAX 10s in Spring 2027. The first aircraft is due to deliver at the end of January, with another 15 being delivered by the end of April. That will give us 16 new aircraft, our capacity for about 3% traffic growth in FY28, with the traffic rise from 240 million passengers this year to 220 million passengers next year. However, in the short term this winter, we have reduced the exposure to unhedged oil by cutting our current traffic target from 260 to 240 million passengers. It means that our winter traffic from November to March will be broadly flat year on year. Next year with the 16 new MAX 10s we'll be able to grow to just over 220 million passengers but that is only 3% traffic growth which for us is very slow capacity growth historically. We think that gives us an opportunity to pipe up meaningfully into the summer of next year. With that spare capacity we're allocating that capacity and churning some of our existing capacity to those states, regions and airports who are cutting aviation taxes and lowering fees and we highlight Albania, Italy, Morocco, Slovakia and Sweden who have abolished aviation taxes. The switches will move away from those countries like Austria, Belgium, Germany and regional Spain who are either maintaining high airport fees or raising taxes. Next summer, summer 27, the schedule is already on sale with 126 new routes and one new base in Rimini. The outlook for F-127 traffic, as I said, we expect to grow now slightly less, 3% to 214 million passengers, although our cost leadership continues to widen with all other EU airlines. With 80% of jet fuel hedged at $67 a bar now to March, this year's earnings and our winter traffic are well insulated from the current oil price volatility. However, the final FY28 unit costs will depend on the final price of the unhedged jet fuel for the second half of the year. Interestingly, particularly if you look at this morning's numbers, where traffic is up 6% for the half year, but summer fares were down 4%. Pricing has turned round in recent weeks. Since about the start of August, we've seen prices move upwards year on year. Q3 demand, which runs out to December, is strong. And fares have been trending modestly ahead of the same quarter last year, which is a pretty shocking change in pricing from the peak summer period. And I think that augurs well for price increases into the summer of 2027. All the airlines around Europe are not well ahead of December 27. They're all cutting capacity into the winter, and I think that would be a good platform for constrained capacity and higher prices into December 2027. The booking window however remains closing and while with reasonable visibility into Q3, we have almost zero Q4 visibility and therefore too early to provide meaningful FY28 profit guidance. I think it's appropriate though we should address the fuel cost for FY28. Based on what we see now, unless there's a swift resolution to the Middle East contract, we expect jet fuel prices will remain elevated well into 2027. As our low cost oil hedges roll off in March of next year, All EU airlines face significantly higher fuel bills. We believe European short-haul airfares will increase materially. We expect to see fuel surcharges from the legacy airlines on their short-haul operations next summer, which will drive up airfares on short-haul services across Europe next year. With a 2 billion increase in our fuel bill next year, we need about a 20% increase in airfares, or about 10 euros per passenger, to fund all of that. And while I do think there will be significant boost in airfares next year, I'm not sure we'll see 20%. Therefore, we do need to close a gap. We're going to have to address costs. We're reviewing costs all across our group airlines. Particular focus on persuading governments to abolish aviation taxes. We're accelerating the airport turn negotiations, particularly with the arrival of the fuel efficient MAX 10 next year. where there's maturing labour agreements in April next year we're looking at temporary pay freezes unless those pay deals are done before the end of March next year I'm not sure we'd be minded to agree any pay increases from April next year apart from those that are already in place we will see lower crewing ratios but that is a function of having less aircraft deliveries for the next two years we need to recruit and train fewer pilots we're seeing almost zero churn in pilots or cabin crew at the moment and therefore We're stepping back pilot recruitment and training courses. We're postponing those this winter and I think into the summer of 2027. With no attrition, nobody leaving, there's not much reason for us to recruit more pilots, particularly where we're only taking 16 aircraft next year. Those lower crewing ratios, increased use of AI, which is driving further operational back office and support function, will enable us to continue to deliver an exceptional performance on unit cost X fuel next year and that allied to I think what would be a large bump in airfares I'm not sure we'll be able to repeat I think the current guidance and the market expects us to deliver profits of about 1.7, 1.8 billion this year I think there's a reasonable chance we'll maintain that into FY28 but it's all heavily dependent on where fares go and where oil prices go and until we see some certainty of that coming out of the US midterms this week we'd like to see an early resolution of the situation in the Middle East that would at least allow crude oil shipping to restart we'd maybe see crude oil trend back from Brent crude today at $117 a barrel I think that's likely to drift downwards towards $80 a barrel into next year the price spread however will remain elevated and therefore which is currently close to $170 a barrel. I think at best that's going to trend down towards $120, $130 a barrel next year. I welcome that as a crisis point. I think it will put a lot more capacity discipline on airlines in Europe. There will be more failures in Europe. Already Valtteri and Air Baltic are in Chapter 11. I think you'll see more European airlines or flaky European airlines who are currently not profitable but who have heavy debts will struggle to survive the winter, and the possibility of consolidation in Europe will accelerate if oil prices remain higher for longer. We have been here before, we've been here before, we've gone through 9-11, Gulf War I, Gulf War II, Putin's invasion of Ukraine, there's been a big bump up in oil prices, pressure on airline pricing for 6-12 months, and then Ryanair emerges out of that period with greater market share Thank you very much. Neil, do you want to take us through the MD&A and then I will ask Eddie to give us a couple of words on current trading and Tracey McCann on costs.

Okay, thanks Michael. I don't have a huge amount to add other than to focus again on the costs and the balance sheet. Costs, despite the fact that the unhedged oil was up at $130 a barrel, performed quite well, rising to 5%. I think that's a sign of the kind of airport deals and the cost discipline within the organisation. Now I would caution that ex-fuel costs will be a little bit higher into the second half of the year due to one, we're now spreading the costs over 214 million passengers instead of the 216 million passengers previously targeted at the start of the year. We'll also see more of those CLA deals going through which will have an impact on the cost into the second half of the year and then the timing of maintenance. But I think the advantages that we have, particularly with the MAX 10 coming down the line, these aircraft, 20% more fuel efficiency, 20% more seats, which means we'll be spreading more costs over more passengers and getting more economies and efficiencies. We'll equally get the benefit of warranties. that will drive significant savings and widen the gap between ourselves and everybody else and then further out we've got the engine shops coming online which will again give us a material advantage over everybody else the balance sheet, fortress balance sheet at times like this it comes into its own effectively debt free, 620 fully unencumbered Boeing 737s and a triple D plus credit rating which gives us huge flexibility and the confidence to be able to do that buy back Michael O'Leary, Michael O'Leary, Michael O'Leary,