Ryanair Holdings PLC (RYAAY) 2002 Q4 法說會逐字稿

Good morning, good afternoon ladies and gentlemen and welcome to the Ryanair's Full Year Results Conference Call. I would now like to introduce Michael O'Leary, please go ahead and I will be standing by.

Good afternoon ladies and gentlemen. Apologies for the couple of minutes late, I was stuck in traffic here in London. So, I have only just got here. With me, we have Michael Cawley, who is on a conference line from Dublin as is Howard Millar. As we started late, we will shoot right through the presentation normal format and then we will open up for questions and queries. And as you have seen today, these results and the shareholder presentation has been put on our website at ryanair.com. So anybody who hasn't got a copy can get one there.

Today, we announced record traffic and profit growth for [inaudible] '03. Passenger traffic for the year grew by 42% to 15.7m passengers as average load factors increased from 81-84%, primarily due to a 6% reduction in average fares. This reduction in yields was a result of continuing price promotions, the launch of over 20 new routes and new base in Milan, Bergamo and our ongoing commitment to offer the lowest fares in every market we serve. Total revenues for the year rose by 35%; however operating cost rose at a slower rate by 26%. As a result, Ryanair's advertise margins increased exceptionally from 24% to 28%, and net profit increased by 59% to 239m Euros. These results demonstrate a robust -- our lowest fared business models in Europe. Our fares are much lower than any other EU Airline and our outstanding team of 1900 people remains committed to [retentively] driving down airfares. As our people now form one of our largest shareholder blocks, I am delighted their efforts have been rewarded not just of higher pay and rapid promotion, but also with increasing the valuable share options.

We will continue to lower cost and we would use these low costs and record profit margins to drive down fares even faster and stimulate rapid growth. Ryanair has for the 15th year in a row delivered increased profits despite 6% reduction in average fares at the time when most of our competitors have reducing capacity and announcing losses. The market has suffered from high fuel prices, the war in Iraq, the impact SARS, and the continuing effect of the economic downturn in many European countries. Despite these difficult conditions, Ryanair's continued profitability stance from the fact that we have the lowest cost and the lowest airfares which no other European airline can match. I think there is no better way to prove our determination to lower airfares than to announce our record low fare seat sales.

So, this morning we released 1m low fare seats at 19 pounds and 29 pounds one-way for travel during the peak summer months of June, July, and August. Passengers should book these immediately at ryanair.com because of these low prices we expect these seats to be snapped up pretty quickly. Everyone should be aware that these results for the past 12 months have been exceptional. We have repeatedly stated that profit margins have almost 30% are [inaudible] and non-sustainable. Our business plan remains a.) To grow traffic on average by 25% per annum and b.) Maintain a profit after-tax margin of approximately 20%. Obviously, in some years, we would fall below this average and some years such as the last year, we will exceed them.

In recent months we have launched two new bases, Milan Bergamo, and Stockholm-Skavsta, and 12 formal boat services among the total of 50 new routes. This new routes will generate abnormal traffic growth of 50% for the coming year. We will drive down fares by more than our normal 5% target. And at this stage, we expect yields for the year to decline by at least 10% and possibly more depending on the extent to which Sterling weakens against the Euro. This is great news for our customers, but bad news for our competitors, many of whom are hoping their fares will rise. With the launch of 50 new routes of the total network of 125, load factors will also decline this year from 85 to about 80%.

Our margins will also be diluted by the closure and re-launch of the Buzz operation, which was grounded for the entire month of April and the negative impact of operating expensive BAe 146 aircraft on certain routes, which would be replaced by larger and lower cost Boeing 737-800 next year. The last quarter of the year results are notable for a significant increase in our aircraft order with Boeing which was increased at lower prices to 125 firm and 125 option aircrafts, the largest ever order by any European airlines, but not [about] the aircraft. Ryanair intends to continue with the single aircraft fleet model which was pioneered by Southwest and which is proven so profitable for us over the past 15 years. The aircraft gives us the capacity to continue to grow after this year at about 25% per annum by opening up new bases and new routes on existing bases.

With up to 40 new airports and nine potential new bases presently under negotiations, we have more growth opportunities than we need for the next five years. We will continue to grow in a safe and controlled manner and within the next three years we plan to carry more than 30m international scheduled passengers per annum at which point we will overtake both Lufthansa and British Airways to become the largest international scheduled airline in the world. The fact that the largest international scheduled airline in Europe will also be the one offering the lowest fares and the best customer service. We are presently ranked number one in Europe for on-times completions and [inaudible] bags. It is good news for the European consumers and bad news for our higher fare competitors.

It is depressing yet again to report that Ireland continues to be the only country in Europe to miss out from this extraordinary traffic and tourism growth. We are still waiting for the Irish government to stop talking about the competition and start doing something about it. The development of competing terminals splitting up of the Aer Rianta monopoly has received further support from the government appointed committee advise men, the Irish Hotels Federation, Aer Lingus, the Irish state airlines and the government's own tourism review group. At time when the Irish Prime Minister has recently called for greater competitiveness in every area of Irish flights, one would think that he would at least set an example by breaking up his own airport monopoly and we again calling him to get on with this. It is time for less talk and more action for this government if Irish tourism is to be rescued.

Our business in the current quarter continues grow very strongly. As we announced this morning, traffics for the month for May with the inclusion for the first month of the formal Buzz routes was 53% greater than May last year. We have driven down yields by 5-15% during the month of which approximately 5 percentage points is due to the weakness in sterling against the Euro. I personally expect no near-term improvement in either the low fare environment or the strength of the Euro and believe that for the yields for year will continue to be 10-15% lower than last year. However, this negative revenue effect, i.e., of weaker sterling will be partially compensated for by lower sterling cost. In addition, the strength of the euro against the dollar will substantially lower cost of aircraft acquisitions, renewal, and spares over the coming years.

Looking forward, we will remain confident of another successful year for Ryanair during which we will deliver substantial traffic growth. Even though we will drive down fares and yields, we expect to maintain our normal profit margins of just over 20% and the record our 16th consecutive year with a material increase in profits. With that, I'll hand over to Michael Cawley to take us through the [FD&A]. Michael.

Howard, [is it fair]? Michael, I think Howard is taking that.

Okay, Howard.

Profit after taxes increased by 59% to 239.4m compared to 150.4m in the previous ended March 31, 2002 driven by continued strong growth in passenger volumes and tight cost control. Operating margins have increased by 5 points to 31%, which has resulted in operating profit increasing by $100.5-263.5m compared to year ended March 31, 2002. Total operating revenues grew by 35% to 842.5m while passengers' numbers have increased by 42% to 15.7m. Scheduled passenger revenues increased by 33% to 732m due to strong passenger volume growth offset by a 6% decline in average fares during the period. Passenger volumes increased due to the launch of the new routes and bases and increased capacity on our existing routes. Total revenues grew by 51% to 110.6m, which is higher than the growth in passenger volumes, and reflects very strong growth in non-flight scheduled revenues [inaudible] and on-board sales while [charge or] income declined due to reduction in the level of seat capacity allocations.

Total operating expenses increased by 26% to 579m due to increased level of activity and the increased cost primarily due to depreciation, route charges and airport and handling cost associated with the growth of the airline. Operating cost continued to be positively impacted by the higher proportions of 737-800's as the part of the total fleets. Net margins have as a result of above increased from 24% to 28% while net profit increased by 59% to 239.4m. Earnings per share increased by 54% to 31.7 euro cents, which is lower than the growth in net profit due to an increase in number of share and issues, both the share offering and [inaudible] of the balance sheet. Cash and liquid resources have increased from 899.3m at March 31, 2002 to 1.06b at March 31, 2003 reflecting the increased cash flows from the profitable trading performance during the period offset by expenditure in respect of the aircraft acquisition program. 13 additional aircraft were delivered, 5 in the last quarter, which in addition to aircraft deposit accounted for the bulk of the 469.8m [recorded] capital expenditure. This is apart from the [inaudible] draw down of long-term debt which increased net repayment by 286.8m during the period. Shareholder's funds at March 31, 2003, have increased to 1.2417b compared to -- just over 1b at March 31, 2002. I hand it back to Michael.

Thanks a lot Howard. Okay, just before we will open it for questions, there are a couple of points I'd like to make. Firstly, there seems to be in our mind kind of an overly negative reaction to this morning's announcements. I'd like to drop a couple of observations into it before we open it for questions.

Firstly, our business model is continuing to grow very strongly and very successfully. Our nearest competitor easyJet in the last six months went from a 6m profit to an almost 50m loss. During the equivalent six months, we went -- our profits increased by over 40% from 62-88m Euros, and the model will continue over the coming year. In the last year average fares fell by 6 percentage points, but unit cost per passenger fell by 13 percentage points. Cost per passenger will continue to decline over the coming years, but what we are kind of telling the market this year is that for years we intend to drive down fares and yields this year more than our normal 5% in order to drive enormous capacity growth this year, a traffic growth of over 50%.

The fact that Sterling has weakened against the Euro means that another 4 or 5 percentage points is going to be added to the yield decline. But over the medium-term, that is going to generate very substantial cost savings, the one that immediately comes to mind is the fact that we booked the last 13 aircrafts on the balance sheet in Euros at a price that was almost 30% cheaper than the aircraft -- the price we booked the aircraft on the balance sheet this time last year. Those long-term cost or those medium cost savings will continue to float through the P&L over the coming years.

Another example is fuel where for the next year we have already purchased and hedged all of our fuel costs in dollars at a similar dollar rates as last year, but we gained somewhat on the conversion next year. So the model continues to work very well. We continue to be very profitable; in fact at the moment, one of the few profitable airlines in Europe; and over the next 12 months, the profits are going to grow significantly. It's just an upwardly growth as significantly as you've seen for the last couple of years. But if you take the 40% growth -- profit growth two years ago, the 60% this year, which we think is obviously exception and unsustainable and even if Sterling grows against this, and next year it only grows by 10%, we are still well ahead of our medium-term target to grow profit by 25% after-tax. Okay, with that Maria, we'll open it up to questions, and we'll take them in whatever order you want raise them.

Thank you. If you do have a question at this time, please press number "1" on your telephone keypad. To cancel your question it is the "#" key. Once again, it's number "1" to raise your question and the "#" to cancel. Our first question comes from Nick van den Brul. Please go ahead with your question, announce your company name.

Hi, Nick van den Brul from BNP Paribas. Mike, I think one of the reasons for the reaction is some misunderstanding in the reporting of the result this morning, especially on Bloomberg where you said that if you strip out the impact of selling, we're comfortable within this forecast of 20% profit growth, which is not consistent with even the Buzz acquisition. Could you clarify what that meant actually? You were giving us statement about profit -- intrinsic profit growth without Buzz and didn't include the revenue or the contribution likely from Buzz?

No, I haven't given any [results] to Bloomberg's or anybody else of what the profit would be with or without Buzz. We are with Buzz for the next 12 months, and our forecast is done on the basis of the Buzz acquisition, which including the Buzz acquisition, our margin this year will still be north of 20% after-tax.

So, that was a margin, not a profit growth margin. So that's where the essence of the mistake is to some extent?

Possibly.

Second, can you tell us what the slightly extra cost or the diluted impact of the Buzz operation is? Or if you can't give us directly, could you give us an indication of the effect of Boeing 737-800 introduction on costs versus the use of the old BAe146's as a proxy for calculating it?

I am not sure -- I mean, I am not sure we have any numbers at hand that would give you a proxy for that. I mean, what we said basically is that in the current year Buzz will be profitable and -- but at very single-digit margin. Next year, replacing the 146s with the 737-800 for the full year and that is next year beginning March '04 through to March '05. The Buzz operation will rise to the same margin or net margin as the Ryanair operation; in other words somewhere north of 20%.

Okay, thanks.

Thanks Nick.

Thank you. Our next question comes from Chris Avery. Please go ahead with your question, announce your company name.

Chris Avery, JP Morgan. Two quick subjects to kick about; firstly, in terms of CAPEX going forward, can you give us an idea of what the -- what the Euro number is likely to be in each of the next two fiscal years, and -- and whether that's actually going to at some point push into a net debt position in the next two years? And the second subject here, the main load factor down 6 points. Do you want to just try and walk us around how much of the deterioration is driven by the new Buzz routes, how much by your own Buzz routes, and therefore if you like what was happening to the organic business for load factor?

Well, I think the first part first. The load factor -- I mean, it is important that we understand that the capacity growth this year isn't just Buzz. The traffic growth is up about 53% in May, 15 plus points of that was the Buzz routes. We are also open in our own [route] though -- a more than 20 routes from Stansted. We have added the routes from the other bases in Frankfurt, Hahn and Brussels, Charleroi. In addition, we have two new bases at Milan, Bergamo and Stockholm, Skavsta, under the substantial increase in capacity on some existing routes.

Right.

The London-Rome for example, this summer we flew it three times, three rotations a day last year. This year in May it went up to seven. London-Barcelona went from nothing last summer to five rotations a day in May this year. So there is a very substantial capacity increase even on the existing routes. It's inevitable in the first month of the launch of -- we are operating 50 new routes out of the total of 125 routes but some will not come up to the level of where we have been previously and also some of the bigger routes like the Rome, the Barcelona while they have done phenomenally well.

The load factor is off percentage point or two which is no more than we would expect. Again, I think our guidance of the market with the load factor issue will be off about 5 points. You will see a capacity increase of about 60% and traffic increases somewhere in the low-to-mid 50s. I don't have the CAPEX going forward in Euros, and I am not sure Howard whether you have that either but we could give it to you off line subsequently. We don't have it online.

My name is Cawley Michael. For March '04, 560m Euros and '05, we are guiding just under 700m, includes deliveries of 22 aircrafts during the period and that's 80 for this year and 22 for next year. There would be some other bits and pieces in there, normal capital expenditure as well.

And would that put you geared by the end of March '05?

This year, well obviously depending on the results for the year. Chris, we would see ourselves as still cash positive at the end of this year and marginally so at the backend of '05 as well.

You -- do you think you are marginally net cash at the end of March '05?

Yes.

Very good. Thank you.

That also I have to say, also that depends on the financing sources. We are looking at some other types of rather than [trade] Japanese operating leases and some [plain] vanilla operating leases but that's assuming that we continue with the existing [source].

Very good. So that would make you more cash positive?

We should be, yes.

Thank you.

Right. It's our intention, Chris though to remain cash -- net cash positive. We don't want to be in a net debt situation going forward.

Very good, thanks.

Alright.

Thank you. Our next question comes from Edward Stanford (ph.). Please go ahead with the question, announce your company name.

It is [Edward Stanford] from [inaudible]. Two questions, on the depreciation of Buzz, could you give us some help on the policy you have on the 737-300 you have acquired at Buzz, and also give a little guidance from what you expect the depreciation policy to be for the current year?

On the Buzz aircraft, they are on straightforward operating leases for the 300 they are another four years. So, they will come through as a lease rental for the next four years. There won't be any depreciation charge.

Right, and so it's just a straight depreciation charge on the existing fleet and the near deliveries.

Correct.

Okay.

Was there a second part of the question?

No, that was just, I think great. Thanks Ed.

Thank you. Our next question comes from Jim Parker. Please prior to your question, announce your company name.

Michael good afternoon. Jim Parker, Raymond James. Just looking at your 737-200 and the retirement of those perhaps in '04 and '05; it looks like that could save you as much as $25-30m, that's the number I had -- I believe you had mentioned before; what is the game plan there?

I did -- at this point in time we still expect that the first retirements of the 200s will take place in the winter of -- next winter, the winter of '03 to spring of '04; so, towards the backend of this financial year. At the moment the number looked anything between, as little as 1 and as many as 4 or 5 aircrafts. We will certainly also take out the [inaudible] also that is the Buzz acquisition and the need to take out the 4146 as quickly as possible. The first five Boeing aircraft coming in September and October, four of those will be used to take out the Buzz – the Buzz 146s, and thereafter it will be a kind of a balance between how much organic growth we want to deliver in the following year, which determine how many of the 200 we will retire at that stage. But certainly that might – the retirement will take place next winter.

Alright. How -- how much of the decreasing your cost per passenger do you anticipate in this fiscal year and what might be the sources of that?

I think the decrease in the cost per passenger in the coming year will be a high-single digit. It was 13% last year, I think it will be high-single digit this year and again much of that will come from the addition of new lower cost basis, new lower cost airport destination with lower airports and handling costs continuing to generate the significant ancillary income from the internet and fundamentally further efficiency is coming through by the addition of more lower cost 737-800s which are still -- if you look through again and for some of those who may be panicked, if you look through our results for the last 12 months, when the revenues despite a 6% decline in yields, revenues grew by 35%. Everyone of the salary operating cost lines with the exception only of route charges rose by a much smaller figure than 35%. We are still seeing incredible cost discipline coming through in sales and marketing, salaries, maintenance, airports and handling and that will be continued. The only thing that will probably interrupted this year is that the growth in revenues will be somewhat more as a result of -- first our own conscious decision to increase the competitive temperature in most of the market, which we operate and the weakness of sterling against the euro.

Okay. Thank you.

Thanks Jim.

Thank you, our next question comes from Tim Barrett. Please prior to your question, announce your company name.

Hello everyone, Tim Barrett from HSBC. Could you just give us a little more background on this decision to cut back yields, when you took that decision and whether you are going to apply that across the board, or whether you are going to direct it to different countries?

Decisions wasn't been evolving, probably since we acquired and re-launched the Buzz operation, the decision of the [inaudible] was at that time did we -- use some of our 800 delivery this year, just take out the Buzz aircraft early and limited capacity growth or do we go for the kind of more aggressive decisions which we operated over the Buzz aircraft through this year, use our own aircraft to open up our own new routes and increase capacity on existing routes, and then take next winter, the time to start taking out some of the Buzz aircraft. Of course the Buzz was driven by market conditions, I mean you know, the last couple of months and yields have been tough, traffic, we've continue to grow the traffic very aggressively, but only at the cost of our Buzz average decline, driving down of yield.

You can put some of that down to the Gulf war and the leader for the Gulf war, the aftermath of the Gulf war, with some expectation that we can't get [through year with] rebounds for the summer. We are now seeing no signs of year's rebounding for the summer and we have been listening to presentation from some of our competitors, [easyJet] and [DA] in the last couple of weeks, basically bullshitting about lack of visibility on fairs and yields for the summer. There is loads of visibility on fairs and yields for the summer, except the visibility is crap. The fares are going to be crap, and if they are going to be crap fares, we want to make sure that we have more crappy fare [those days] than anybody else because we have a far greater profit margin, a much lower cost base, and substantially more cash than anybody else.

And it happens to be the year when there is a beginning of shake out well and good. We think the time for us to be aggressive on capacity growth and fare reductions is that the time when our competitors are losing 50m in the winter or continuing to loose money in other markets such as in Germany like Lufthansa where they [had a] results presentation two week ago, said yields of the German market were down 20%. We aim to ensure that they continue to be down 20%, if not by a little bit more over the next 12 months because we do it from a position of continuing our considerable strength.

Can you say anything about whether you are going to talk of that in certain countries or is that across the board?

No, I think it's across the board. I mean the nature of our promotion, advertising, and even the internet distribution chain is that typically there is whole lot of similarity between all of the fares going across all of the routes. There are some exceptions. You know, we are doing some of these [that were driven by] [inaudible] into Spain from Dublin where that kind of price tag is definitely with us because they only go on Saturdays and Sundays. But generally speaking around the network, the fares will be equally low with equal availability and I think for the remainder of the summer and I say hopefully the next winter as well. I think this is going to be the year when, you know, the going gets tough and its only the tough would be less spending.

Okay, thanks very much.

Thanks.

Thank you. Our next question comes from Shane Mattews. Please go ahead with your question and announce your company name.

Shane Mattews, NCB. Hi, Michael, it's actually a technical question for Howard. I'm sorry; I just wanted to clarify two things. One was the leasing payments. You have chosen to capitalize those going forward, but I presume on a cash flow basis it will all go through as per normal. The second thing I just wanted to clarify was in the presentation there is a slide on currency sensitivity; should we expect some dollar benefits to be visible through the P&L, noticeably the fuel costs because you indicated that there are slash in U.S. dollar terms, so I presume you will have got some benefit on the Euro translation?

Howard, you want to take that.

In terms of the cash outflows, they are generally, the leases that we have taken over from Buzz, are generally at a monthly, quarterly or in some cases semi-annual payments. So the cash flow was and [inaudible] go through the profit -- the cash flow statement and in terms then of the currency, yes we have included in those numbers we gave this morning, Shane, we gave you the net impact.

Okay.

So, there was a 5% decline in average fair being offset by cost savings -- savings in terms of translation of [returning] costs but also some of that in terms of lower depreciation and some fuel costs. Given, what we just kind of highlighted that the major part of the aircraft deliveries are towards the backend of this year, we have already had some of our deliveries forward from last year and there is a timing difference. So, we will have some the offset in some of the lines where there is dollar consent, but it won't -- if you like -- balance as to decline in average there.

Perfect. Okay, thank you very much.

We will have a greater impact on the medium term on cost. And one other point I want to make, Shane, I don’t know whether I picked up the question right, we haven’t capitalized all of the lease payments on the Buzz aircraft, just the [inaudible] market.

Yes I appreciate that. Thank you.

Okay.

Thank you. Our next question comes from David Grayman (ph.). Please go ahead with your question and announce your company's name.

Hi, it's David Grayman (ph.) from Ketnikos (ph.) Associates. I just have kind of a couple of fast, more or less, housekeeping questions. The first one was, what is the number of [new] shows that you guys had last year?

Round about 7% of total passenger numbers.

Okay, and then the second thing is, in the passenger numbers you had given this out in the December quarter, what number would be from the million seats [Prestwick giveaway]?

[Prestwick giveaway], excuse me; we wouldn’t have that split down David. It wouldn’t be possible for us to split that down. Remember, like the million seat giveaway is no more than another promotion; like we our continuously engaged in promotions; whether it's a million seats for free and passenger pay the taxes, the following week or two weeks it could be quarter of million seats for free. The [low show rate] is probably slightly higher but I see not materially so. I don't know whether Howard and Mike would disagree with that.

Okay. And then just my -- the last question is, if you look at the growth in the ancillary revenue, how much of the end of your number in ancillary revenue was first, credit card fees and then the second was debit card fees, and how much of that was in a year-to-year growth?

We don't break down that in the ancillary. It goes in as others because it is commercially sensitive. I think we get you -- you get the breakdown in the 28. Howard may correct if the count is higher and [inaudible] and then there is the kind of other internet income.

Okay. Thank you very much.

Is that -- Howard you may clarify, is that correct? Howard.

Yes, that's correct.

Right.

Thank you.

Thanks David.

Yeah.

The next question comes from Andrew Liebenberg (ph.). Please prior to your question, announce your company name.

Michael Hi. Congratulations on good numbers. It is Andrew at ABN AMRO. I got two questions really; one is, following up on that would be ancillary revenues. Can you give us any color as to how they are progressing along the lines of what you do disclose on the 28th, how much growth was in the internet? And how is the per passenger income from [inaudible] and from the other stuff. And the second question I would like to ask about is working capital. Has there been any noticeable change in the sort of growth rate if the working capital benefit you're saying from growth because there seem to be slightly less growth in the accrued liability. So the funds are out of character this year?

Okay. Thanks Andrew. I enjoyed your recent research by the way but I fully close. I wish to assure you it intends to stay that way.

But this over a teleconference. Isn’t that?

On the first part, on the ancillary revenues, the growth in ancillary revenues from everything excluding charters continues to be a little bit ahead of the growth in scheduled passenger numbers and we expect that to be continue to be -- to continue for at least another year. Charter income is now being switched into the scheduled income. We think we have now converted the chart that [inaudible] flying. You won't really -- there's nothing statistically significant even on per passenger basis coming from the internet revenues from commissions on the financial services, etc. because the number is [inaudible] just a straight forward commission is pure profit but it is increasing rapidly, it's not a major number or going to change that rapidly from one year to the next. But we -- there no point in getting into the spat over that. The major growth is still going to come from very rapid growth in car hire sales, [inaudible] sales, some travel insurance, and we are developing all their products, which is the financial services fold-by-fold the rest of it. But they tend to be -- but they are a 100% profits because they are just to our commission. The numbers tend to be variably small. The working capital cost in Howard, I know whether you want to take that one because I didn’t mean on [inaudible].

May be they are really bad [inaudible].

No, just take my words. By the way, we don't have any cost problems. It is going to be all on the yields side, but I mean, I agree with you on your underlying thesis that they are going forward. We have always been telling the market is that the margins here will be 20-20% plus, but it will be because we are going to drive down yields not because of any inherent cost problem, they aren't any.

Howard, in terms of working capital there. You are quite right. There is -- the working capital position is slightly disapproved this year and last year, though if you look back at the previous year, it is very similar to the previous year in terms of what the percentages were. It was that the -- on booking profile. [inaudible] just remember, our financial year was 31st of March, which you will recall was right during the mid to the Gulf war. So, we had a lower level of bookings in place than we would normally have on the equipments here and also our average fare was also lower at that point given the large number of promotions we did during that period. So that is the main accounted for the slightly lower increase in working capital.

So going forward, you wouldn't expect that trend to continue? You would expect that further working capital benefit growth to return.

No, I would think it will return, but it will return to the levels that you would have seen. If you look at your percentage, as I am sure that you are running those. It would return to the previous year, which is actually quite consistent with this year. So I think, the impact of the -- and bookings number of days booked in advance each next year as we move into a normal year.

Cool that's great. Thanks very much.

Thanks Andrew. Anybody else.

Thank you. Once again gentlemen, if you have a question to ask, please hit on "1" on your telephone keypad. Our next question comes from Joe Gill. Please prior to your question announce your company name.

Joe Gill of Goodbodies. Good afternoon and can I just ask you to compare and contrast the experience of [inaudible] Junior routes in Italy, Germany, and Scandinavia in particular, in terms of the evolution of load factors, the yields, and the reaction of the incumbency?

I think at this point Joe we don't see much difference in any of those markets and that's partly because you know, we enter into markets or destinations or bases based on the cost [inaudible] and the facilities that we can arrange with each of those bases, not with kind of an eye to the competition, and even in markets like where we were very successful -- last year being a good example of [inaudible] in Rome, this year we used the more than double the capacity at a stroke, taking the monthly traffic of 34,000-68,000 passengers a month. So, we are not that influenced by the competitive reaction and from other airlines.

In all cases in all markets, we tend to start off and I think, Scandinavia, Italy, Germany have been no different. But slightly lower than average load factors in the first month or two high 60s, low 70s to start within month one, mid 70s month two, high 70s month three, and thereafter we kind of continue at [inaudible]. This year, we know it has been a different issue. I think that we had actually taken on so many routes, we have slightly lower load factors in the mid 60s in -- on a couple of, Gill, what you call the less sexier destinations, and I am -- these are not actual numbers, but I am giving you an example about promoting [Hogerson] in the [arc end of] Norway or [inaudible] and [Gronigen] in Holland. It is kind of tough when you are going seven times a day to Rome and Barcelona, Bordeaux, [Breth], [inaudible].

So I think, some of them have been easier said, the previous Buzz routes, for example, in the first month of May, have been ahead of system like load factor. Some of the other routes, the Rome and Barcelona have been ahead of the system like load factors, but below the load factors they were at the previous months when we had only half the capacity, and some of them got the [inaudible] less sexier destinations have struggled a bit only because we have --we are promoting 50 new routes. And previously those coming over the next couple of months, again driven by lower fares and yields through this system wide average load factor but that over this, you know, if we have them at May, the six point down load factor, June the four or five points on a load factor, you can't pick that up [inaudible] during the year because like the previous year -- all this load factors was 92%. There was almost no way of getting to 96%, so the load factor for the year would be a couple of points lower. We would be very happy with almost all of the routes we have launched. Looking back on the experience over the month of May, we have taken on in an enormous jumping capacity, delivered a huge traffic growth figure, the yield figure, the yield figure has been higher than we were -- the [origin of both] would have predicted but not something that we are overtly concerned about.

And I think, the tender of other clients tell everybody today is this is going to be a year of a very aggressive capacity growth, very aggressive traffic growth. The yields are going to be significantly lower than our normal 5% decline. Cost per passenger will be reduced again by a significant percentage. If the margin contracts this year from 28 to low 20s [drop speed] at least we will be the only airline in the market with a margin that made a margin in the 20s. And I think it is going to be, you know, it is going to be year where we go for it.

And taking view of beyond 12 months, do you see capacity growth be more normalized, 20-25 and load factor is going backup into the mid 80s. Sir what is your sort of sense in that?

I think the following year we were back to [traffic]. Capacity growth the following year maybe as low as 20% depending on how many of the 200s we take out. We think, traffic will grow by 25% which will allow for 4 or 5 points growth in the load factor again, and I was still expecting yields, in the following year will follow by 5%. We are going to keep driving down yields. We are going to keep the boot into the all of the competitors all over Europe. We are building the -- all of the, or the little or the 80 of the -- or the McDonald's of the European airline business, and it will never going to be smooth and ever ongoing up increase. I think people should kind of relax a little bit, if the margin is going to go for 28 somewhere in the north and 20%, for an airline, it's still an outstanding result. And we are doing it at least on position of strength ways in delivered policy in our part. We are not doing because somebody suddenly invented some kind of Star Trek means of travel on the basis of what it all disappeared.

Thanks.

Thank you. We have a follow-up question from [Edward Stanford]. Please go ahead sir.

Good afternoon again. Two questions please; first of all on staff cut. I mean, you had very impressive improvement in productivity over the last few years in terms of sale per employee. Is that sustainable, what further rate can we look forward to in the current year? And then just talking about the business model more widely; you constantly talked about the business is based on discipline growth, do you think there is 50% growth this year little bit out of that range and should we be concerned that you're lowering fares and load factors at the same time?

I think, yes.

The last couple of questions, yes you should be concerned that we are lowering fares and load factor at the same time, but we are doing it from a stocking point where the margin is 28% and we have a huge amount of headroom. And is 50% growth in year too much? The answer to that I think to that, I think also is yes, but you know, I think the Buzz opportunity was the once in a lifetime [Buzzon] where we felt it could be restructured and made profitable almost straightaway despite having to carry a crappy fleet for 12 months. And I think, you know, we have been proven right in that regard. It gives us enormous position in [inaudible], but in provincial France.

It has given us three more destinations in Germany, all of which that are profitable despite the fact that, you know, we are still operating incredibly inefficient [146], you know, we capitalize the excess lease rate, but we are still getting it held very, very high staff cost cautious because of small fleet density, incredibly high fuel cost consumption, that kind of thing. If you strip out Buzz, the growth this year then the traffic it is about 35%, which is a little bit less than last year's. But we are in a situation where we are transitioning from a fleet with 130 seats to a fleet with 189 seats.

The upside of that we are just seeing an enormous cost discipline across all of the operating cost lines and we are locking that away for the medium term. I do believe that from next year onwards once we have the Buzz out of the way, we now from the [Cap base] of 24m passengers start growing by 20-25% per annum, and we go back to our normal rates of growth. Remember the same question was asked this time last year when we were looking at stepping up the growth from 25-35% traffic growth, albeit we said we will be taking on too much and looking back we delivered a 42% growth in traffic and a 60% growth in profitability. So, you know, I think our record demonstrates that we are comfortable at these levels but the 50% is slightly artificial.

Back on the staff cost base is sustainable; I think the answer that certainly for the medium term 3-5 years is yes. We are still adding more bigger capacity aircraft 737-800 will save two pilots [inaudible] of 3-4 cabin crew are carrying 45% more passengers. We see an increase in [president] of routes from European basis to European destinations where we have no employees at all. And the continuing growth of the internet means we have a smaller and smaller percentage of Tele sales staff within the organization.

This was one of the points, you know, I will come back at Andrew's the ABN research piece recently. Here there was an assumption that if we use the share options scheme in recent years to buy off pay increases or to buy off low pay, we are not low pay airline and nor have we bought off pay increases. We are a high pay airline. Our pilots on the 737's earn more than their equivalence jobs of this number than any of the flight carriers, they get promoted to captain faster than any of the in the equivalent flight carriers. We pay significant pay increase every year. We've given 3% on the basic in April this year in accordance to our five-year pay agreement because the productivity gains are self-funding these pay increases.

So, we have high pay and high pay increases. We give them the share options as a bonus or awards to keep everybody moving in the right direction, but even those are dependent on achieving very aggressive targets in after-tax profit growth and if in the next 12 months we don’t reach that aggressive targets there won't be share options next year, that would not lead the kind of staff problems because there is still to be another pay increase next April in any event. So yes you will see that that cost increasing at the lower rate than the growth in revenues for the foreseeable future, but by that I mean in 3-4 years. Michael and Howard, you have any kind of those?

Michael, I'll make the point that the productivity of our basis as we move the most is quite phenomenal and you know with an excess of 10,000 passengers per employee and we are not reinventing a corporate head office or other -- sort of overhead that we have in Dublin at any of these bases. And if fares attempted for the future that productivity and that passenger number per employee figure is going to continue to improve.

Yes. Thank you.

And you'd make -- the other point that -- if you look at the competition where there is British Airways who are entitling any aircraft at all in fact the [inaudible] are easy [inaudible] aircraft of similar size. The gap between those and our competition here in the UK in terms of productivity is getting bigger, not smaller. Next question please.

Just to remind you all, [inaudible] we seem to have no further questions. I'll hand over to you for any closing comments.

Thanks everybody, thank you for participating in the call today. As you know as additional on the full year we are on a comprehensive road show this week. I mean to see for the rest of this week on the east coast. Shawn Paul is on the west coast. Michael Oalie (ph.) is in Europe and Howard Millar is in London and Scotland till the end of this week. So I hope you'll get to meet both of you over the next week. If anybody has any follow up questions of queries, please feel free to run through myself, Michael, or Howard.

We will be back in the office next week and I got to leave you with a message is that the business continues to grow very strongly. We are the ones who grow in this business. We are determined to make very significant inroad into the European air travel market over the next year or two by growing the capacity by driving down fares, by keeping the pressure all of our competitors and by you know establishing and reinforcing in minds of the consumers all over Europe that if you want low airfares, Ryanair is the McDonald of the sky and you know I think also there has been time if you look at the Southwest history. For those of you who may be feeling somewhat nervous, there have been times when Southwest share price may have dipped a bit, but the underlying growth continue to be very strong. And our forecast for the rest of the year for rapid traffic growth, material profit growth, and sustaining margins after tax margins about 20%. Michael and Howard if you want to add and conclude before we sign up.

Sorry Michael.

Thanks Michael.

Okay everybody we see [inaudible] over the next week and thank you for participating in the conference call today. See you.

Gentleman this concludes this conference, you may now disconnect your lines.