Ryanair Holdings PLC (RYAAY) 2003 Q1 法說會逐字稿

Good morning and good afternoon ladies and gentlemen and welcome to the Ryanair Conference Call. At this time all participants are in listen-only mode. Later we will conduct a q-and-a session and the instructions will follow at that time. If any one should require assistance during the conference please press star and zero on your telephone keypad. Just to remind you all, this conference call is being recorded. I would like now to introduce to the Chairperson, Michael O'Leary. Please begin your meeting and I will be standing by.

Ok ladies and gentlemen. You are pretty welcome to the Ryanair Q1 conference call. We are spread around to be today . So I am speaking from London. I think we have Howard Millar, Michael Cawley, Sean Coyle, Ray Hern in Dublin. I think Kevin Osbourne is on the call as well. Normal format, we will read through the press release this morning. Michael Cawley will take us through the MD&A quickly and then we will open up to questions. So this morning we announced a record traffic, and profit growth for the quarter ended 30 June. Passenger traffic grew by 45% to 5.1m for the quarter although both average load factors and yields declined by 5 points to 78% and 14% to 41.71 Euros, respectively. These predicted reductions were due to the launch of 50 new routes and two new bases during the period. The weakness of Sterling to the Euro, the closure of Buzz for the month of April and Ryanair's commitment to offering the lowest fares in every market we serve. Total revenues rose by 26%, operating costs rose by 29%, after tax margins declined from 20% to 18%, while Adjusted Net Profit increased by 12% to a record 43.8m Euros.

These record quarterly results reflect the continuing success right across Europe of our low fares formula. During what British Airways last week described as the most testing period in aviation history, we continue to drive down airfares, reduce costs, but at the same time deliver increased profits and exceptional margins. Passenger volumes grew by 45% to a record 5.1m thanks to the successful launch of 50 new routes, two new bases at Milan-Bergamo and Stockholm-Skavsta, and the acquisition and relaunch of Buzz in May. This strong performance continues, as evidenced by the substantial increase in traffic and load factors for July, those statistics were released yesterday.

These recorded a 40% growth in traffic over July '02 and a 6-point improvement in load factor from 79% in June to 85% in July. Yields, as we predicted, were impacted by a combination of, one, the launch of the 50 new routes and the two new bases, two, the weakness of Sterling to Euro, and three by our continuing policy of driving down airfares in every market. We believe that yields for the fiscal year will be lower than last year by between 10% to 15% as we offer consumers lower fares whilst dismaying our competitors who forlornly hope that yields and fares will rise during this year. Of the 14% decline in yields during the quarter, 6% was due to the weakness of Sterling. Remember, half of all our sales are in sterling. This yield dilution will be partially offset by sterling cost savings. Our margins have also been diluted by the operation of the inefficient Buzz BAe146 aircraft on some routes, but these will be replaced by larger and lower cost 737-800's in October following our next set of deliveries from Boeing.

Apart from offering our passengers even lower airfares, we are tremendously proud of our outstanding customer service. The Association of European Airlines, that is the high fares airlines has begun publishing customer service statistics since January, and these numbers prove that Ryanair is number one among Europe's major airlines for punctuality, fewest cancellations and least lost bags. As the recent British Airways strikes at Heathrow confirmed, the service that high fares airlines provide when things go wrong is absolutely no different to that provided by low fares carriers, despite the fact that people paying and flying B.A. are paying air fares that are 5 to 10 times higher than what they pay Ryanair.

Recently some competitor airports and airlines have initiated spurious legal actions to try to restrict route development, competition and lower fares at publicly owned airports. It is quite beyond our comprehension how an administrative court in Strasbourg could recently require the Strasbourg Chamber of Commerce to terminate our low cost agreement within two months.

Despite the fact that Ryanair is the only airline operating the London-Strasbourg route, and delivering almost six times the traffic previously delivered by Air France on the route, we may now be forced - against our wishes - to either increase air fares on the route, or pull it off altogether in the short-term, until such time as we can appeal and reverse this decision.

It is ludicrous that Air France having withdrawn ten international services from Strasbourg Airport over the last seven years, one of which was the London route, can win a local legal action, which prevents 200,000 European consumers benefiting from low fare services between London and Strasbourg. We believe these passengers will not travel on a high fare Air France service which forces them to go west via Charles de Gaulle to get to London or Strasbourg. This decision is wrong, it is bad for the regional airports of France, it is bad for regional tourism in France and could result in some 200 jobs being lost in the Strasbourg and Alsace region. We will appeal it, and are confident that this appeal will succeed and allow us to continue to develop low fare traffic at Strasbourg and tourism in the Alsace region.

The only grey cloud on our commercial horizon at present is the continuing EU investigation of our low cost base at Brussels Charleroi Airport. The European Commission, which has consistently promoted and championed deregulation and competition in inter-EU air travel needs to send a strong signal to the market that it will not allow political lobbying or local court orders to prevent Ryanair and other low fares airlines making air travel more affordable for consumers all over Europe.

Over the past twelve months our 18m passengers will have saved over 2.0b Euros compared to the air fares charged by our high fare flag carrier competitors and this year more than 20,000 jobs will be created as a result of Ryanair's traffic at secondary and regional airports all over Europe. Many European consumers who weren't rich enough to fly with the flag carriers can now afford to travel to visit friends and families and/or go on holidays.

We remain confident that Commissioner de Palacio will support competition and low fare air travel and will support the right of publicly owned airports to compete on an equal basis with privately owned airports for this business. We welcome Minister Brennan's announcement that the Irish airport monopoly will be split up enabling Dublin, Cork and Shannon to compete against each other for traffic. Competition is good for consumers and will be good for Irish tourism. We remain concerned however about the lengthy timescale for the implementation of the split and the mystifying lack of progress in the development of competing Terminals at Dublin airport.

Why are we still waiting for the Irish Government to do something in order to kick start Irish tourism and to create more badly needed jobs in the Irish economy? Unless this competition is implemented by November it will mean that yet another year of tourism growth will be lost to the Irish economy. We therefore strongly urge Bertie Ahern's government to stop dithering, take some decisions in the interest of consumers, and urgently split up the Aer Rianta monopoly by introducing multiple competing terminals at Dublin airport.

As highlighted by the release of our July traffic statistics yesterday, current trading continues to be in line with expectations and previous guidance. In July Ryanair became the first low fares airline in Europe to carry over 2m passengers in just one month, which renews our confidence that substantial traffic growth for the full year will be achieved.

We still continue to believe that yields will be between 10% to 15% lower than last year, however, we expect profits to grow materially and that we will, as previously predicted, maintain net margins in excess of 20%. This continuing profit growth separates Ryanair from almost all other airlines in Europe, and re-emphasizes the superiority of Ryanair's low-cost, low fares business model, and the disciplined way in which we are rolling it out across Europe. Michael will you take us through the MD&A please.

[Inaudible] . Actually Michael will do that.

All right. Okay.

Ok. Thanks Michael. And just as the introduction to the MD&A, for the purposes of the MD&A all discussions is by reference to the adjusted profit and loss, excluding the exceptional cost on goodwill arising from the Board's acquisition. I will now start on the summary. Profit after tax increased by 12% to 43.8m compared to 39m in the previous quarter ended June 30, 2002 driven by continued strong growth in passenger volumes and tight cost control. Operating margins declined by 1 point to 22%, which resulted in operating profit increasing by 17% to 53.1m euro.

Total operating revenues grew by 26% to 245.2m whilst passenger numbers grew by 45% to 5.1m. Scheduled Passenger revenues increased by 24% to 214m, which is lower than the growth in passenger volume, and reflects a decline in average fares of 14% during the quarter. The 14% decline in average fares is due to a combination of the launch of new routes and new bases, the weakness of sterling to euro, which accounted for 6% of the decline, and Ryanair's policy of driving down airfares. Ancillary Revenue grew by 45% to 31.1m Euros, and reflects strong growth in non-flight scheduled revenue, car hire, and on-board sales. There were no Charter revenues arising during the quarter due to the termination of the program.

Total operating expenses increased by 29% to 192.1m Euros due to the increased costs associated with the higher level of activity, primarily, staff, fuel, depreciation, route charges and airport and handling costs. Operating costs continue to rise at a slower rate than the growth in passenger volumes reflecting the increased operational efficiencies arising from the higher proportion of 737-800 aircraft operated. Other Income/Expenses declined significantly by 2.4m Euros primarily due to higher interest charges payable arising from the increased level of debt. Net margins as a result declined by 2% to 18% whilst net profit increased by 12% to 43.8m Euros. Earnings per share increased by 12% to 5.8 Euro cent, which is in line with the growth in net profit.

Now on to the balance sheet. Cash and liquid resources increased from 1,060m Euros to 1,077.5m Euros at June 30, 2003, reflecting the increased cash flows arising from the profitable trading performance during the period offset by capital expenditure in respect of the aircraft acquisition program. Three additional aircraft were delivered during the quarter, which in addition to aircraft deposits accounted for the majority of the 120.5m Euros incurred in capital expenditure. Advance delivery deposits amounted to 289.7m Euros at the quarter end. This increase was part funded by the draw down of long-term debt, which increased the net of repayments by 53.4m Euros during the quarter. The cost of the Buzz acquisition amounting to 20.7m Euros was also funded from internal cash resources during the period. Shareholders'' Funds at June 30, 2003 have increased to 1,285.1m Euros, compared to 1,241.7m Euros at March 31, 2003. I will hand it back to you Michael.

Thank you Howard. Okay ladies and gentlemen, now we will open it up for questions and answers and the conference organizer could do that now please.

Thank you sir. If you do have a question at this time please press the number one on your telephone keypad. To cancel your question please press the `#` or pound key. Once again that's the number one to register your question and the `#` or pound key to cancel it. The first question comes from Stephen Furlong please go ahead with your question and announce your company name and location.

Yes. Stephen Furlong here from Davy's. Hi guys. Just couple of questions. Can you confirm in terms of capacity where you see capacity for the next year? Assuming it's going grow by 20% to 25% when in terms of the aircraft delivery of the 800s and also when do you see the 200s being retired? Maybe post next summer? That's the first question. The second question maybe if you could just tell me, just confirm, what percentage of airports you would consider publicly owned? And finally, I just would like some clarity on the statement in the statement saying the there is an adverse movement in working capital? Presumably this is timing of payments. And I just couldn't work out where there was a negative working capital because I see that accrued expenses and other liabilities jumped quite sharply.

Okay. Touch on that Stephen. Capacity next year, we expect to see capacity next year increase by about 20%. We will be taking out, I think the first three of the two. We take 15 aircraft to Alva this winter. They had replaced two operating Buzz 146s and they would probably take out three of the 200 at this stage, a net increase of probably ten 800 aircrafts, which is about a 20% seat capacity increase. We then retired the remainder of the 18 737-200s over the next two to three years. Basically we will run them down to whenever they have their next heavy maintenance, which we will have provided for and then not expend. The airports publicly owned, we would consider most of the existing basis or the existing basis where we want to expand this privately owned, that will be Scalsda , Stansted, Luton, Glasgow Prestwick, Frankfurt Hahn. Bergamo, we will see publicly owned and Shadowa publicly owned.

We have many more airports, however both intending bases that are privately owned and new destination airports that are privately owned. So if we had to move from Strasbourg as a result of the court order in the short term and I stress that we will appeal the decision to restore the services to Strasbourg if and when we win the appeal we would go back. We would also, should we lose the shot, I mean that the sequence of events, which happened this morning in London. What happens if you lose this Charleroi case, we will be appealing it immediately to the European court. We would continue to trade there until such time as the appeal is heard. But I think it would put a question mark, if ultimately we lost the case we would certainly have to reconsider. But the cost base would be in Charleroi and whether we would move in or not. That's not the only outcome. It would be open to Charleroi for example where we can lose it at some point of time in the future to instead of having a discounted deal with Ryanair to simply reduce its publish rate of charges for all airlines to what we presently pay and given the Charleroi confirmed it will be profitable this year instead of originally in it's plan it was to breakeven by 2007. It will be well in a position to do that.

So there are many different ways of skinning the cat here but we think this is a decision and the commission has to make a decision on this because this largely determines the future of competition in air travel around Europe for the next five or ten years. So as west went through the same process in the US 10 to 15 years ago, the competition couldn't beat demand, service couldn't beat demand price, so they send in the lawyers and the lobbyers. We are at that stage now. I think we will come through it. We hope to do so with support of the European Commission. Commissioner de Palacio is on record stating that she support competition and spread a low fares airline. So we expect to win the Charleroi case. Adverse working capital Howard. Could you answer that one?

Yes. Basically and Stephen if you look at the cash flow statements. The cash flow from operating activities is in line with the previous year. You would have expected with an increase in profit. That would be a bit ahead. The reason, the main reason why it is in line is that we had a slightly higher level of expenditure in terms of the stocks and debtors. So when you factor those in against the increase in accruals, there is a very minimal decline in average working capital.

Okay. That's great. Thank you.

Thanks Steven, thanks Howard. Who's next?

The next question comes from Chris Avery. Please go ahead with your question and announce your company name and location.

JP Morgan in London. Couple of quick ones, when did the load factor decline, that we're seeing on the monthly basis? When does the declines slow down or should we consider, three, four, five, six, seven points of monthly decline to run all the way through the winter? And a couple of financial ones for Howard, the interest payable, is this the new run rate that we should think of as a quarterly rate going forward and do you have any fresh talk from the lease versus buy on the next [Inaudible] of new aircraft?

Okay, Chris, I think the load factor declined, one could look in July as it slowed down by 1%, we were off 9% in May and June. We were off 8% in July. We expected to close another percent or two in August. But fundamentally we are heading this year and as we have said last year we had an average load factor of 85%. This year we expect it to be about 80% with most of that declined towards the front half of the year because that's when the big increase in capacity and the new bases were launched. As you move through the end of the second, beginning third and fourth quarters, we'd expect that decline to narrow, but we don't expect to catch up at last year's load factors for the remainder of this year. We get there next year when the capacity growth is much lower. And I have forgotten the second half of your question, Howard, maybe you would answer it.

Yeah, this was that, there were two questions. One was the interest payable. I would expect a slightly faster run rate than we had in the first quarter, Chris, driven by the delivery, five of which are happening in September and October and the balance which will happen between December and March. So, it will be slightly faster, but not hugely faster. One of the issues in this is, it's clearly while the cash balance has increased, Euro interest rates have declined quite significantly. We did have the benefit of some very long deposit interest rate that we had put in place, but that's now subsequently unloaned . The third part of your question was in relation to the Japanese operating leases.

We are still looking at these, Chris. We are looking at, basically, continue to operate some EXIM type financing which we will continue to roll forward. We are going to blend in with that, probably, some form of pure debt financing. We are looking at some products that mix the EXIM financing with the Japanese operating leases and we are looking at pure operating leases as well. It's whatever makes the best business sense for us in terms of lower cost. Also we need some additional flexibility, as their fleet gets larger. So, we are looking at our fleet planning and look at maybe, exercising some of our options down the road with a view to looking at some operating leases. So, no decision as of yet, Chris. I wouldn't expect really anything on that to probably November.

Thank you.

Thanks Howard. Thanks Chris.

The next question comes from Jim Parker. Please go ahead with your question and annuonce your company name and location.

Good afternoon guys, It's Jim Parker with Raymond James in Atlanta. Couple of questions. Michael are you able to break out the load factor on the new routes, the 50 routes that you've opened versus the load factor on the existing routes?

We are, but it wouldn't help much. They are obviously below the system might average. But some of the growth this year on new routes has also impacted some of the load factors on the existing routes. I think there's probably an over - much, I think people are over doing the focus on the load factor decline against last year, perhaps here in July, we will record a 93% load factor. I am not sure of that, but it's actually sustainable even this year, if we weren't growing the business as rapidly as we are. But if you take the route like London-Rome at least we went up from three to seven flights a day.

And no doubt that would have impacted, you know - where they have much lower fares, very wide seat availability, that will have affected around the edges, the propensity of some people to travel from London to Dublin for a weekend or to go from London to Stockholm for a weekend. We do, around the edges competing with ourselves as well. So, the load factor decline has not been entirely on the routes. Clearly, most of it has been on the new routes as they are in the first month or two of operations and they are building rapidly. I think, people should derive much more comfort but I don't say this in a defensive sense from the fact that the load factor trend for the last three months has been 77% in May, 79% in June, 85% in July and in August it would be significantly ahead of 85%. People just need to calm down a little bit on where the load factor is against last year. It's exactly where we told the market at the start of this year we expected it to be.

Okay. Michael and on the cost side, obviously sterling is impacting your average fare by 6 percentage points. On the revenue side, when does this show up on the cost side, which is the weakness of sterling and in the dollars again to substantially help you on the cost side?

There's a lot -- I mean substantially on the cost side, it won't be an extension to next year, Jim. A lot of our currency is hedged 12 months out and it will take therefore the hedges we put in place last year, to work the way out of the system before we get significant benefits. We get significant benefits then coming through next year. Fuel, we've locked away at pretty much the same dollar cost as last year, but translated in Euros that will be significantly lower.

Aircraft costs, you know - we put aircraft on the balance sheet this year at almost 30% in Euro terms less than the aircraft we added last year. But that will slow through in depreciation over the next 20 years. What you're seeing here is the negative impact of the sterling dollar against the Euro, changing the income line straight away. But be assured, we are reporting the very significant cost saving is going to come through, that we are making on the dollar and aircraft fuel, spares and to some extent Euro control over the next couple of years. We are making some sterling savings where there is some element of matching but it's not insignificant but it's not huge either in short term.

Right, okay thanks a lot.

Mike, do you want to add anything else to that?

I don't think so Michael. I think the issue on the load factor is very well made because to look back a year, two years ago, we are very similar territory on load factor to those. This issue of load factor is over stated and as you said earlier on, we are well on the way in six or seven months time to getting up to the kind of load factor that we had in the fiscal year just finished anyway.

Yes.

Okay, thank you.

I think it's an important point, nobody has ever, certainly in the history of the European Airlines, don't know what we are doing this year, we're going from 16m passengers, which is the size of KLM, to 24m passengers which is the size of Air France's International traffic in the space of one year. That's traffic growth of 8m. Air Link has spent 75 bloody years trying to deliver 6m passengers a year; our growth will be more than that in the space of one year. It's an enormous jumping capacity, and it is being done against the background of lower yields, lower load factors, but still very impressive profit margins and increasing profits. So, I think people just need to calm down and take a more medium term view of what we are at.

Michael, that's a great performance 12% with that kind of capacity growth in a weak economy.

It's interesting, because if the sterling had been leveled at where it was against the EURO last year, the growth and profits would be in the low 20's. So, I think everybody just needs to calm down a bit.

That's right, thank you.

The next question comes from Andrew Lobbenberg. Please go ahead with your question and announce your company name and location.

Good morning guys, it's Andrew at ABN Amro In London. Couple of quick questions, if I may. You've been very eloquent about the defense of the Strasbourg ruling and your appeal on Charleroi. Can you give some guidance on the time line for progress on those two cases? And then you have also been very eloquent and quite detailed, on want you expect load factor to go, could you talk a little about when you expect yields to go on the different quarters that we've owe going ahead? Because the September quarter last year was particularly strong with yields going up, so can we expect a yield decline towards the bottom end of this 10% to 15% range again? Or should we be expecting the yield decline to sort of gradually erode through the course of the year?

Thanks Andrew. The Strasbourg time line is two-fold, the court, the administrative court decision doesn't give us any option, the Chamber of Commerce must end the agreement by the end of September, two months. We, our applying at the Strasbourg Chamber of Commerce and the airport jointly are applying for a stay on that decision while the appeal goes through, but with the eight day period for a stay, the court must make a decision on that application before the end of August so we'll know one way or the other before the end of August, whether we can continue to fly pending the appeal.

If we can't continue to fly pending the appeal we will terminate the routes, pending the appeal. We expect the appeal will take the course of 12 months, and ultimately that we will win on appeals, so we will have to continue to fly the routes twice daily and deliver 200,000 batches a year or there would be nobody in the short-term flying the routes for anything up to 12 months. And I honestly don't know what situation is going to be with the stay or the application for the stay, but again we would be hopeful that Chamber of Commerce and the airport will be successful.

The Charleroi time line at this point in time, we expect the decision out in the European Union October, November. We expect it to have no impact what so ever on Ryanair's cost base at Charleroi, which would yet be the end of the time line there. If something - if for some reason our expectation isn't correct and they find for example, and put it at its worst extreme, they find against Ryanair and the airport then say, I don't know you must stop flying there, clearly we can appeal that decision and nothing happens while we appeal is on going that would take about a year or two year's to appeal. We would continue to fly the route or the base for a year or two years, we clearly wouldn't add any more aircraft routes our jobs at the base while the appeal was on going. But we will be fairly confident of winning it on a period, although we're fairly confident of winning the base case itself.

Because if you take it at the negative, if we were to lose it, what the European Commission is essentially saying is that publicly owned airport can no longer compete with privately owned airport for low fare or growth at secondary and regional airports. Privately owned airports are free to do what the hell they like, and the test of state aid is that as long as publicly airports are complying with the private investor principle that is behaving in an manner similar to privately owned competitors and if not state aid, so, that will be the time line on the Strasbourg situation. Yields going forward, we would expect yields in the second quarter to be, I think towards the lower end of out 10% to 15% range that still subject to with currency movements, sterling has strengthened a little bit against the Euro in recent weeks, but we would still be kind of bearish generally through quarters three and four, maybe quarter two not quite so bad on the yield decline, we are at the lower end of 10 to 15.

Quarters three and four we would expect to be tough again just because it's always tough in quarters three and four, they have been the quarters in the last number of years, so we've had war in Iraq, 9/11, foot and mouth. So it's the airlines business something always goes wrong and so we continue to expect and guide yields for the year down between 10% and 15%. Profit growth for the year, somewhere at the 10% range and the margin for the year will be 20% after-tax, and no airline anywhere in the world will come remotely close to that performance.

Thanks Michael.

Thanks Andrew.

The next question comes from Nick van den Brul. Please go ahead with your question and announce your company name and location.

Hi, it's BNP Paribas in London. Can you give us a bit of a flavor of the growth in the new stations, Milan, Bergemo, Stockholm, and also continuing growth at Han, please? That's the first part. And then the second question is on the cost structure side, marketing was up quite a bit in percentage terms. I assume that is largely for the opening of the new stations. Will that take it downward slightly in the forth coming period, could you give us profile and also route charges seem to be a little higher than the actual capacity increases, is there an element of price increase there as well?

I'll take your questions in the reverse order. On route charges, yes, there is an element of price increase, some ridiculous price increase on Euro controlled charges mainly in the UK and in Germany this year. Also added to by the fact that we are flying -- we have a bigger percentage now of the 800, which are heavier aircraft flying slightly longer routes, results in a -- route charges last year also rolled, with the only cost area that rolled by more than the growth in the percentage rate of growth and revenues. Cost going backwards, marketing cost, obviously, have been very high in the first quarter.

Yes, we do expect those to taper back over the next three quarters. Remember, the first quarter is the quarter where, not alone are we launching 50 new routes and two new bases, it's also the quarter that was opened with the war in Iraq. We've been very aggressive in terms of promotion, keeping the passenger's flying during a period when most of our competitors here in Europe are actually grounding aircraft, carrying fewer passengers. We've been marketing aggressively in the same way we respond to all crisis and that is market aggressively, drop prices, carry more passengers. And on the new-- in terms of growth without being overly specific, if you take the kind of traffic or the 77%, 78% average load factor for the quarter, the Milan base has been ahead of that, which we would have not expected; we would have thought it will be about Line ball, it's been a little better.

Stockholm has been behind that in that quarter. We expect that in Stockholm, we budget for it to be worse than Line ball, but it's been ahead of our expectations. Frankfurt Han continues to grow from strength-to-strength in quite miraculous ways. But in Germany the yields are a pretty poor, the load factor is very good. There is intense competition in the German market at the moment. But what seem different here at Ryanair from most of the other carriers is, they have crappy load factors and crappy yields. We have crappy yields and very strong load factors. And Charleroi continues to grow very strongly, although it had left capacity growth issue as in Frankfurt Han.

Thanks.

How about you Mike, do you want to add anything to that.

It's a German situation, Michael. It's very interesting because we've seen a lot of press releases on a lot activity, so called activity by low fare carriers there and we know that they are doing badly with load factors as well as yields, well below their expectations, even their fairly very modest expectations, their own performance hasn't been achieved and they are literally running away from us in terms of bases that we are trying to select in Germany. They are deliberately avoiding us and we have gotten pretty good authority there.

Yeah, that goal seem to be as a good point, Mike, I think that goal seem to be a trend around Europe; is that most of the competition to us seem to not wish to engage in competitions with those and I would add easyJet to that as well. We have been aggressively growing capacity on a number of routes out of Stansted, where with their acquisition of goal we compete against them.

I mean they keep coming up with this fiction that we only compete against each other on one route, we don't, we compete directly on eight routes; Rome, Venice, Milan, Glasgow, Barcelona and in all cases we have carried on significantly from Stansted at much lower airfares. But we are not targeting easyJet, we are not targeting anybody else. We are continuing to grow our business very aggressively with a lot of new routes, some new bases, but also continuing to increase frequencies on existing routes where we believe, we can continue to drive down fares and carry more passengers.

Michael, the one other point there on marketing was that the cost per passenger in fact is flat, as compared to the previous year. And given the huge growth in activity in terms of our new routes and the timing of those, specifically in the first quarter allied to the base in [Inaudible] . That is, what we are heading for, obviously is to reduce this per passenger overtime and I think that's achievable within the year.

But I would also admire like, significant jump in sales and marketing in quarter one was also done in the first quarter of last year.

Yes.

Thank you.

Thanks.

Thank you sir. The next question comes from Mike Powell, please go ahead with your question and announce your company name and location.

All of my questions have been answered, I am afraid. Thanks.

Come on Mike, you can come with a new one.

We can have a new one if you like.

Can you tell us what charges you pay at [Inaudible] and for airports and how do they stack up versus your public sector airports?

No. We are not answering any charges as to what we pay at any airports. Some things should always be private as between us and our priest or confessors.

Okay we'll be coming back to - coming back to Charleroi then. Obviously the timing seems pretty indefinite, but in terms of - can you tell us if there is any risk that you will have repay anything that might have been, might be deemed to have been subsidies?

No, our senses is that there is no basis for repayment of anything. You remember its Belgium that's being investigated in this case and there don't seem to be anybody who suffered any loss. At this point in time, the advice we have and the soundings we have is that, Brussels is more focused not on stopping of flying to Charleroi or stopping us developing Charleroi or forcing us to pay money back. They are more focused on establishing principles going-forward for how airports may behave if they want to discount charges. You know you pop this list is available to all but instead of offering it to each airline separately, you run an ad in the paper or you stick an ad in the European journal or something like that. It seems to be more directed towards going what are the rules for developing discounted costs to [Inaudible] .

Is it surely the pressure there is present in the past that wasn't their way. Subsidies have come from public companies that have had to be returned and I know your case is that, that shouldn't be the case but there surely must be a risk , if that happens this time.

You see, you come back to the core of the issue here. Is that, long term discounted cost base, a subsidy? Like if not, we are paying them and not the other way round, is a marketing contribution towards the marketing fund where our contribution vastly outweighs theirs. Subsidy, again, no it's not otherwise you better close down every tourism agency all over Europe. It's and then I think it's inconceivable we will loose the case, it's even less conceivable that anybody is going to ask us to repay back some funds to I don't know who you repay them back to the [Inaudible] government.

But, I mean like a lot of other decisions that might be somewhat inexplicable and crazy, remember, you had 90 - I think the figure at the moment for state aid cases is 93% of them are found to be - they find that is not a case of state aid. Of the other 7%, where have established state aid about 90% of those have been over turned on appeal. So this is not a kind of an area where, and some of these is, you have government owned companies receiving big lump sum money from governments as opposed to this case. So, I don't really believe there is any possibility of us being asked to repay any money. But if we were, again, we will be appealing it forever and a day, I don't think it will ever happen.

Okay, well, I would be interested to hear the results from them. Thanks.

Thanks Mike.

The next question comes from Joe Gill, please go ahead with your question and announce your company name and location.

It's Goodbody in Dublin. I've got three points. The first is just could you comment on fare strategy going into '05 or '06 in terms of are you intent on taking fares down again in those years or, will you be more focused on maintaining a high deferential vis-a-vis average fares in the fly carriers. And second point is on [Inaudible] , could you talk a little bit about how those are building in terms of their components and what your expectations are from them going over the next two-to-three years? And third, do you have any specific interest in basing aircraft in either Luton or Belfast International?

Thanks Joe. [Inaudible] these last months going or - Fare strategy for '05 and '06 will be to drive down average fares by about 5% each year, regardless of the competition or the differentials. And I think it will probably happen that way, although we think once we get to '05 and '06, some of you know, Dublin may well have- kind of given that we can't have or we have government that will make a decision out of completing term [Inaudible] . We may not be able to grow any further at Dublin. But also, I think the London situation is going to change in the next year or two. You know Luton is now coming close to capacities; Stansted has that capacity during the peak period as is Gadrich and [Inaudible] .

So the big surge of growth you have seen out of London in the last number of years is probably coming to an end. Well that means we won't - will fare yields right, no, I suspect we'll keep driving fares down by about 5% a year, not because of competition or dropping fares because our operating cost will still be falling as we add more and more 800's to the mix. We want to use those lower fares to drive capacity growth and to increase the fare differences between us and the competition. Ancillary sales, ancillary sales is growing very strongly, continuing, they are up 45% to the quarter, that continues to be driven strongly by an improved distribution across the internet of the Car Hire; hotel; Car Hire hotels.

Travel insurance is down as the fares fall, we tend to sell less and less travel insurance but adding additional business to the ancillary revenues through the internet sales, the kind of mortgage stuff, some of the other and sales license we are selling through that and we can see that continuing to grow. I was going to base aircraft in Luton and Belfast where we already have an aircraft in Luton, we've nothing based in Belfast yet, but we are on the record as Luton and Belfast, both of which are privately owned are two of the nine based airports where we have an outline agreement reached with all nine as to where the next base will be. We've no decisions made yet as to where the next one will be, Luton or Belfast. But, I mean we will see ourselves at some point in time over the medium term adding aircraft and routes to either Luton or Belfast.

Thank you.

Michael, maybe you want to say or flush out the ancillary sales point there. Do you?

No, I think it's well known that we've just concluded two new deals with hotel [Inaudible] , see us increasing the penetration as well as the organic growth over the next number of years. So, under those, we will get a benefit from--, better conviction from the back of our increasing passenger numbers. We are obviously trying to replicate that with some of the characters, all minor ones, but, obviously a greater push as well on in-flight sales which is improving the mix of product we have there and trying to get, coupled that with operational efficiency, it's not all the things you wish for in that regard are possible, but we are trying to get the best blend between operational efficiency of loading barrels and so on and yet having a good mix of product onboard for people to buy and we are seeing already some early results of improvement in that regard. So, I would say going forward, we should see demand on ancillary items out-strip passenger growth quite considerably for the next few years.

Can I just come back to one last one in relation to the whole and Charleroi situation. Most realistically, do you consider to be in the best case scenario there like there seems to be a general review on the markets that they came with the rebuke and [Inaudible] for Charleroi airports though if they are seen as win if they gave pretty sure principles going forward. I mean would you share that or do you think the best guess scenario is just a clean ruling in favor of Charleroi?

No, I think there is no possibility of a clean ruling in favor of Charleroi because they will look kind of stupid having started this [Inaudible] , they don't come up with something. I think what the best case scenario here is that come out with some rules going forward for publicly owned airports, most advertised discount scheme or less of transparency, something or other that through a discount or a regional airport and the discount of one airline [Inaudible] advertise that through the European Journal or maybe they have to clear it through the European Commission. It will be some typically mandarin like ruling. But will it stop the growth of low fares that new routes, tourism and traffic around the secondary regional airports, no, I cannot foresee how-- the European Commission is going to have Charleroi or Ryanair to shut down. You can only grow at privately owned airports, it is simply inconceivable to me.

Okay, thanks.

The next question is coming from Damien Brewer. Please go ahead with your question and announce your company name and location.

Cheuvreux, in London. I am just wondering if you just talk us through a little bit more about how you sort of yield at load factor assumptions the rest of the year flat out? In particular could you just say whether that has any assumptions about the sort of German new entrant, sort of not quite so low-cost carriage pulling out of any markets or indeed whether you expect to see any sort of any new entrants in for example the UK Ireland market? And if that did happen what the sensitivity to both of those changes would be and what sort of strategy you look at employing to do with that, whether for example put more growth and to say that you have market if we did see a downsizing of the so far financially unsuccessful competitors there?

I don't think, Damien, going forward, that our forecast on yields and load factors are that sensitive to kind of changes in the competitive landscape. But you know our planning is always based on being bearish about the competitive landscape. Despite the fact that they are slowing their brains out in Germany, we expect them to keep going for the for the foreseeable future, blowing their brains out. Therefore, we continue to expect that our yield for this year would be down between 10% and 15%. [Inaudible] in the last week British Airways have now kind of come to see our view of the future. They are now saying 10-50% down on their yields as well this year, although [Inaudible] has a much vastly different impact on their numbers. Are we seeing new competition in the Irish UK market? We expect to see it.

There is a crowd called Freshair, was talking about starting in October with a 757 [Inaudible] Stansted, Birmingham, Manchester, nothing surprises us, where to the extent that they will be a new entrant there, equity [Inaudible] are pulling off Gatwick in London city so capacity on the Dublin-London route would have declined a little bit. But we expect more competition from everywhere on every marketplace, which is why our medium term fare strategy is fare falling 5% a year each year, and it keeps going that way. Our operating costs will continue to fall at least 5% a year for the next four or five years and we believe we'll maintain margin in the low 20's, as we have done for the last 10 years.

Okay, and you wouldn't see any short term changes in that outlook as for example, I am just thinking it will be very different if Freshair, it didn't succeed in staffing up, say for example if it did, in terms of the outlook on London-Dublin.

I don't think so. I'm very sure four times a day on Stansted with a 757 isn't going to harbour massive impact on the Dublin-London route. We are flying London, Stansted 12 or 14 times a day. Our fares will be lower than theirs all the time. They are lower than [Inaudible] now. It won't have that much of an impact on either of our business. Everybody I think particularly, journalists in particular are always seem to take great delight in all [Inaudible] want to be competition to Ryanair and so that the end of road is nigh for Ryanair. We are the lowest fare airline in Europe.

We have the lowest cost base than any airline in Europe. Any body wants to compete with us, be outstanding whether if Hapag-Lloyd express in Germany, Freshair in Ireland and the other air called now or never, or what ever it is called in Luton, we've been competing with everybody now for 15 years. We like competition. We enjoy competition. There is nothing like a good [Inaudible] kicking to keep the airline moving in the right direction. But that's why we continue to be fairly cautious in our yield forecast and our load factor forecast for the remainder of this year. And if it turns out to be any better than that, well then everybody gets a nice surprise.

Okay, thank you.

Thanks Damien.

Just to remind you press the number one to register a question and the hash or pound key to cancel it. The next question is coming from Peter Evis. Please go ahead with your question and announce your company name and location.

Yeah, Peter Evis, Street.com in New York. A question on Strasbourg, another guys. For me the uncompromising stance that you've taken on the Strasbourg question suggest to me that the, without the cost advantages embedded in the deal that route would not be profitable. If that's the case, why is Ryanair basing it's business model, or risking it's business model by basing it on cost advantages with local governments, which as we've seen can be possibly over ruled by the European Court system and if that exists at other airports, doesn't it put the entire business model of Ryanair at risk going forward, especially if the Charleroi case is [Inaudible] adversely?

No, I mean if the whole question is based on what is a false presumption that the profitability at Strasbourg or indeed the profitability of the airline is dependent on having low cost deals at airports. Airport cost at the moment are running at about 12% or 13% of total cost, less than 10%, or fractionally over 10% of total revenues, it could double and we will still be profitable at our margins and there is a lot of airports in there, but we don't have significant discounts. We have a cost base at Dublin, that's exactly the same as everybody else. We have a cost base at Stansted, that's not hugely discounted over, what other airports are paying.

The key element to our cost base is efficiency of the airport, it's 25-minute turn-around. It's not the absolute cost per passenger charged by the airport. If Heathrow, Charles de Gaulle and Frankfurt Han came to us and blew in the face saying this, and offered us free to fly there, a huge discount albeit, we still wouldn't and couldn't go there because we can't turn the planes round in less than 60 minutes in a place like Heathrow. The productivity comes and the cost savings come from doing two more flights per day, per aircraft over the competition here, whether it's EasyJet, or BA, or Air France. Now we take that forward. We will continue to develop secondary airports, regional airports, not because they give us lower cost arrangements, although they do, but because we can get 25 minute turn-arounds, much more efficient handling, much easier means of getting passengers through the airport at those airports.

That's why Southwest started averaging at low feel, we started averaging in Dublin, which wasn't exactly a central airport. So, we'll [Inaudible] against on the Charleroi, it may, take the negative, yes, they declined against the Charleroi, the only affect that had is we cannot and have discounted deal at publicly owned airports around Europe. Increasing trend around Europe is for airports to be privatized, not to go public. You now have the BAA privately owned, Fraport privately owned, Copenhagen privately owned, remember Fraport is that would be developing Frankfurt Han, The BAA developing Stansted. These airports are not stupid as to where the goals come from and airports depend on traffic growth. So, firstly, the assumption as seen in your question, that the profitability depends on a low cost of the airport, is fundamentally wrong. It, doesn't. The profitability is driven across every single cost sector.

We are more efficient than anybody else. Higher penetration of Internet sales, more seats per aircraft, cheaper aircraft tiers than anybody else. Better staff quality than anybody else. The cost benefit here or the cost advantage here runs across every single category. If, Brussels turns it down we may have to limit the growth of publicly owned airports for the moment, we still have more privately owned airports than we need to continue to grow. However, even if they turn it down, we will spend the next couple of years appealing and the record of people appealing state aid decisions against Brussels is a one where the majority appeals have been appalled.

I might ask a specific question. Would the Strasbourg route be profitable without these cost advantages that came in the deal?

Yes, it would.

It would, okay. So, that airport route would be completely profitable if you were to have cost goal gravitate up towards sort of the average level for Europe?

Yes.

Okay, thank you.

Now and by the way Peter, I think what you should look for, is when we do, if we can't state a decision and we do pull that route, watch where the aircraft goes.

My question is why are you just taking a slightly softer stance in re-negotiating with Strasbourg and you can still be profitable, because you wouldn't have so many cost advantages. Why do you take the hard line?

Because we can. We have 40 other airports with much lower cost than Strasbourg would have at that point in time. And we should, the discipline here is not some flabby kind of - well let's not worry about the cost, we pay little bit more at every airport and can charge passengers more. The discipline here is, a la Southwest , always be aggressive on costs, if we have a lower cost airport out there, that's where the aircraft should go. Remember that Strasbourg approached us 12 months ago because they knew Air France were pulling out. The only reason we fly this Strasbourg is because it was one of the better deals we had on the table at the time. And we should always be disciplined, not just with airports, also with aircraft, also with distribution channels, with staff, productivity, everything. You cannot spill the biggest low fares airline in Europe or the biggest low cost airlines in Europe by being flabby about cost. Any moron can be flabby about cost we won't be.

Okay, thanks.

And the key would be again we have other alternatives. If we are forced by the course to pull Strasbourg again, I say watch where the aircraft will go.

All right.

The next question comes from Ronan Hurley please go ahead with your question and announce your company name and location. Mr. Hurley, your line is open. The next question comes from Shane Matthews, please go ahead with your question and announce your company name and location.

Afternoon, NCB stockbrokers. Michael, can I get a sense, if there is any improvement, where we've heard both BA and EasyJet talk about kind of a steady improvement over the summer, particularly since Iraq crisis and orders. Is that something that we are seeing with yourselves? And the second question I wanted to get a sense of was-- are you seeing more in-ward bound traffic into the UK, now that sterling has been weak or is it still - are the revenues still very much pluses they were at the full year stage?

Our general stand at the moment, Shane is, we don't - we are trying to convey a message today at the first quarter that business is fine and everything is as we pretty much forecasted would be for the year, largely, because we are driving the market that way. The forward bookings are exactly the same as they were a couple of months ago, we can have plenty of visibility, I mean, we find the competitors who keeping talking nonsense about either we don't have enough visibility or we don't see this or we don't see that. We see exactly where it's going, and it's going in fact to where we thought it was going to go at the start of the year. It's no better than that and it's no worse than that. We don't want to convey some kind of false sense to this you know, the present is [Inaudible] but the future is better. Means the present is fine, the future is fine but it's no better than fine, it's no worse than fine. And I've forgotten the second point, pardon [Inaudible] and write down. What was the second half of the question, Shane?

It's just a - is there any revenue difference in terms of - are you seeing more in-ward bound traffic into the UK with sterling movement ?

It's too early to say yes. We don't do as you know a lot of analysis of the origination and -- the O&D statistics on these routes like a lot of those routes, we are adding a lot of capacity, we are trying to make sure that we are driving the load factors aggressively with lower fares, that we don't much care where they come from. So, I think it's probably bit early yet in the year. We have a better feel for that towards the end of the year than we would now.

Okay -

Mike, I don't know whether you want to add any further to that or Sean Coyle on the sales side but -

I think that's - the latter point you make Michael is quite valid and the visibility, is what I would say as well, that we are pretty well as we were few months ago, in terms of seeing-forward. No better, no worse. It's a strong time of the year, you know it's busy time of the year but that discounting that, there's no more visibility than they are the [Inaudible] but no less either, you know.

Thanks very much.

Thanks Shane.

Once again, that's the number one to register your question and the hash or pound key to cancel it.

Anybody, got anymore questions?

There appears to have no further questions sir, at this time I will hand the conference back to you for further remarks.

Okay, ladies and gentlemen again, thank you very much for joining on the conference call. I think if I can leave you with one kind of parting message is that business is fine, everything is progressing nicely in line with where we guided you at the start of the year, which is traffic growth of about 50%; yield decline 10% to 15%; profit growth issue would be [Inaudible] 10% but the profit margin will continue to be somewhere in the lower 20s, which will continue to make Ryanair not just the lowest cost, lowest fare airline in the world but by far in a way the most profitable in terms of margins. Thank you for joining in today. Thank you and if anybody has any other questions offline, Howard and Michael are in Dublin and will be happy to take them. With that we will sign off, Howard, Michael anything else you want to add?

No.

No, I don't Michael.

Okay, thanks everybody, cheerio.

Ladies and gentlemen, thank you for your participation today. This concludes today's conference, you may now disconnect your lines. Thanks again.