Ryanair Holdings PLC (RYAAY) 2004 Q3 法說會逐字稿

Good afternoon and good afternoon, ladies and gentlemen. And welcome to today's Ryanair's Quarter 3 Results Conference Call. [OPERATOR INSTRUCTIONS]. I'll now introduce your speaker today, Mr. OLeary. Please go ahead with your presentation, sir, and I will be standing by.

Okay. Thank you. Good afternoon, ladies and gentlemen, and welcome to the Ryanair Q3 Conference Call. For a change I'm here with with Howard Millar and the usual crew. Michael Cawley, who is the [indiscernible] this morning in London is on his way, will be joining us in a couple of minutes. We'll start without him.

Today, as you'll have seen from our website, we announced net profit after tax of €35m for the third quarter ended December 31, 2004.

Passenger volume grew by 13% to 6.9m whilst yields were in line with the same quarter last year and as a result, total revenues rose by 15% to €294m.

Unit costs rose by 26% due to the increase in the level of activity and, in particular, higher fuel and route charges.

During the quarter, maintenance provisions of €4.5m net of tax were released to the profit and loss due to the earlier than scheduled return of 6 leased 737-300s. As a result, Q3 net profit declined by 26% and the Q3 profit margin after tax declined by 7 percentage points to 12%.

These quarterly results are a testimony to the strength of the Ryanair 'lowest cost' model which, even through the most difficult trading conditions, including record fuel prices and intense competition, delivered strong passenger growth and profit. We continue, like Southwest, to maintain our record of 31 consecutive quarters of unbroken profitability since we floated in May 1997.

As predicted, the casualties continue in the European industry. Most notably Volare, V-Bird and Air Polonia. Hapag-Lloyd Express, MyTravelLite, Basiq Air and others, have announced significant reversals of capacity back into their charter operations for many of European -- Europe's flag carriers. Most notably Alitalia and SAS announced record losses.

This is not some temporary phenomenon resulting from high oil prices with a permanent market shift towards low cost air travel, pioneered by Ryanair. Only the lowest cost airlines, like Southwest in the U.S., and Ryanair in Europe will prosper over the medium term. And we expect further casualties, cutbacks and withdrawals among our loss making competitors.

Despite intense competition, yields are similar to those achieved last year, and better than our previous guidance of a decline of between 5 and 10%. We believe this is due to capacity removals by competitors, and a continuing impact of multiple fuel surcharges imposed by many of our high-fare flag carrier competitors in Europe. And these have made Ryanair's low fares even more attractive to European consumers.

Fuel prices remain high and will continue to impact our future guidance. Our fuel hedge has expired at the end of October 2004 and we were un-hedged during November. However, as forward prices fell prior to Christmas, we restarted our hedging program tactically for this winter season. We are almost 100% hedged at an average of $41 a barrel for Brent crude for the fourth quarter and are un-hedged thereafter.

Lower than expected fuel prices also had a positive impact on our Q3 results when fuel costs were €4m better than our previous guidance. We expect our Q4 fuel costs to be €5m lower than the previous guidance. We still see value in hedging to remove uncertainty from our business and we'll continue to review our hedging policy as forward oil prices return to more normal levels.

Advance booking for Q4 indicate a traffic growth is in line with expectations. With some 50% of the seats sold, and assuming no adverse movements in exchange rates, we now expect yield to rise by up to 5% for the fourth quarter.

We would strongly caution investors that this upturn in yield is more a reflection of the precipitatous 22% decline in yield in the comparable Q4 last year. It is also, in part, due to slower capacity growth after this time and an earlier Easter rather than some significant current price recovery.

As we review Q4 of last year, it appears there have been an exceptional result with yield collapsing due to the combined effect of the war in Iraq, the threat of terrorism, of high oil prices, our own enormous capacity growth which, at the time, if you remember, was over 50%. And the market entry of many irrational low fare with not particularly low cost airlines in Europe, many of whom have now disappeared as quickly as they entered.

Ryanair continues to grow strongly and profitably, in spite of adverse market conditions. The Airline is now carrying 74% more traffic than it did just 2 years ago in Q3 2002. Ryanair is the number 1 and number 2 airline in terms of market share in over 90% of our markets and we continue to maintain world record profit margins despite significantly higher oil prices and route charges.

Our new bases in Luton, Liverpool and Shannon are booking well for 2005. And we believe that our 21 new Spanish routes will also perform strongly, particularly through into summer months. We have last week announced 6 new routes from Dublin to Biarritz and Carcassonne in France, Frankfurt in Germany, Eindhoven in Holland and Doncaster in the U.K., as well as Rome in Italy - as a foretaste of what's on offer from Dublin if we get a second competing terminal here. Once again, we strongly urge the Taoiseach to press ahead with his decision on the second terminal.

In addition, this morning Ryanair has unveiled its first 3 Italian domestic routes, with €5 airfare from Rome to Venice and Verona and Alghero in Sardinia. We expect this to revolutionize domestic air travel in Europe. And, as you'll also have heard, the end of Alitalia's domestic high-fare monopoly in Italy.

We continue to support the development of the second runway in Stansted. But are united with all other Stansted users in opposing the £4b folly being advocated by the BAA. The fact that price-sensitive customers are asked to cross-subsidize almost £2b-worth of unnecessary rail links and motorways demonstrates just how completely out of touch the BAA airport monopoly has become.

Ryanair and other Stansted users support the type of low cost second terminal runway facilities developed by Manchester at an efficient cost of some £400m. But only a regulated monopoly like the BAA could possibly propose spending 10 times this sum on gold-plated facilities that our passengers neither need nor want. We call on the U.K. Government to break up the BAA airport monopoly, which is now the world's most profitable airport operator, because passengers need competition between the London airports so British consumers and visitors are to continue to enjoy the lowest cost air travel in Europe.

The initial trial of our in-flight entertainment system has been disappointing. Whilst the trial period was hampered by lack of content in non-English languages, the uptake among passengers has been lower than we expected. We have now reserved these -- resolved these service language issues with the content provider. But unless we see significant improvement in customer take-up over the next 2 months of our extended trial period, we will not roll out the system across the entire fleet as planned.

We remain firm believers in the potential of in-flight entertainment. However, as initially with CD's and the i-POD, it might take some time for the traveling public in Europe to catch onto the technology. Should we decide to continue with IFE at the end of our extended trial period, Ryanair will suffer no financial loss whatsoever.

We continue our cautious outlook for quarter 4, and the full-year outturn. Whilst yield and fuel prices are now somewhat better than originally predicted, sterling has weakened depreciably and this will have a downward impact on yields.

In Q4 last year, we suffered a 22% collapse in average fares. However, based on current booking trends we now expect that the comparable Q4 yield this year might be as much as 5% higher then these dramatically lower yields than last year.

Despite higher route and fuel charges we continue to deliver the highest net margins in the industry and we therefore believe that Ryanair's lowest cost model will continue to grow and prosper across Europe to the benefit of our passengers, our people and our shareholders.

And I'll now ask Howard Millar to take us through the MD&A. Howard.

Thank you, Michael. For the purposes of the MD&A, all figures and comments are by reference to the adjusted profit and loss, excluding exceptional costs and goodwill referred to below.

Exceptional costs in this quarter ended December 31, 2003. Comparative quarter consisted of €5.5m in [indiscernible] costs. And additional depreciation of €0.6m arise from the earlier than planned retirement of the 6 aircraft [indiscernible] by the scribing of these aircraft, with a detailed reference to note 4 in the financial statement.

Goodwill up €0.5m was amortized in the quarter compared to €0.6m in the quarter ended in December 31, 2003.

Profit after tax decreased by 16% to €34.5m during the quarter compared to the same period last year.

The total profit for the quarter, excluding exceptional costs and goodwill mentioned above, decreased by 26% to €35m.

This is a summary of the quarter ended December 31, 2004. Profit after tax decreased by 26% to €35m, compared to €47.5m in the previous quarter ended December 31, 2003. Total operating revenues increased by 15% to €294.4m, which was faster than the 13% growth in passenger volumes as fares were almost in line and the continuation of the strong growth in ancillary revenues.

Total revenue per passenger has, as a result, increased by 2% by the successful launch of new routes and a slower rate of growth resulted in load factors increasing from, by 1%, 83 towards 84% during the period.

Total operating expenses increased by 26% to €245.8m due to the increased level of activity and the increased costs, primarily fuel and route charges, and airports handling costs associated with the growth of the Airline.

Fuel, our largest cost item, decreased by 68% due to substantial increases in the U.S. dollar cost per gallon, which were partially offset by the strengthening of the euro to the dollar.

Operating margin declined by 7 points to 70% which, in turn, was noted in operating profit increasing by 19% to €48.7m. Including fuel costs, operating margins would have remained constant in both quarters.

Profit before tax has declined by 25%, greater than the decline in operating profit due to the higher net interest charge arising from the increased level of debt and foreign exchange losses which arose from the translation of sterling and U.S. dollar bank balances to euro at the period end exchange rates. As a result, net margin declined by 7% -- sorry, 7 points to 12% for the reasons outlined above.

Total earnings per share have also declined by 26% to 4.61 cents for the period.

Over to the balance sheet. The Company continues to generate strong cash flow from operations. And year-to-date this amounted to €346.7m. This cash flow part-funded 12 aircraft deliveries, 6 in the current quarter, additional aircraft deposits. And the balance remaining is, in turn, reflected in the €190.5m increase in cash and different resources since March 31, 2004.

Cap expenditure measured 3 -- to €342.2m during the period, whilst long-term debt, net of repay - repayment increased by €200.4m.

Shareholders' bonds at December 31, 2004 have increased by €236.2m to €1b -- €1691.5b compared to March 31, 2004.

Over to Michael.

Thanks for that, Howard. Okay I won't give you any further comment but I'll save that to the end. We're going to focus straight away now to questions. Sarah?

Thank you, sir. [OPERATOR INSTRUCTIONS]. The first question today comes from the line of Chris Avery (ph). Please go ahead with your question, sir, clearly stating your company name.

JP Morgan. Good afternoon, gentlemen. 2 quick questions. New engine maintenance deal slowing down the amortization of the previously capitalized maintenance expense. Can you run us through that 1? Is it just that the CFNs are going to last longer before they get their first major service from you.

Then secondly, on summer trading. If some of the Charter guys are bringing capacity back to the Charter market and taking it away from the Low Fare scheduled market, are you actually signaling that summer trading is actually going to be better and so yields down 2 or 3%? Something like that.

Howard, take the first part, Chris. And I'll do the second.

Hello Chris. The amortization of maintenance costs. Clearly we have a new engine deal with GE. That reduces the amount we have to amortize over the shorter period compared to depreciation. So therefore we would ex -- we would now be able, with certainty, to forecast what our future amortization cost is based on this new Agreement. So what's happening is we have the -- a lower rate to amortize over the shorter period for the main overhaul which occurs between 8 and 10 years after delivery. And then we have, obviously, our higher amount of the total cost of the aircraft to depreciate over 23 years. And that's essentially the model.

Okay. So it's a reallocation out of maintenance to airplanes.

Correct.

Got it. Yes.

Thanks, Chris. And with us Sean Coyle who, as you know, is our Director of New Route Development. Just to take the summer trading guidance.

Hello Sean.

Hello Chris. The key thing, I suppose in relation to summer trading is that the growth will be in the lower 20's. We're not seeing any unusual patterns in bookings for the summer at the moment. We're pretty much in line where we'd expect to be at this time of the year.

The Charter guys moving capacity back into Charter operations I don't think will have any significant effect on our summer numbers. We've tended to stay away from their key Charter markets. So we wouldn't be terribly concerned about any shift in capacity that they're seeing.

So, all in all, summer trading is probably going to be in line with previous year's guidance growth, in the low to mid 20's. And yields down by the typical 5% that we would have been guiding in previous years.

Okay, got it. Thanks very much.

Thanks Chris.

Thank you. Our next question today comes from the line of John Mattimoe.

Please go ahead, clearly stating your company name.

Hello. John Mattimoe from Merrion Stockbrokers. Good afternoon. Just a couple of quick questions. In terms of the capacity outlook in the market, could you just give us a -- maybe your view and the outlook in terms of, say, Company failures going forward. Whether you expect a reasonable amount or a significant amount over the next 6 to 9 months. On the new entrance side, do you see any imminent level of new entrant capacity?

And then, lastly, in terms of the flag carriers. Do you see them having a cost push that might allow them to have to put up their fares in line with, say, the type of fuel surcharges that they've been doing?

And then a follow-up question just in relation to the fleet. I was just curious to see if any deliveries in the Q3 were - check in at fully-owned aircraft? Or whether any were done, say on a lease back? And what the outlook is for the deliveries in the last quarter?

Okay. Thanks for that, John. Capacity outlook in the market -- anyway the key issue for capacity outlook in the market is going to be our own continuing growth. We expect capacity growth for the next -- in the next fiscal year in the low 20%. Given -- but off the base we're talking about, that's going to be, I think, the most significant capacity niche in the market next year.

Will there be more failures? Yes there will. There'll be more failures this winter. We're nowhere the end of the bloodbath yet. Both at new entrant -- both of so-called other low fare carriers, there's a number we are aware of that are staggering around their last legs at the moment.

Will there be some new entrants? Yes. There's lots of idiots out there. The world is full of idiots and there'll always be new idiot entrants. And we don't know what market they will be surfacing, but they'll surface. The only thing we know is that they're cost-basing their fare to be higher than Ryanair's. And there is 1 particular new idiot entrant in the Irish market - some of you may have seen it in the last week or so - who, again, can't match either our fares or our prices.

Cost push if the flag carriers. It will be more of the same.

I think what you're going to see among the flag carriers, if there is any real cost push, it will be more along the lines of the cost push initiated by Aer Lingus over the past 2 or 3 years where much of the turnaround has come as a result of taking capacity away from head-to-head competition against Ryanair in the Irish/U.K marketplace. And hoping or trying to find markets like Ireland/Europe where for the moment they don't face competition from Ryanair.

Frankly, the cost base of the flag carriers in Europe is such a high multiple of Ryanair's unit cost base. And the gap is getting wider, not because of anything the flag carriers do, but simply because Ryanair continued to drive down our unit costs.

The answer on the Q3 fleet. We put 3 aircraft on our own books and --

3 on operating leases.

Sorry, we took 3 aircraft on operating leases in the third quarter and how many are old?

6.

And 6 on our own balance sheet. 3 on operating leases and 6 on the balance sheet.

For Q4?

The figure for Q4?

We had 12 deliveries in Q4 and we plan to take 4 on operated lease. That -- we haven't finalized the date. We are also looking at Japanese operating leases. So there will be 4 aircraft on Japanese operating lease in March. They will be on the balance sheet as opposed to off balance sheet with the standard operating lease.

We have another 4 aircraft we are looking at coming in April. And they will be operating leases, so off balance sheet. So out of our total of 12 deliveries, we have 4 on the balance sheet and 4 off the balance sheet. And 4 will be state owned.

Okay. Thanks for that Howard. Michael, if I could now go back to sum up capacity then, just to sum up. But it looks, on the failure sides, you're optimistic of more to come, cautious on the new entrance on the flag carriers. You suspect that if there is capacity realignment there, might be away from head-to-head competition with yourselves. Would that be the right interpretation of the message?

I did say to you more optimistic and pessimistic. There's a certainty there's going to be more failures. How significant they will be we can't predict. In the real world Alitalia would fail tomorrow. But I wouldn't hold my breath.

There are going to be more failures. So many of the new entrants in the last number of years are just hopelessly loss-making. There are no prospects for them surviving, specifically because we are going to keep driving air fares down. The point I want to stress most in this conference call is fares were flat in this quarter, and we are seeing a little rise in the fourth quarter, but that is against really shitty comparables.

The underlying message from us is that airfares are going to continue to fall. And that spells more trouble for loss-making airlines at the moment, whether they be so-called low fare airlines in Europe, so-called new entrants or so-called flag carriers.

Okay. And Michael, on a general point, if there are more failures, would that then encourage you to think that you might be able to maintain your pace of yield decline, say at a rate in line with your declining unit costs?

We have no control over the pace or rate of our yield decline. As you're aware, John, during the phases we floated in 1997, saying we have no control over such things. We are controlling capacity growth, we control load factors and we control unit costs. Other than that, we can take those 3 and then we will sell the seats at whatever price they have to be sold in order to fly with load factors in the mid-80s.

Okay. That's just fine. I was trying to just bring the context on the failures in to see how that might affect that overall mix. Okay, thanks a lot Michael.

Thanks John.

Thank you. Our next question today comes from the line of Andrew Lobbenberg. Please go ahead clearly stating your company name.

Afternoon guys. It's Andrew at ABN. A couple of questions, if I may.

On ancillary revenues, the rate of growth on a year on year basis has come down from the previous quarter. And if we look quarter on quarter, the ancillary revenues that happened is down €8 to €7. Can you tell us what's driving that trend and what sort of growth rate we should expect going forward on ancillary revenues?

And then on the dispute with the BAA with regard to Stansted, could you remind us please what numbers you're putting through the P&L in terms of the airport charges you're paying in Stansted? Are you putting through your standard contractual rate are you putting through the P&L? Are you putting through the contractual rate less the amount for the fuel line that you're not paying them? Or are you putting through the P&L the full rack rate, which we understand they're invoicing you for?

Thanks. Anything else?

No, that will do.

Okay, ancillary rate of growth. There's a slightly different mix in the ancillary in Q3 this year against the previous Q3. Nothing significant in it. It should bounce around a little bit by a quarter over quarter. Our guidance going forward is the same as it's been for a number of years.

We think there's a number of further years, certainly 2 to 3, where ancillary revenues will grow at a faster rate than the rate of scheduled traffic growth because the penetration -- we'll continue to work on increased penetration.

In relation to the BAA dispute, we are reporting through our P&L exactly the same number as the BAA, which is the actual current contracted rate between ourselves and the BAA. We're not putting through the full whatever it is -- the full public rate -- rack rate. We have never paid and never agreed. And BAA isn't putting them through their numbers either.

I should have said we have had a development in that. The first preliminary hearing so far, which was the preliminary hearing at the BAA's insistence. They wanted to hear the -- what they're paying for revocation of contract -- for revocation of contract. And Ryanair's returned with some kind of rack rate as a separate issue from the fuel dispute. That case or that motion on their part was thrown out and costs awarded against the BAA and in favor of Ryanair, which means the whole action that we heard is won.

Some time we hope to have it heard by the end of this year, but the BAA and its lawyers are dragging their feet at the moment in terms of discovery and timeframe for discovery. And we're doing everything in our power to speed it up. So I think the timeframe for the court hearing has now moved back from probably the end of calendar '04 -- calendar '05 into early '06.

Can I just clarify, does that mean there will be disputed fuel line levy you were actually putting through your P&L?

Yes.

But you're not paying it to them, you're putting it into escrow?

At the moment we're putting it into escrow, yes. So there's [2 regions] in the dispute. There's been the fuel levy. We're fully accounting for that at the existing rate we pay. We believe it should be a lot lower. And the BAA, I assume, are doing something similar.

And then there's the issue of the supposed or claimed repudiation of the contract, which would be us paying the full rack rate charges. We're not putting that through our accounts and I understand nor are the BAA.

Cool. Thank you.

Thanks Andrew.

Thank you. Our next question today comes from the line of Stephen Furlong. Please go ahead clearly stating your company name.

Stephen Furlong from Davy. Well done guys. A couple of quick questions. I see the sector end(ph) has gone up again about 9 or 10%. With the domestic growth in Italy, etc., do you think that will stabilize?

The second question is despite being in net cash, you still have a negative interest charge. Could you give us some flavor about new deals you may be doing in terms of air paths announcing that could bring down your cost of debt?

And finally, in terms of the new development and capacity growth over the summer, are you happy with all the new bases? You think that Luton, Liverpool, Shannon, etc., are going well and maybe just give some color on that.

Thank Stephen. Yes, we expect the effect or link will reduced marginally over the next 12 months. I wouldn't go [inaudible] the Italian domestic sectors. They're going to account for 10 sectors a day this summer out of over 600 sectors. So it's neither here nor there. But as we develop more bases on the continent of Europe this year and into next year, we would expect the sector length to -- the growth in the sector length will be lower than it has been this year.

On cost to debt, we are continuing to look at individually aircraft financing, everything geared around reducing the rate at which we pay for -- the rate at which we finance aircraft. Howard has already said, looking at the Japanese operating leases. But nothing at the moment is going to close that financing gap unless interest rates rise on the substantial deposits we have in claims.

Stephen, that is 1 thing we have been working on, if you remember. A lot of our cash is long-term fixed debt. 12-year debt profile, some of which goes back to 1999 when interest rates were higher.

What we have been doing in the last period -- in the last year or so, is we've been adding in more financing at floating rate. So what we're going to use is we're going to use floating rate cash which we current -- which we have, to match against our floating rate debt.

We do have a bit of a drag in the profit and loss, but because we have so much fixed-rate debt, over a period of years we will balance that out, which will take some of that drag. But we're very happy to enter in at these rates. An element of our financing are long-term fixed debt. Remember, most of our debt that we have booked since 1999 is 5.5% all in, which is a very, very attractive low-cost way to finance.

We have some things we are looking at, Michael mentioned about the Japanese operating leases, with things like that. But the fundamental is we've got very low-cost long-term debt. We can make some improvements to that. And we mixed our floating debt as well against floating cash, we can reduce some of that cost going forward.

Thanks Howard. And related to new bases Steve, I said the booking on the 3 new bases are in line with our expectations. But at this stage it's a little bit early.

We have just launched some of the new routes from Luton. They are going well. But most of the new routes out of the Liverpool and the Shannon bases launched April and May with the last of the aircraft deliveries. And it's a long way away yet. So when I say they're booking in line with our expectations, we're still talking in fairly low advance booking numbers, not just out of the 3 new bases, but also system-wide for the period of April and May.

That's great.

Alright. Thanks.

Thank you. Our next question today sir comes from the line of Chris Reed. Please go ahead, clearly stating your company name.

Yes, hi there. It's Chris Reed here from Credit Suisse. It's just a couple of quick ones really. Could you just talk a little bit about the level of unit cost declines you think this year? Is 5% achievable and what specifically do you think will, in the context of the staff cost rises you have seen, what do you think you will be able to attack?

And then the second 1 was just what sort of impact do you think it will be if your expansion's going to start to be in Southern Europe, would you be targeting a pressure on yields there because obviously yields typically in Southern Europe are quite a lot lower than in the North.

Thanks guys.

Thanks for that Chris. I think -- we're not getting into guidance for next year's numbers on today's conference call or this week either. But the general trend of what expect to do for the next fiscal year will be of the order of traffic growth in the low 20%, yield declines of 5% and unit cost decline of probably less than 5% excluding fuel. Fuel at this stage we can't quantify.

We do expect unit costs to decline next year by somewhere between 3 and 4% at this stage, with the objective of beating that figure over a 12-month period. But that's excluding fuel.

As to the expansion in Southern Europe, I'm not quite sure what the reference is to lower yields in Southern Europe. There's parts of Southern Europe, that is, Spain, where yields are significantly higher. But we don't have an expansion plan in combined Southern Europe.

The expansion plan for the next fiscal year is primarily focused on the 3 new bases, which will be Shannon, Liverpool and Luton, although there is a significant amount of that -- of the new development from there going to bases like Spain and Italy. So it's much more of the pan-European expansion plans than a confined Southern Europe.

And in that context, there would be a general yield decline, which we think we're aiming for -- planning for. Possibly we will be working off minus 5%. But a lot of that depends on what the competition does in terms of trying to maintain cumulatively 2 and 3 fuel surcharges.

That's great. Thanks a lot. Cheers.

Thanks Chris.

Thank you. Our next question today comes from the line of Sam Panella. Please go ahead, clearly starting your company name.

Yes, Sam Panella from Raymond James. About how much of a benefit are you getting from the weakness in the dollar?

We're getting some. I don't know whether we want to quantify. We have -- I suppose in absolute terms, if you take the fuel, which is the biggest single factor in this quarter, our average cost per gallon was up 76%. But our absolute increase in fuel was up 68%. So overall in the quarter we're getting a benefit of about 8% because of the strengthening of the euro against the dollar.

That is because we have a mix of exchange rates as we've moved over the year. So we would be hedging a year forward. So in this quarter on fuel, for example, and generally those costs are driven by dollar, it depends, I would say about 8%.

Okay. And what portion of your passenger revenue is derived in sterling?

Approximately 50% of our sales are in sterling.

Okay. Thank you.

Okay. Thanks Sam.

Thank you. The next question today comes from the line of Edward Stanford. Please go ahead, clearly stating your company name.

Good afternoon. It's Edward Stanford from Cazenove. 2 questions please. 1 - a simple one. Could you just clarify if you have released guidance for this fiscal year what it is?

Secondly, looking at your performance in the third quarter, which was very commendable, can you perhaps give some flavor as to how much you think is due to the fact that the high-cost airlines have got fuel surcharges, how much is due to lower competition or what do you think the magic ingredient in the fact that your yields were slightly better than we all thought?

Thanks Edward. I don't think at this stage we've released any guidance for the fourth quarter have we?

We have, yes.

Sorry. I've been launching routes in Rome this morning, so I'm a bit behind. So we're guiding, instead of the break-even or loss in the fourth quarter, we're guiding a €10m profit after tax in the fourth quarter. Most of that as a result of the kind of yields we can see at the moment, rising by up to 5% instead of falling by 5%. And adding 10 to the existing 9 months, that would give us €246m for the full-year profit after tax.

Thanks very much.

Third quarter and fourth quarter, how much of it is due to competitor's fuel surcharging or people disappearing. I think most of it is due to competitor's fuel surcharging. We really haven't seen -- if you take the kind of bankruptcies of Volare, V-Bird, Air Polonia, they happened pretty late in the third quarter.

Some of the capacity retrenchment we're seeing from charter airlines actually haven't happened at all yet. They're more announced into the fourth quarter and for summer 2005.

So we believe that most of the better than expected or better than guided year performance is a result of the flag carrier -- or the still loss-making flag carriers desperately hanging on, or trying to hand onto fuel surcharges.

And not content with hanging onto fuel surcharges, we have seen in recent days BA applied its new Internet booking levy, which is an astonishing instrument for an airline that claims to want to reduce costs. If you want to reduce costs I'd be levying travel agents, not the low-cost Internet bookings. They think they can go in the opposite way, which is levying the low-cost Internet bookings and not levying the travel agent.

But I think it's clear that what's going to be increasingly -- I think the 2 big factors for yield over the next 12 months is going to be what the flag carriers and some of the high-fare, low-fare carriers in Europe, say like easyJet and others, what they are up to in terms of reduced profitability and higher pricing. And Ryanair out there increasing capacity and reducing fares.

Thank you very much.

Thanks.

Thank you. Our next question today comes from the line of Joe Gill. Please go ahead, clearly stating your company name.

Hi, it's Joe Gill of Goodbodys. Just 3 points. 1, can you comment a little bit on sterling weakness relative to the euro. What impact, if any, does it have on your actual yield downturn in Q3 and how significant it might be in Q4?

Secondly, from top-down perspective, looking across all of your markets in Europe, are there any particular hotspots or cool spots over the last quarter? And into the next quarter in particular, are you seeing Italy doing well? [indiscernible] are the new routes in Spain doing particularly well, that sort of stuff?

And the last question is in regards to ancillaries. The excess baggage charges within that, I know you don't detail those, but as a general point is it your objective to try and reduce, over the next couple of years, the volume of check-in baggage. And if you do succeed in doing that in order to improve efficiencies, is there enough of certain revenue momentum in the ancillary line to keep that income figure driving forward? Thanks.

Thanks Joe. I think there's nothing material in the sterling against the euro in the Q3 results. It may have some material impact on [indiscernible] into Q4. But again, a lot depends on where all the -- effectively we're only 1 month into Q4. And a lot depends what happens over the next 2 months. So at the moment it had no significant impact in Q3 and we're holding it up there as a possible issue for Q4, yes. But not in the first month.

Hotspots, cold spots. This is a question I often get asked on the road shows. There's no such thing as a hotspot -- well there's probably been a couple of cold spots in our history. Cold spots would be moves we've pulled.

Other than that, generally speaking we're applying -- with the exception of Dublin, the Irish airports which tend to be high cost, there's no particular route groups that are particularly unprofitable or particularly amazingly profitable. We're applying the same airline, aircraft economics, the same staff economics and the same ancillary kind of product that crosses a range of different routes.

And what tends to happen, where we have seen a hotspot, like the one I remember when we first started in Rome 2 years ago, we simply moved from 2 rotations to 7 rotations a day within the space of 12 months. And convert a hotspot into a normal spot.

So no, there's nothing particularly good or particularly bad in the network at the moment. I think it's more driven by where the -- in illogical competition or super competitors entering the market or leading the market. That has probably more of an impact on us.

Clearly there's some stupid competitors entering the Irish regional markets. But we look forward to welcoming them. They clearly have a lot to learn about Ireland since they keep rabbiting on about this being a -- fares in Ireland have remained stubbornly high. It's amazing the number of airlines in the last 5 years, such as Go and BMIbaby and all the rest of it, who have been remarkably surprised at how stubbornly low fares are to and from Ireland.

But we welcome all competition, as you know. Either regard as a [indiscernible] color view. And we look forward to beating the shite out of them over the next 6 months.

On ancillaries, yes. It is our objective to drive down excess baggage fees. We intend to try drive down excess baggage fees by having zero excess baggage if we could possibly manage it. Clearly we're not being very successful in this at the moment. But it's something we are tackling.

And a good flavor of that is what we did in the last 12 months. We increased the rate of the excess baggage fees at the same time as we increased the free carry-on limit from 7 kilos to 10 kilos. We now have the highest, if you like, carry-on limit in Europe. We can't go any further than that even with -- on the aircraft itself.

But I do see a future. Now admittedly it's a medium-term future before everybody goes nuts, where we will be almost fining people for arriving with checked-in baggage. And at the same time reducing fares or incentivizing those people who arrive with just hand luggage only. In the short-haul, low-fare marketplace, we want to encourage passengers to travel with less than 10 kilos in their luggage. And we want to disincentivize and discourage passengers who show up with more than 10 kilos.

And the trade there is -- you get what? You get faster turnaround and more efficiency and save costs that way a bit?

We would get enormous cost savings. If you take it to the nth degree, we get enormous cost savings in handling costs by having much fewer check-in desks. I think if you're checking in on the Internet, much fewer check-in desks, much fewer check-in staff. You'd have zero lost bags. You've have zero baggage handlers. You'd have zero ground handling equipment at airports and much quicker, slicker turnaround.

We believe there's enormous savings to be made in airport and handling costs, if you could totally eliminate check-in luggage. I don't believe you'll ever be able to totally eliminate it. But we certainly have an objective of significantly reducing it in the coming years.

Okay. Thanks.

And impact on ancillaries, we continue to believe that we will be developing other ancillary income streams and increasing penetration. So as the rate of -- or the excess baggage fees element of ancillary revenue declines, it will be more than be made -- it will be more than made up for by the growth of other ancillary streams and penetration.

Okay. Thank you.

Thanks Joe.

Thank you. Our next question today comes from the line of Damien Horth. Please go ahead clearly stating your company name.

UBS. 3 quick questions gentlemen. I'm going to start with the Easter impact. I'm wondering if you would -- if it is possible to quantify that for us? What sort of revenue you see moving from the second quarter to the first quarter?

Also just -- I noticed there was a court decision that went against you in Ireland recently with regards your labor negotiations. I'm just wondering if you could update us on that and how that will affect your labor negotiations in Ireland going forward.

And in the same context, as you move to a domestic route network, I know it's small now but I suspect you will be growing your European domestic routes over the years, how does that impact labor negotiations and how does it impact the tax rate?

Thanks Damien. Easter impact is hard to quantify. And we wouldn't make an attempt at it now, otherwise to say again, if there's a tone I'd like to take coming out of this thing, it's to caution everybody that the world hasn't suddenly changed from winter to summer. Q4 yields will be a little bit better than last year's. Last year's were dire. But there's an element and that is also the fact that Easter has moved into Q4 this year instead of Q1 last year.

It will have an impact but it won't noticeably -- I won't overdo it. But if there's going to be an increase in Q4, let's have all the things in there, or do all the reasons now.

We will probably be the only airline in Europe that will be highlighting the fact that Easter's coming in Q4. The rest of them will all be trying to convince you that they have just managed their Q4 better than previously expected. Easter will have an impact on it. With absence from Q1, it would be proper (ph) percentage points, but I wouldn't overdo it.

Court case. We didn't have a court decision in Ireland. And the [indiscernible] from some of the reporting in Ireland let you down. There was a hearing before a labor tribunal, which is largely comprised of former trade unionists, which found, under the new legislation in Ireland, that the pilot trade union, which we don't recognize in Ireland, has a [prima-facto] case for taking some of its claims forward.

It's a new piece of legislation. We have always said we expected that this --the union tribunal would find in favor of the brothers in the union. We will be challenging that decision. And it will have no affect whatsoever on our labor costs here in Ireland.

Sorry, that's actually wrong. In the short term it may actually reduce our labor costs here in Ireland. And we've had some discussions with our pilots. One of the more bizarre claims that the unions made in this tribunal was that we don't have a 5-year agreement with our pilots.

Now one of the aims of that 5-year agreement is that we were going to give them the 3% pay increase this year. We've had a chat with the pilots who are quite surprised and to some quite upset at the fact that their union is now claiming that we don't have an agreement this year on a 3% pay increase. And we've asked the pilots to go away and have a chat amongst themselves and to perhaps come back and give us guidance as to whether actually there would be a pay increase this year. Or maybe we should actually take these mutton heads in the union at their word and not have any pay increase at all in Ireland.

We're waiting to hear back from them obviously. But I presume that outside the braziers in Union House at the moment they are having some pained discussions as to what the hell to do next. We, in the meantime, will be appealing this tribunal decision, which flies in the face of the facts. And flies in the face of what it is our people actually want over here.

And the last one, how would domestic routes in Europe affect labor negotiations? They won't. If anything at the moment, I think the labor negotiations around Europe are getting easier. We are -- Ryanair is already the highest paying airline in Europe by average pay and also in respect to pilots and new hires.

You look around Europe at the moment, and if you take a market, for example, like Italy, where there is over 100 redundants on RA (ph) pilots, you'd be amazed how easy it is to negotiate with them.

We've also recently held open days in Central Europe, or the new accession states. The 3 that are fresh in my mind, we had a pilot open day in Warsaw where we interviewed over 100 737 pilots who are presently paid less than half of what Ryanair pays.

We had an open day in Hungary, where we were flooded with another almost 80 Hungarian 737 pilots who seemed to think that our pay and terms and conditions were amazingly generous. Many of them offered to transfer to any other country in Europe. We wanted [to suggest] at their cost.

And we don't, therefore, see any significant pressure on labor negotiations, or indeed, in pilot recruitment over the coming year or 2.

Okay Michael. Thanks.

Thanks Damien.

Thank you. Our next question today comes from the line of Andrew Lights. Please go ahead, clearly stating your company name.

Yes, it's Andrew Light from Citigroup. I've just got 3 questions as well. First of all can you give me an idea of the expected capital spending for next fiscal year before any funding decisions you think the sector will make.

Secondly, if your in-flight TV initiative doesn't work out, do you have any other specific ancillary revenue-boosting activities that you could do to replace that?

And thirdly, with the introduction of IFRS over the next year, have you done any preliminary work to quantify what some of the major impacts are on the P&L and balance sheet?

Okay. Thanks for that Andrew. CapEx into 2006 at the moment we're looking at --

€500 to €600m.

29 aircraft, somewhere in between €500 to €600m, that's gross?

That's gross.

And subject to the split of operating leases. But most of them would be on the balance sheet. Subject to the operating lease there would be something left on that.

In-flight TV, if we have to replace it. Yes, we are working on a number of other streams of ancillary products and services as well as increasing penetration, which is why our guidance continues to be for ancillary revenue growth slightly ahead of traffic growth for the next 2 to 3 years.

IFRS, I will hand over to Howard because I don't understand it myself.

Andrew, as you know we prepare accounts under U.S. GAAP as well. So most of the implications in terms of IFRS we already deal with it. I suppose the particular areas where we would see a change for U.K. GAAP would be in relation to, first of all, share option compensation expense, which would be a new heading for us. And obviously we have to look -- we have a share option program running across all employees. So there would be a charge arriving from that.

On the other side of that, we have capitalized interest which we currently have under U.S. GAAP. So we believe that would largely offset. The other issue then would arise in relation to movement on the pension provisions. And obviously, so any movement or plus or minus on our current small debtors on our scheme would be impacted through the P&L.

That is pretty much it. Oh, yes. Goodwill is obviously a positive for us because it's not accounted -- eliminated under U.S. GAAP.

So overall, Andrew, while we're still at the final stage with this, we're well placed. We've been operating under U.S. GAAP for a long period of time. Most of this stuff is just a copy of what's in the U.S. GAAP. And we'll be giving you a very detailed update in May or at the end of May when we produce our results.

But overall, we wouldn't see any real significant impact on profit and loss or change in our numbers. If you want to get a rough guidance, just have a look at U.S. GAAP and adjust for some small compensation expense.

Okay. Can I just ask a follow-up question on the maintenance cost? Would it be fair to say that going forward the quarterly charge would be the 2.3 that you had in the last quarter, plus the 5.3, so roughly 7 or 8 per quarter? Would that be fair to say?

Well, allowing for the fact that -- that would be the starting point. But on top of that you've got our delivery program which runs out through the next year.

There will be some adjustment going forward into next year as we finalize the end of the 737 200s. So that will impact quarter 1, quarter 2 and part of quarter 3 because the retirement program ends in November. So yes, we can pretty much take that number and just allow for -- on balance sheet growth to narrow in our [indiscernible].

So that 5.3 was just a one-off?

Yes, 5.3 was a one-off. It's [indiscernible] return of the aircraft. We had been planning to -- originally when we took over the aircraft, we had put on 7 -- they were on 7-year operating leases. And of course with that we had just been [indiscernible] for the narrow (ph) basis. So the overhaul of the aircraft. The aircraft have now gone back and we have released the excess provision.

Okay. Fair enough. Thank you very much for that.

Thanks Andrew.

Thank you. The next question today comes from the line [Shay] Matthews. Please go ahead sir, clearly stating your company name.

Hi, NTB (ph) Stockbrokers. Good afternoon. 2 questions only. First question is with the new compensation rules being -- looking like they're going to be passed, how do you propose to treat them. I know that you've legal action against them but will it pay up and flow back? Or what way do you expect to work?

And then a follow-up to Damien's question, perhaps you would be able to give some idea where the load factors were this time last year for the quarter -- fourth quarter.

Yes. Load factors last year for the fourth quarter were slightly less. But this year they'll be slightly more. We're up a couple of percentage points on load factor for the full year. That continues to be the case. But --

We will be about 2% ahead.

We will be about 2% ahead for the fourth quarter. Assuming nothing untoward happens between now and the end of the quarter, and everything happens as normal.

The new compensation rules for the E.U. were joined with the rest of the airlines. In holding them they are complete bloody lunacy. But people who are paying an average of €38 can now be looking for hotels, car -- hotels, food etc.

But it's important to put these into context. They are being badly reported, including by the European commission. In the main they only arise where a delay or cancellation is beyond the airline's control.

Firstly, we have the fewest cancellations of any airline in Europe. Secondly, where they're beyond our control, or items that are beyond our control would clearly include things like European ARTC (ph), weather, technical safety. So it's not some kind of enormous compensation

Goldmine.

-- goldmine -- good word Howard -- goldmine for disrupted passengers. And Ryanair has by far the fewest disrupted passengers.

The airlines who are going to suffer by far and away the most by this legislation is, I am delighted to say, those flag carrier airlines focusing around inefficient hob airports like [Avro], Paris Charles de Gaulle and Frankfurt.

And we believe that when the European commission -- when the flag carrier airlines realize how much these provisions are going to hit them for, they will be onto their local governments who will be onto their friends in Brussels and lo and behold, probably before we get to the court challenge, these things will be changed.

It is -- so will we be complying with them? Yes. Will they have any material impact on our numbers? No. But that doesn't stop us taking forward the legal challenge against it because they're just bureaucratic idiocy.

Great. Thanks.

Thanks Shay.

Thank you. The next question today comes from the line of Peter Fawley. Please go ahead, clearly stating your company name. Peter Fawley (ph), your line is now open, please go ahead with your question.

Hi, sorry. My question's been answered.

Thank you. Our next question today comes from the line of Jonathan Weber. Please go ahead, clearly stating your company name.

Good afternoon. Thank you. It's HSBC. A couple of questions. 1 just arises from some of the comments you were making earlier about reducing, or hoping to reduce check-in baggage down to a minimal level over time. I just wondered what else you might do with the space that that frees up. If you'd ever take cargo in any way.

And the second question concerns the cash balance. And this is a question that's come up on occasion over the years. The current cash balance is more than 12-month revenue. I just wondered what your thinking was there, whether that's changed, whether it will change? What will be your level going forward?

I think, Jonathan, going forward, I think it's highly unlikely we would ever look at cargo again. If we could free up the hold space and get rid of the baggage, I'm advocating that we would install beds and start charging premium rates. Never mind all the waffle being talked about Virgin Atlantic. Ryanair will probably have the beds on our planes long before the A3-80 takes to the skies.

On the cash balance, as you know, my longstanding view is that €1.5b isn't half enough. And our strategy for cash is to keep increasing it by as much as we possibly can on an annualized basis. The target is €2b, which we should take about another year and a half or 2 years to get there.

And could you just remind us of the philosophy behind that?

The more cash the better.

What are you going to do with it?

I'm considering a very senior management bonus program, but we're struggling with how we might get it through to shareholders. We have no plans.

To be serious, we operate in a cyclical and capital-intensive cyclical industry where most of our competitors, despite the fact that they're losing money hand over fist, seem from time to time to wish to engage in fare wars with us. And I think it's vital from the point of view of Ryanair and our balance sheet that we can maximize the cash on the balance sheet for 2 reasons.

1, we can take advantage of air pass (ph) opportunities as and when they arise. And you will have seen us do that immediately post 911, when we had to write a check for about $250 to $300m for aircraft deposits. And I'm not sure any other airline in the world could have done the same thing at the same time. But secondly, it's also the best way I know of warding off idiot airlines in Europe who think they want to have a [indiscernible] in a fare war.

I think it's fair to say the Board and the management will probably have to reconsider what we do with the cash balance in a couple of years time when it gets above €2b, and we are in a significant net cash position. For the moment, our focus continues to be on very heavy annual capital expenditure, a heavy aircraft investment program in very low cost, very efficient aircraft and in beating the crap out of competitors all over Europe.

Would you ever see a dividend being paid one day?

No. And I say that again as the principle biggest beneficiary of any dividend. Not as long as I live and breathe will there be a dividend in this Company. And anybody investing in an airline stock for a dividend stream needs their heads examined.

Okay. Thanks. I think I asked the same question 3 or 4 years ago. I will try it again in 3 or 4 year's time.

And it probably won't have changed in 3 or 4 year's time either, but keep asking.

Okay. Thanks.

Thanks Jonathan.

Thank you. The next question today sir comes from the line of David Blamon (ph). Please go ahead, clearly stating your company name.

Hi, how are you guys doing today? Kinacose (ph) Associates. 2 more core housekeeping questions. The first 1 is on the balance sheet, what is the balance for the advance delivery deposits?

And the second question is are you guys still running the 50 euro cent wheelchair levy through the scheduled revenues?

Thanks for that David. We never disclose what the advance delivery deposits is, partly because it's a way of masking what we're actually paying for aircraft. And we propose to continue with that policy.

We are presently continuing to run the wheelchair levy through the P&L. And the wheelchair expenditure on the other side is also reflected in the P&L. As a result of our successful outcome of our appeal recently though, we are reducing the wheelchair levy, effective February. And we will be billing the BAA for half of our wheelchair costs at their airports.

The recent court appeal faced in London found that the BAA is responsible or should be responsible for 50% of the wheelchair costs at Stansted and other airports. As is normal, the BAA are attempting to wheedle off the decision and say that they're only obliged to pay 50% of our costs at Stansted. But we believe clearly the decision said the brief (ph) for 50% of the wheelchair costs at their other airports as well.

And we may finish up back in the courts. Well, I think we probably will in the next couple of weeks on that matter with the BAA. So yes, both the cost and the expenditure are going through the P&L. But the cost and the expenditure will be halved as a result of the recent appeal.

Thank you.

Thanks David.

Thank you. At this time, Mr. OLeary, we are showing no further questions. I will now turn the presentation back to yourself sir for any closing or final remarks.

Okay. I just wanted there -- Michael Cawley in London, is there anything you want to add?

No Michael. No. Fine.

Okay. Fine. Again, I would like to thank everybody for their participation today. There's a couple of points that [indiscernible] asked me to clarify. Firstly, apparently, I've been quoted as saying that the outlook in the industry is awful for the next 12 months. I did say that in New York. And I believe it continues to be awful for our competitors.

I believe our yields are going to fall in the next 12 months. I believe we are going to put further pressure on our competitors. We are going to increase capacity for the next 12 months by something slightly over 20%. And our day to day focus will be on continuing to reduce unit costs, and cap on those cost reductions in the form of ever lower fares, and fare levels that none of our competition can match.

In terms of hedging, there has been some concern in London that I said in the previous -- at the half year that we wouldn't hedge. It's amazing what some people will pick up from my comments. I said we have no intention of entering into long-term hedges if fuel is above $40 a barrel.

I won't stop practically doing it if we think we're going through the winter period and [we see] we have paid $41 a barrel. That was maybe main (ph) sense because clearly there's going to be a cold snap in the North West of the U.S. And what happens when there's a cold snap in the North West of the U.S.? Start (ph) prices will jump up to $49 a barrel. We are [indiscernible] from that kind of jump.

We do believe, as we come out of the winter into the spring, that there may be other opportunities for buying fuel at under $40 a barrel. If there is, we would probably re-look at the hedging policy. If not, we will probably continue to go with what we've got.

But there's no guidance I give at any investor conference or at any set of quarterly results that will prevent us from changing our minds if we think it's tactically and financially sensible to do so on an ongoing basis. And shareholders will just have to trust us.

Booking trends for the 3 new bases, as I've already covered, Liverpool, Luton and Shannon are in line with our expectations. We're still a little bit early to worry about it.

And the Italian domestic routes, we just announced them this morning. We're down in Rome. We got an enormous response to the 4 new -- or to the 3 new routes. We think they will significantly add to our presence in the Italian market, particularly in the post Volare.

Ryanair is already this year carrying more passengers to and from Italy than Alitalia is. And we have a target over the next 4 to 5 years of carrying more passengers in Italy, both domestically and internationally than Alitalia does. Of course, that could be speeded up if the European commission was to do something about the program of illegal state aid presently being handed out to Alitalia. But I wouldn't hold my breath on the European commission doing anything.

We continue -- I also said in Rome this morning, we are looking at new bases in Italy. We are talking to 4 airports in Italy about a possible third base in Italy. We were also talking to 11 other airports around Europe about new bases for end of '05 and early '06.

You know from our delivery program, we take on more than 20 aircraft, starting next September. We're continuing to talk to more airports than we can possibly accommodate over a 4 to 5 year period. And we remain confident that over the medium term our model, which is the best airline model in Europe, because it's the lowest cost airline model in Europe, we continue to delivery approximately 20% traffic growth a year. Approximately 5% year declines and approximately 5% of unit cost declines, although that would appear to be excluding fuel for the foreseeable future.

With that, I would like to say thank you again to everybody for joining in today. As is normal, we are not doing a road show on the third quarter. But if anybody has any questions they'd like to come through on the side bar (ph), please feel free to move them back through Jimmy Dempsey here in Ireland, Howard, myself are here and Michael [inaudible].

Again, thank you very much and look forward to seeing you all on the full-year road show which will be on June 30 (ph). Thanks everybody. Bye.

Thank you ladies and gentlemen. That concludes today's presentation. Thank you for your participation. You may now disconnect your lines.