Ryanair Holdings PLC (RYAAY) 2023 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Ryanair full-year results for the 31st of March 2005 conference call. (OPERATOR INSTRUCTIONS) Just to remind you all, this conference call is being recorded. I would now like to hand over to your Chairperson, Michael O'Leary. Please begin your meeting, Sir, and I shall be standing by.

Good afternoon, ladies and gentlemen, and welcome to the Ryanair full-year results conference call. I'm Michael O'Leary. I'm speaking to you hear from London where I'm joined by Howard Millar, who is dialing in from Davey's office in Dublin, and Sean Coyle, who calling in from the head office in Dublin. Apologies -- Michael Cawley, Jimmy Dempsey (ph) and Ray Hernan can't join us; they are all traveling to various parts of the globe to start the investor road show which continues the rest of the week. So with that I thought we'd kick straight into the call.

We today announced, as you know, we celebrated our 20th birthday by announcing record results for the year end 31 March 2005. Both passenger volumes and net profits grew by 19% to 27.6 million and €268.9 million respectively. Yields were 2% higher than last year, partially offsetting the 14% yield decline in '03-'04. And ancillary revenues grew by 40%, much faster than passenger volumes, which resulted in total revenues rising by 24% to 1.336 billion.

Operating costs rose by 25%, fractionally faster than the growth in revenues, reflecting higher fuel costs. As a result, Ryanair's after tax margin for the full year fell by just 1% to an industry-leading 20% as net profit increased by 19% to a record €268.9 million.

We can think of no better way to celebrate our 20th birthday than to announce another year of record traffic and profit, with after-tax margins at an industry-leading 20%. Our robust trading performance over the past 12 months despite intense competition and significantly higher oil prices reaffirms the unique strength of the Ryanair lowest cost model in Europe. While many airlines record losses, Ryanair increased after-tax profit for the winter half year by 33% from €51 million to 67.6 million. Our year-end cash balances of €1.61 billion equates to 121% of annual revenues.

Contrary to our initial expectations, average yields for the 12 months rose by 2% despite a 16% increase in capacity. This was partly due to the lower comparable last year when yields fell by 14%, and continuing capacity reductions by the European flag carriers in markets where they compete with Ryanair.

Most of our yield growth was due to multiple fuel surcharges imposed by the flag carriers on short haul passengers, which have further widened the gap between their high fares and ours. Ryanair's traffic and yield growth has benefited substantially from our refusal to impose fuel surcharges now or in the future.

Clearly fuel costs remain high and the market is volatile. Higher oil prices will continue to impact our cost base over the coming 12 months. We're unhedged for the remainder of this summer up to the end of September, and are therefore benefiting from the recent oil price declines. In order to remove some cost uncertainty during the volatile winter period, we have now hedged 75% of next winter's fuel requirements at rates equivalent to $47 per barrel. We will continue to exploit our hedging policy where we believe it can remove uncertainty from our business at acceptable cost levels.

Our new routes and bases continue to perform well. We've been most encouraged by the strong advance bookings at our new Luton and Liverpool basis, where passengers are looking for an alternative to Easyjet's high prices. Traffic at our new Shannon base is also booking strongly, although yields have been slightly lower than we expected. Recently we announced five new routes from London to Poland -- four -- and one in Slovakia. And we expect that these will be the first in a series of new route announcements over the coming weeks for next winter.

Without question the single most important initiative of last 12 months was the purchase of 140 additional Boeing 737-800s, comprising 70 firm and 70 options, for delivery during the period 2008 to 2012, at substantial discounts to our previous competitively priced aircraft order. This new order, which also includes the repricing of the balance of the previous order, will enable Ryanair to significantly reduce our aircraft per seat operating costs and substantially improve our cash balances, while we maintain a controlled disciplined rate of passenger growth out to 2012, by which time we expect to carry over 70 million passengers per annum, making Ryanair Europe's largest airline. We expect to overtake British Airways' monthly traffic later this summer. This will be a very significant milestone for a small Irish airline which only started flying in 1985, and yet in just over 20 years, thanks to low fares, lowest costs and brand-new Boeing aircraft, has overtaken British Airways.

On the regulatory front we were pleased with the recent settlement of the fuel levy dispute with a BAA at Stanford Airport, which will reduce the fuel levy for all airlines at Stansted for the coming three years. We continue to lobby against the BAA's grandiose plans at Stanford Airport for a gold-plated second runway. When the cost of a runway, and even a second terminal, should run to no more than 400 million, the BAA's proposed spend of 4 billion is gold plating on a rip off scale which will result in overcharging of ordinary passengers for many decades into the future.

If the BAA monopoly was broken up and Stansted forced to compete with Gatwick and Heathrow, then low cost efficient facilities would be developed with the cooperation of user airlines like Ryanair and Easyjet. Instead, we have the truly bizarre proposal that £4 billion be wasted by Stansted building facilities that its airlines unanimously oppose, with part of the cost to be subsidized by passengers using Gatwick and Heathrow who clearly get no benefit from Stansted. And all of this waste is designed so the BAA airport monopoly can claim a return on 4 billion of capital expenditure instead of 400 million. The CAA presently stands idly by while the BAA ignores the stated wishes of the airline users of Stansted who are expected to pay for these extravagant and over specified facilities.

In Ireland, the situation at Dublin Airport has descended into farce. The Dublin Airport Authority, which is responsible for this third world facility, is to be rewarded for its incompetence by being allowed to build the second terminal as well. This second terminal will not be available until 2009 at the earliest, and in the meantime passengers at Dublin will be forced to endure long queues and intolerable overcrowding while the government protects this failed monopoly by blocking competition. It should be remembered that thirteen expressions of interest to build and operate this second terminal at no cost to the taxpayer were received by the Irish Government as far back as September 2003, many of them from established airport operators who were prepared to invest in and offer genuine competition at Dublin.

The Prime Minister in Dublin recently demonstrated how hopelessly out of touch he is by claiming that the present overcrowded terminal has the capacity for 6 million more passengers per annum. It would appear that there aren't any queues at the VIP escort to the government jet in Dublin.

We have instructed our lawyers to prepare the necessary papers to oppose this second terminal on competition and public procurement grounds. We will also vigorously oppose any planning application which is based on over specified or inefficient terminal facilities, which is all that the Dublin Airport Authority have ever developed, either at Dublin, or Cork, or Shannon. Had the Irish Government heeded Ryanair's call for a competing second terminal seven years ago, this current embarrassment for Irish tourism would have been avoided. As always in Ireland, the ordinary passengers suffer while the politicians dither.

Our outlook for the coming 12 months is more positive than it was this time last year. We continue to budget for higher oil prices, but anticipate that these higher costs will be partially offset by a slightly more benign yield environment. If our competitors continue to maintain surcharges, or continue to remove capacity from our markets, then yields should be more stable, even as we continue to expand. Advance bookings for the summer months are strong, and we are raising our traffic growth forecast for the coming year from 34 million passengers, growth of 23%, to 35 million passengers, growth of 27%. We expect that ancillary sales will continue to significantly outstrip traffic growth. Our new aircraft pricing and new airport deals will continue to have a downward impact on operating costs, even though fuel will remain a volatile variable.

It is becoming increasingly clear that being the lowest cost operator is the key competitive advantage in our industry. There is no better business model in the short haul market. Lowest cost wins. Like Wal-Mart, Tesco and Dell in their respective markets, Ryanair's low fares cannot be matched nor beaten by any of our competitors. Published statistics for punctuality, cancellations and lost bags confirm none of our competitors can match our customer service either. We remain confident that Ryanair's unique combination of lowest cost, direct flights, brand-new aircraft and market leading punctuality will ensure that the traveling public continues to fly with Ryanair in our next 20 years just as enthusiastically as they have in our first 20.

To celebrate these record results, we're running a 50% often our lowest fares seat sale from today until midnight, Thursday the 2nd of June for travel during the last two weeks of June and the first two weeks of July. I'm delighted to say that these seats are selling rapidly on our website at Ryanair.com, and I would urge you all to make your bookings before close of business today while spots last.

With that I will hand over to Howard who will take us through the MD&A. Howard?

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

Exceptional costs in the year ended March 31, 2004 consisted of reorganization costs of 2.7 million net of tax, 11.6 million in lease costs net of tax, and an additional depreciation charge of 3.3 million relating to an adjustment to the residual value of six Boeing 737-200 aircraft that were retired earlier than planned. Goodwill of 2.1 million was amortized in this financial year compared to 2.3 million in the year ended March 31, 2004. Profit after tax increased by 29% to 266.7 million compared to 206.6 million in the previous year ended March 31, 2004. The adjusted profit for the year excluding exceptional costs and goodwill increased by 19% to 268.9 million.

On to, then, the summary of the profit and loss. Profit after-tax increased by 19% to 268.9 million compared to 226.6 million the previous year ended March 31, 2004. Total operating revenues increased by 24% to 1,336.6 billion, which was faster than the 19% growth in passenger volumes as average fares rose by 2% on ancillary revenues grew by 39% to €208.5 million. Total revenue per passenger, as a result, increased by 4%, while the successful launch of new routes and the slower rate of growth in turn led the load factors increasing by 3 points to 84%.

Total operating expenses increased by 25% to 1 billion 7.1 million due to the increased level of activity and the increased costs, primarily fuel, route charges and the airport and handling costs associated with the growth of the airline. Fuel, our largest cost item, increased by 52% due to substantial increases in the US cost per gallon, partially offset by the strengthening of the euro to the dollar.

Despite the sharp rise in fuel costs, operating margins have been maintained at 25%, which in turn resulted in operating profit increasing by 22% to €329.5 million. Profit after tax increased by 19%, less than increase 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 US dollar bank bonds to euro at the exchange rate prevailing at the year end.

Debt margins declined by 1.22% (ph) for the reasons outlined above. Adjusted earnings per share have increased by 18% to €0.354 for the year.

Balance sheet -- the Company's profit growth continues to generate strong cash flow from operations, which for the year to March 31, 2004 amounted to €530.5 million. This cash flow part funded the extensive aircraft delivery program, additional aircraft deposits, whilst the balance remaining is reflected in the 356.3 million increase in cash and liquid resources since March 31, 2004.

Capital expenditure net of sales proceeds amounted to €616.9 million during the year, whilst long-term debt net of repayments increased by €461.9 million.

Shareholder funds at March 31 have increased by €272.2 million to €1727.4 million compared to March 31, 2004.

That's the end of the MD&A. Back to you Michael.

Okay, Howard. Thank you very much. With that, we will open it up to questions please.

(OPERATOR INSTRUCTIONS) Chris Avery.

JPMorgan. Good afternoon. Two questions, one on ancillary revenues. Going particularly well. We have the IFE that didn't work as well as planned. Can you perhaps talk to us about what has gone well in ancillary revenues and hopeful will continue to going forward? And secondly, probably for you Howard, CapEx looking forward, I think you have got 29 deliveries this year, and perhaps 5 of the last 200's still to go. What's the balance of operating lease versus on balance sheet for the 29 deliveries, and so what kind of CapEx numbers should we look for this year?

(indiscernible) CapEx, Howard?

Yes. Will I start with that Michael?

Yes.

CapEx this year, we're estimating a range of between 630 to €650 million, and that would also include deposits.

In terms of the aircraft financing structure, we have 29 deliveries this year 4 of which we've already completed on operating leases. We expect to do another 3 more by the end of the year. The balance then of 22 aircraft, we've already signed for 14 aircraft with the XM (ph) financing, and the remaining balance will be expected to be probably on Japanese operating leases.

Japanese operating leases?

Yes. They are on balance sheet finance leases.

On balance sheet.

On balance sheet finance leases. This will pretty much bring up our total to the level which we would have discussed earlier, so we would be running with about 20% of our fleet on operating lease, and 80% on either XM-based (indiscernible) or those Japanese operating lease, which is finance lease debt on balance sheet. And that's pretty much the level we would like to keep it, both this year and moving forward.

Thanks, Howard. On the ancillary (indiscernible), what you have seen in the number is something we've been talking to you about for the last 12 months. As you know, we've redone a lot of the ancillary contracts, the car hire, hotels, etc. as tying to service provider into an increasing rate of penetration at the same time as we increase traffic. We've also been working on improving penetration ourselves, the most obvious one being the opt-out on the travel insurance side, whereas previously it was an opt-in.

You rightly say the trial on the in flight entertainment didn't work. We took it off after five months at no cost to ourselves. I still think in flight entertainment is going to be one of the big ancillary revenue streams in the future, but the technology isn't right yet. And we're really looking over the medium term to some way the technology can allow us to access into in flight gambling, or give us access to gambling. We think that could be a major revenue stream. But there's no point in hanging around. If the product, one, isn't working, take it off.

At the same time as we introduced that, we also put on board the lottery scratch cards, which have been a phenomenal success; exceeded our wildest expectations in terms of sales. They continue to grow from strength the strength. So we're looking at enhanced development on the scratch card side with more prizes, bigger cards, that kind of stuff, and would expect that to continue.

We would expect and will continue to guide that ancillary revenues would rise at a faster rate than scheduled traffic growth for the next two three years. While we improve penetration and improve traffic, you get a double benefit on ancillaries both in terms of revenue and in terms of profitability.

There's no particular element of that ancillary revenue that you would point to apart from the scratch cards? It's not the car hire or the hotels? It's just general --

It's spread across all of them. We're getting better at penetrating -- we're working on improving and enhancing the penetration of each. Some have slightly performed better than the others, but I wouldn't want to get into the detail of it.

Thanks very much.

John Mattimoe.

It's John Mattimoe from Merrion Stockbrokers here. Can I just ask in relation to Q1 of this year, I understand that you have been talking about a guidance in terms of yield for the first quarter of maybe unchanged year-on-year. I was wondering if you could maybe give us a sense on what that might have been were Easter in April this year rather in March. And then secondly, I was wondering if you could give us an update on the situation with the disputes of the pilot body in Dublin airport.

I think we're -- in terms of Easter, Easter moving into the Q4 of last year was worth something of the order of 10 to 12 million in revenues in Q4 last year, and a similar amount gone from Q1 this year.

Guidance based on what we can see at the moment in Q1 and into Q2 is that the yields look like they're flat on the previous year, which obviously would be quite good performance in Q1 with no Easter in it. So I think flat for the first two quarters and then declined yields, decline as we get back into the winter. All of that would be heavily influenced by any development up or down on oil prices.

Dispute with the Dublin, with the pilots and Dublin, I really don't want to get too much into the dispute with the pilots in Dublin because it's much more of a localized skirmish. Remember that the pilots in Dublin account for less than 10% of our total pilot numbers. We've recently completed a series of negotiations with pilots at the other bases throughout the network where we've put in place pay increases and in some cases amendments to the sector pay.

There is a new legislation provision instituted in Ireland last year whereby non-union companies (indiscernible) unions can have a go at attacking non-union companies by effectively taking to the equivalent of acaf (ph) here in the UK or the government down south. It's called the Labor Court over there, but it's not a court in the sense that people understand courts. But it has given them the right, and they've -- trade unions not recognized by a company can make complaints on behalf of workers to the Labor Court who are now empowered to make binding findings on the company.

We clearly are opposing this (indiscernible), A, the reference; and, B, the legislation. It will certainly go to the Supreme Court in Ireland over the next year or two because we believe not just Ryanair -- it was specifically understood between the government and the trade unions in Ireland that as they would introduce this it wouldn't be used to target the US multinationals, and it's very hard to find any difference between Ryanair and the US multinationals.

The legislation specifically precludes the Labor Court in Ireland from getting involved in companies where there is internal negotiation procedures. Clearly in Ryanair there are extensive internal negotiation procedures, although the Dublin pilots have sought to opt out of those procedures for the purpose of making an application in Labor Court.

It also applies that where there is evidence of low pay. And if anything the evidence in Ryanair is exactly the opposite, of high pay, because the average pay in Ryanair is higher than most of the European airlines. And the pay for the 737 pilots is higher than almost any of the 737 pilots in Europe.

So I think there would be -- this is a bit like a rerun of what happened in the UK three years ago when under the new legislation the UK pilots (indiscernible) were allowed to have a private ballot run by acaf, a secret ballot for trade union recognition. And when they had finished they got 18% of the pilots voting in favor of recognition.

Our position on unions remains unchanged -- we're generally indifferent to trade unions as a company; we're pro our people. And our position with our people has been consistent for some 12 or 15 years. We pay you more if you negotiate directly with us. And you don't need to be a genius to work out if I can earn more by negotiating direct with the company than they union rates, then I'll negotiate directly with the Company, which is what the overwhelming majority of our people are doing.

The Dublin pilots have a slightly different agenda. Their pay at the moment runs up to 130,000 a year. And I think they're being misused by the Aer Lingus Pilots Union in Dublin to have a run at trade union recognition in Ryanair. Try and let them have a run, but I wouldn't want to lose -- we shouldn't allow it to take up a disproportionate amount of time, or become more important than it is. It's a skirmish locally in Ireland. It will take a year or two to work its way through the courts, test its legislation, and then it will be what it will be.

In the meantime the tragedy from the Dublin pilots' point of view is because they're not negotiating directly with us, they haven't as of yet benefited from the pay increase that's on the table to them or some of the other benefits that is available to the other pilots. So we hope that they will change their minds in the not to distant future and resume direct negotiation, in which case there will be benefits on the table for them.

Thanks a lot Michael.

Jonathan Weber.

It's Jonathan Weber at HSBC. First of all, if I could just come back to the question asked about yields earlier on, just to be absolutely clear about your guidance. Because I think there are some reports on some news wires that you were specifically guiding to minus 5% for the full year, and whether that's the case or whether that's just your kind of general view that yields generally are down 5%. They might be a bit better this year apparently if it's flat in the first half.

And then a couple of other questions. Your increased guidance or target for traffic growth, can you just say where that's coming from? Is that by the load factors? Or are you bringing forward deliveries? How are you getting the extra capacity? And finally, can you give us a figure please for average daily use utilization rates over the year?

On the first one, yes, there's a conflict. We have two things going on. If you go back to our normal model, our normal model here for many years has been traffic growth of about 20% a year, yield decline of 5% year, unit operating costs declining by something similar. And we expect guidance -- we're not giving guidance for yield for the year because the winter is in too many ways impossible for us to predict. But the back of the envelope is that it will be minus 5 for the year. That's not guidance; that's just our normal long-term plan. But what we can see is that Q1 and Q2 is flat.

We expect that the yields will fall as we move into the winter for two reasons. One, we're not sure that some of the fuel surcharges that our competitors have imposed will stick through the winter, particularly if oil prices soften a bit. And two, we ourselves will be replacing the 200's, particularly in Ireland, with 800's. That will lead to an increase in capacity and we presume a reduction in yields out of Ireland during the winter. So the two aren't contradictory. There's just -- one is what we see in the immediate future and other is our long-term model.

In terms of increased traffic growth, it mainly comes from the aircraft deliveries timed in this winter; also a slightly stronger than expected performance at the new bases in recent months. Luton and Liverpool, which were two Easyjet bases, have started off very strongly, strong load factors. Shannon has also started very strong in terms of load factors, although it's a bit behind the ball on yield. And generally, strong load factors as well. We are in the low 80s, expect to continue that through the summer at or something slightly up on last year in a more benign yield environment. We're having to not dig them out as much to fill the aircraft. We think the guidance -- the increased guidance on traffic growth, 27% for the year, is pretty reliable, and would expect (indiscernible) to come next winter. Again, wherever we put the new aircraft, that depends on ongoing discussions with new bases and with new destinations. And partly it will be again replacing the 200's with the 800's out of Ireland.

And the third point, which is the average utilization per day, Howard will have a figure, although I would caution don't get too caught up on average utilization per day. It's a bit of a meaningless figure in short haul market in Europe. Much more important is average flights per day, because that's what passengers pay you for rather than hours per day.

But with that, Howard, have you got a figure on the utilization?

Yes, Michael. The utilization is 9.32 hours per day, so up 11% on the previous year.

Which is a byproduct of slightly longer sector length, I take it?

Yes, average sector length increased by about 10% this year.

Also, one brief follow-up. Have you got a figure for the number of sectors flown over the year?

For the coming year?

No, the year ended.

How many sectors we flew?

Or the growth at least from the previous years.

It's 10%. It's 6.76 sectors per day per aircraft. It's up 10%.

Okay, thanks.

Sam Panella.

Sam Panella of Raymond James. The $47 per barrel hedge, is that WTI or Brent?

That's Brent equivalent.

Brent equivalent, but we've actually hedged jet kerosene for the winter. In terms of guidance its relative to Brent.

Okay. Do you have quarterly guidance on year-over-year seat growth?

No, not yet. And we wouldn't be giving it out yet.

Okay. Has BA introduced any additional surcharges since the one added at the end of March?

No, that was the third one, and they continue to have the three surcharges on the short haul traffic. The cumulative value, which is £12 on a return ticket, which is higher than -- we're spending about a quarter our seats at less than £10 return. So about a quarter of our seats are costing less than the BA fuel surcharges. So it's really no surprise that we're growing strongly in a more benign yield environment.

Right. Okay, thank you.

Andrew Lobbenberg.

It's Andrew from ABN. Could you clarify what your hedging policy is now, because previously you said you didn't want to hedge at these sorts of levels, and now you've hedged the winter? Are you looking just to hedge winters, or are you going to be building out as we go forward?

And then a second question. Earlier in the day here in Dublin there was discussion about increased seasonality of your business. To what extent do you see that happening? The profit difference between summers and winters, how do you see that progressing?

Welcome to Dublin, by the way.

Thank you. Welcome to London.

I hope you were (indiscernible) taking note on the queues at Dublin Airport when you're passing through. (multiple speakers) our policy has generally been we always like to be hedged about 12 months out. Hedging isn't going to inflate us over the medium term from price increases and hasn't over the last couple of years. I would point to our results today that show we have -- our fuel costs last year rose by 50% despite some of the hedging that we had at the start of the year. But it does demonstrate the strength of our model and the superior nature of the lowest cost model in Ryanair. But we've always -- we said last year we won't hedge at $40 a barrel, which would continue to be our view, although clearly we've changed it slightly given that we're now in May and fuel is up to $50 a barrel.

I think what we've done is tried to be selective about it. We clearly have no great insight into where oil prices are going. But if oil prices, as they did two weeks ago, soften back to $55 a barrel to $47 a barrel, it would seem to us to be an opportunity to go in and hedge away a lot of our exposure for next winter. Historically oil prices have fallen in summer or rise or spike upwards in the winter. That past trend hasn't been followed the summer because they've stayed doubly high at sort of around $50 a barrel. So we think in the last two weeks we've been opportunistic by going in and hedging away any downside exposure in oil prices for the period October through to next March, when if you enter that period at $50 a barrel you know there's going to be some kind of cold snap around (technical difficulty) US or Europe is going to lead oil prices higher.

That's not to say we couldn't get it completely wrong and we'll see oil prices trade back gently to the low, mid 20s from now until the end of the year. If it does, we will be out of bed (ph) for the six months of the winter, but we will make it up before we get to the winter and we will make it up by (technical difficulty) all we really want to do is to eliminate as much uncertainty from the next 12 months fiscal guidance as we can, and we believe we've done that at $47 a barrel. So I think it's a pretty good bet. But that's all it is. It's our guess.

The best I can characterize our view on hedging is the fact that we're hedged for the six months of the winter at $47 a barrel, we think is sensible. The fact that we're on hedge between now and September and oil is $50 a barrel, we think is sensible. We think we'll see further buying opportunities between now and September, but we're happy enough to be hedged from September through to next March at $47 a barrel. And we claim no expertise in that whatsoever.

In terms of increased seasonality of the business, yes, there's a bit more seasonality creeping into it as we expand. We have more routes into Spain, more destinations down in Spain. Italy continues to be a big market for us. And we have a much bigger operation in the winter.

I think one of the things that drives up the seasonality -- the profits as well -- is the way we gear up in the winter by taking aircraft deliveries through the six months of the winter period, gearing up in terms of the pilot recruitment, cabin crew recruitment, launching routes at the (explicative deleted) time of the year, January and February. And they're kind of open, running and stable by the time you get to the summer six months. And I think, therefore, I'm not sure I would argue that the business is more seasonal. It's just the way that we've done the deal with Boeing. One of the reasons we're able to get such good prices out of Boeing is they want us to take the aircraft at the (explicative deleted) time of year; we start flying the new routes and the bases the (explicative deleted) time of the year, and that is reflected in most of the new route development is done during quarters three and four now. And that is enhancing what appears to be a more seasonal nature of the business. But once the routes are up and running and more mature, they don't demonstrate that much seasonality. So I think what you're seeing as seasonality I would argue is much more just the way we take aircraft deliveries from Boeing at a time that encourages Boeing to give us a better deal, but it means that we're launching new routes and adding new capacity at the wrong time of the year. That's all.

Howard, do you want to add anything to that? Or Sean in Dublin, do you want to add anything to that?

Maybe on the fuel, Michael. Certainly less than six weeks ago we were faced with fuel at $58 per barrel. Certainly 50 looked very attractive, and 47 even looked more attractive. I suppose our longer-term objective when fuel prices do settle down is we do want to return to a long-term fuel hedging strategy.

But I think our view is we are almost at -- we're at 75% of winter -- we hedged out the winter in October last year, and so we do feel somewhat exposed in the winter period. I think we've just taken that out of it.

One of the things we wouldn't have maybe mentioned this morning was that prior to -- before doing this each $1.00 movement had an impact on our bottom line by about €9 million. With the hedging we have in place, a $1.00 movement now only affects our bottom line by 5 million. So we've taken out a very substantial amount of the risk. That's all I would say. I don't, Sean (indiscernible) seasonality.

No, the analysis there would be something I would agree with. Despite the fact that we had the Luton, Liverpool and Shannon bases all on sale well ahead of Christmas, it's still quite difficult to get anybody to look at buying seats prior to the first week in January when they come back. So starting those routes in the winter period in Q3 and Q4 is still a difficult task, and I suppose that is contributing a little bit to the seasonality effect.

(technical difficulty) if I gave him one parting comment, Andrew. We have no predictable (technical difficulty) that isn't for sale at any stage. Like we have general guidance we try to give to the market and to investors as to what our policies are vis-a-vis hedging or not hedging or selling on the Internet, not selling on the Internet. But if we see an opportunity from time to time to pounce on because it's in our financial interest or the interest of shareholders, we will do it.

One of the key reasons people keep asking is why have you got such a big cash mountain? Well, we've got a big cash mountain because in January and February this year when fuel is at $50 a barrel and nobody is buying aircraft, we're out talking to Boeing about reduced cost aircraft. We were also talking to Airbus. And when fuel falls from 55 to $47 a barrel last week, we go in and pounce on it and try and buy it. We're never argue that we're always going to be right on that, but we are arguing that we're taking -- we're exploiting what we see are short-term opportunities to try to either lower our costs over the long-term with aircraft or eliminate short-term risks in terms of the fuel hedging. But our general policy is we'd like to be hedged on fuel out 12 or 18 months, but at 50, $55 a barrel it doesn't make sense to be so. Now if we get there this time next year and oil is at $80 a barrel, then we will well be hedging when it comes to 50. But we try to be opportunistic without being stupid, that's all.

Thanks for that very thorough answer.

Enjoy the queues at Dublin Airport on your way home.

Cheers.

Shane Matthews.

It's Shane Matthews from NCB. I had two questions; one slightly technical and one straightforward enough. The straightforward question, you indicated that there's been pretty good pickup on some of your Eastern European routes. Could give us an idea as to whether it's inward or are you seeing typical two-way flow? Or what way is demographics performing there?

And then could we get a little bit more detail where leasing is? I just wanted to clarify firstly whether the Japanese operating leases are going to be recorded through the rental line or will they be recorded through the interest line, seeing as they're on the balance sheet? And how many aircraft should we be factoring into our rental forecast figure in total will be rented during the year, because I know there's been some movements in the nash (ph)?

Sean, do you want to take the first one there and give us the pickup on the Eastern European routes? (multiple speakers) the second one.

The primary one we have (indiscernible) evidence out of so far is Rzeszów (ph), which we've been operating now for about six months. It's primarily driven out of the UK, but it's not UK national. It appears to be a very large expat market; Poles residing in the UK traveling home, visiting friends and relatives, that kind of thing. The early pattern of bookings on the routes which we launched two weeks ago would seem to indicate the same thing. So it's primarily an expat market, very much akin to the old Ireland-UK market which we saw 10 or 15 years ago. So that's primarily the driver for those Eastern European routes.

I think we should emphasize how much capacity we have into Eastern Europe.

It's quite small. Currently we've got a total of 10 routes now out of the network of 229. And in terms of frequency it's a very minor part; it's about 2 to 3%. But it is a market that we intend to develop more aggressively over the next 12 to 18 months.

I think at this point we should stress, particularly here in London I get a lot of questions about Eastern Europe. Without wishing to do it down, it's still very small capacity growth compared to, if you like, the base development this year in Luton, in Liverpool and in Shannon. So I think whilst people -- it gets a lot of attention because there is a lot of new routes there. It's not a lot of capacity. We're not certain it would necessarily take a lot of capacity. But certainly we have been pleased with the initial forays into Riga, into Rzeszów (ph) and the preliminary bookings on the new routes.

Howard, do you want to take the leasing question?

Shane, the leasing will be on the on balance sheet leases would be treated exactly like we currently do with our existing debt. We will have a depreciation amortization charge and an interest charge as well.

How many aircraft should we include for the -- within the normal rental off balance sheet? Are we're looking at -- is it 13 craft with potentially another 7 coming on stream?

That number is now 17. It's 17 in total, and maybe a couple more, maybe 3 more.

There's no other (indiscernible) aircraft or anything else in there?

No, everything is gone.

Are you prepared to kind of give us an indication of what the monthly rental netted out is looking like?

I wouldn't be prepared to share that with you.

It's a functional, as you know, of the purchase price generally.

I appreciate that, but --

That's as close as you'll get (multiple speakers)

I wouldn't be prepared now over the public system now to address that. But certainly very attractive rates, particularly, say, on the most recent set of operating leases. The market is still quite hungry. Very attractive financing costs (indiscernible) less than they were even two to three years ago.

So you're not suffering from the problems Air Asia identified?

Well essentially that was only a factor of money really, wasn't it?

I think to there problems are a bit more than a factor of money. I think (indiscernible) should also give some color on what is our attitude to the mix of leasing against old aircraft going forward. I've guided here in London that generally our view was we would like to stay in a small net cash position going forward, and that we use leases generally to maintain that position.

As we're coming towards the peak of our replacement program with 29 deliveries this year, by next spring, even allowing for between 4 and 7 operating leases, we will still be in a positive cash position. And in the following fiscal year, that would be 2007, we step down our delivery program. We will expect our net cash position to be strongly positive.

So Howard, am I right in thinking that that 630, 650 that you gave for CapEx is actually a gross CapEx figure?

That's a gross CapEx figure, yes.

Thank you.

Edward Sandford.

It's Edward Sandford from Cazenove. One of my questions has just been answered in the last bit. But could you just very quickly -- on sector length, could you -- it had quite a strong growth in the last year. Is it likely to grow again by as much this year (indiscernible) give some color on sector length?

In terms of sector length, we would be looking to increase our sector length this year by about 7 or 8% compared to last year. That's based on our planned route launches, and those routes and bases that we've launched over the last couple of months. So we would be comfortable with that number.

Thank you.

Geoff Van Klaveren.

Geoff Van Klaveren, Exane BNP Paribas. Just two questions please. Firstly, on the Italian domestic routes, can you tell us how they're performing? And do you see a lot of future potential there? And just secondly, on the EU legislation cancellations to deny (ph) boarding, has it had any impact? Do you see any impact (indiscernible)

Italian domestic routes have started well. But again, I would caution you it's very small capacity. We're just doing three day services -- Rome Alghero, Verona and Traviso (ph). Alghero has been the strongest performer with the strongest advance purchase or advanced bookings into the summer. Although once they were actually up and running Traviso (ph) and Verona, which are much more daily business flights (indiscernible) close in bookings have been much better on those.

Generally speaking, pleased with them. Loads have been good. Yields have been below our expectations, which is not unusual. But I would caution it's not a lot of capacity. And the focus of our continued growth through the rest of the year in Italy was through the more international routes. We will add one or two more domestic routes in Italy, but it's not some kind of Holy Grail that (technical difficulty) into nine or ten domestic routes in Italy. Most of the new route development in Italy will be probably international routes at this stage.

On the EU compensation legislation, had very little impact so far, although there has been an enormous amount of consumer confusion created mainly by the frankly wrong publicity or untrue publicity generated by the European Commission in publishing the guidelines. The guidelines are actually factually inaccurate and convey the impression to people that they can claim compensation from the airline for everything to their horse not winning in Danka (ph) to their granny dying.

The good news though is that the legal challenges that have now been brought forward from September to June will be heard on the 7th of June. We will expect to have a decision by the end of the summer. More interestingly is that most of the high fare carriers in the Association of European Airlines, the (indiscernible) who were originally supporting this compensation legislation, are now all to the fore in opposing -- or in supporting the court action to have it overturned. I (indiscernible) quietly confident that this legislation would be overturned, if on no other grounds than just blanket discrimination against air travel. No compensation provisions apply to ferries competing -- ferries or trains who have canceled far more services than the airlines do.

But from kind of financial point of view, does it have any significant or material impact on us? No, not all. Remember that for all of the kind of PR the bureaucrats in Brussels put about, there is still no compensation entitlement in cases where the delays and the cancellations are beyond the control of the airline. I know very few delays or cancellations that actually are within the control of an airline. So in most cases it doesn't apply, although we clearly do have an education problem with passengers who have been misled by the European Commission into believing that they can get compensation for everything. But they're all getting letters saying sorry, but you're not entitled to any.

Great. Thanks very much.

Joe Gill.

It's Joe Gill in Goodbody. Can I ask two questions? First, in relation to the overall model, your thoughts in terms of the impact of the Boeing deal and the new maintenance contracts and the new airport base deals on your overall unit operating costs ex-fuel? Like this morning we got sort of a broad guidance of taking that down maybe 3% over the next year or so. What's it like taking it to a three-year view? Can you get it down sort of 3 to 5% on average over those three years?

And then secondly, in relation to the new passenger volume guidance for the year, how we should assume that's been constructed? It is a gentle improvement on load factors and the extra capacity coming in the second half, or how actually does that come together?

On the overall model, I think it will have a significant impact on our unit operating cost excluding fuel and route charges for the next three or four years. But to maintain a 3% decline we need to be able to continue to do airport deals of a similar size and scale to the airport deals we've been doing over the last 12 months. The combination of reducing operating costs is a combination of the new Boeing aircraft pricing, the performance of the wingless (ph) less in terms of reducing fuel consumption, newer airport and handling deals that are reflective of the kind of very good deals we've done over the past 12 months. If all that comes together, then yes you will see unit costs absent fuel and route charges decline by, I would say around 3% a year for certainly the next three years.

Further out than that, we're starting to add maybe 20 aircraft a year onto a core fleet of 150 aircraft. So the impact becomes slightly less at that stage. But we would still be hoping for a continued strong performance from ancillary revenues beyond year three, particularly from new ancillary product or service that may be added to the mix at that stage.

In terms of passenger volume guidance, no we don't see -- we're not predicting any increase in load factors this year. We think the load factor will be stable. A lot of this comes from the aircraft additions at the end of the year, in particular taking out the 200's and replacing those with 800's in the Irish market, which we do believe will have a downward impact on yields during the winter period. So when we guide kind of flat yields at the moment but then a declining yield in the winter, a lot of that is driven by the substantial number of aircraft deliveries we have next winter, and a lot of new base and new route delivery that will be going on, particularly during the period November through to February.

Thank you.

Howard, anything you want to add on the cost thing?

No, I think you pretty much covered that. (indiscernible) deal and the fact that we're about to shortly do another deal on airframe overhaul costs which are the two significant elements of running our fleet, our fleet costs are our four largest costs, so clearly we're going to have another very positive impact on our cost base when we do the engine overhaul deal.

Anything else?

No, that's it.

I'm showing no further questions at this time, so I'd like to hand the conference back for any closing comments.

I don't have any closing comments. I think the results today speak for themselves. I think we're trading very well, building off a very strong base of having a unique cost advantage over all of our competitors, and that's not just BA, Lufthansa and Air France, but also Easyjet. We think the new aircraft deal with Boeing will prove a particular source of cost control or reduction over the coming years. Fuel obviously is still a bit of a volatile variable. We think we've eliminated a lot of the volatility, certainly for the winter period. But our focus again will for the next 12 months continue to be to roll out the growth in a disciplined fashion.

You will continue to see us -- I know it grates on some people's nerves that we fight with everybody. We only pick fights with people who want to increase our costs, and we're happy to continue to fight with everybody and anybody who wants to increase our costs. I think if you look at the successful outcome of the recent fuel levy dispute with Stansted, our position in terms of fighting with people is justified and vindicated by stage (ph) results.

Going forward we remain, as I said, more positive than we were at this time last year, although last year we were extremely negative. So being a little bit more positive isn't overly optimistic. Business is performing well, new routes and bases performing well. And we will be back to everybody come at the end of the first quarter when I think we will a lot more color on the first-half results of the first half of the year, which clearly will have a large impact on overall results for the 12 months.

Howard, anything you want to add into that? Or Sean, do you want to add anything?

(indiscernible)

(indiscernible) any questions, then we will have to say thank you very much to everybody who joined in today. We will see you on the extensive road show program between now and the end of the week. I'm in London. Michael Cawley is in the East Coast of the US. Jimmy Dempsey (ph) in the West Coast. Howard is doing a lot of -- Howard and Sean Coyle and Ray Hernan are doing a lot of Europe. So I hope we get to see everybody before the end of the week. If not, and anybody has any other questions, please feel free to route them back either through Morgan Stanley or Davy's, or you can contact Howard, Michael or myself directly during the week. Thanks everybody.

Thank you for your participation today. This concludes today's conference call. You may now all disconnect your lines.