Ryanair Holdings PLC (RYAAY) 2005 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for holding welcome.

Welcome to the Ryanair conference call. (OPERATOR INSTRUCTIONS).

I would just like to remind you all this conference call is being recorded.

I would now like to hand over to your chairperson for today, Mr. Michael O'Leary.

Please go ahead, sir, and I shall be standing by.

Good afternoon, everybody, and welcome to the Ryanair Q3 conference call.

Unfortunately I'm suffering with a bit of a head cold, so you'll excuse me if I'm coughing and sniffling through some of this.

The good news means that I will speak for a lot shorter than I would normally do on these conference calls.

I hope everybody has got a copy of the press release and the results presentation, which is posted on the website this morning on www.Ryanair.com.

I'm going to have a few introductory remarks by me, and then we are going to go straight through to open it up for questions and answers.

We are very pleased that these results they announced or they summarized another robust performance by the Ryanair -- the unique Ryanair business model in very adverse trading circumstances here in Europe.

In the three months at the end of December traffic grew by 26% to 8.6 million.

Unit costs were increased by 3%, including fuel.

Excluding fuel, they fell by 6% points, which continues to show the very disciplined approach we take to cost.

Fuel costs during the period rose by 59% to EUR114 million, and as a result of the cycle's higher oil prices, the after-tax margin on an adjusted basis fell by 2 points to 10% as adjusted net profit increased by 6% to 37 million.

I think the fact that Ryanair is making an increase profit during the third quarter at a time when most of our competitors will be announcing increased losses for the comparable period again shows just how robust the Ryanair business model is.

As I said, the profit figure is actually slightly better.

There is an underlying profit growth of 22%.

Because the comparison to the third quarter included a once off release of maintenance provisions which related to the return of six of the Buzz leased aircraft in November 2004.

As we anticipated, years were flat in the quarter, despite a 27% increase in seat capacity.

Again, this continues to reflect in our view a benign yield environment or the one that won't be continued into the third quarter or into the fourth quarter, my apologies.

Load factors were at 1 point lower, which is driven again by 27% increase in seat capacity as we launched 34 new routes.

Today we are now operating a total of 303 routes from 15 basis, and ancillary revenue continued to grow by 31%, significantly faster than the growth in passenger numbers.

And again, the key features of the unit costs reduction excluding fuel were the addition of the new lower cost Boeing 737-800.

We are pleased to announce that we retired the last of the Boeing 737-200s in December just prior to Christmas.

New lower-cost airport and base agreements and the continuing tight controls over all of the other cost lines.

Our fuel -- our costs rose by 59% to 115 million, despite the fact that we were almost fully hedged during the quarter, and this again reflects the height world oil prices.

We continue to be hedged out to the end of March '06 in rates equivalents to $49 a barrel.

We are unhedged thereafter, and we will continue to be so while the forward rates are up in the high $60.

As we said before on previous conference calls, we would hedge out to next summer if we thought there was an opportunity to do so.

But while oil prices stay in the high 50s or the mid or high 60s, we will simply pay spot.

And that reflects what we did last summer when we went through the entire summer period paying spot prices.

Spot prices then rose as high as the high 60s and hit $70. $73 was our high point in July and August of last year.

As you will see from the traffic growth, the base of the new routes and basis continue to perform very well.

We have been very pleased with the performance of the advanced bookings on the Luton, Liverpool and Pisa bases.

The Shannon base continued to book very well through the winter in terms of passenger numbers.

The yields, however, continue to be disappointing.

We have engaged in some minor surgery there, cutting and eliminating some of the underperforming routes like Stockholm and replacing them with what we think will be better destinations, such as (inaudible).

We have announced the 14th base at Nottingham, which was due to launch in March, has been postponed to April, together with a number of schedule changes that were put through for these three months of Q4.

Those changes were put through in December.

These reflected a couple of issues.

The primary one is the delay in the delivery of the Boeing aircraft.

Effectively all of our aircraft deliveries are running about a month behind where they should have been as a result of the Boeing strike back in September that ran into early October.

This means that we are effectively operating with four 737-800s each month less than we originally planned, and we have had to cut back the schedule to accommodate that.

We did get over that issue in the run-up to Christmas by extending the (inaudible) or extending the flying lines of the older 200, but there would have been a very significant maintenance penalty to be paid if we extended those aircraft beyond the end of December.

So we have chosen to reduce the schedule, and so we have had a number of schedule costs and cancellations, preplanned cancellations that have had no effect on passenger compensation in the first three months.

There was also -- some of those cancellations were also affected by the late agreement reached with the Dublin pilots or rather imposed on the Dublin pilots to retrain on the 800s.

Some of you will reflect that we had a row with the Dublin pilots last year when we started negotiating with them back in November of 2004 to transfer onto the 800s.

Final agreement was not reached until August 2005.

It was only reached once we gave them notice of redundancy, and it meant that we are actually converting a lot of the 200 series pilots across onto the 800 during the short-term period, which has reduced the number of pilots available to us, particularly here in Dublin during the winter.

This is not unusual, or the retraining issue is, we have engaged in this kind of -- some cancellations (inaudible) cancellations during January, February, March each year for the last number of years.

We have a number of leased in aircraft, which will operate during September or February and March.

But by the time the final Boeing deliveries come to us in April, all of the new routes and bases will be up and running, as will the retraining and the retraining of the Dublin pilots that have been completed.

From a regulatory point of view, we continue to oppose the 4 billion "marble palace" being proposed by the BAA at Stansted.

We like all other Stansted airline users, which includes not just EasyJet and Ryanair but also British Airways and some of the other major BAA customers at other London airports, support the development for the second runway and indeed a second terminal, but believe that these should be billed at a cost of about 1 million or 1 billion like they were previously at Manchester and like they are being proposed in Dublin.

The 4 billion is clearly waste on a heroic scale that would only be possible in the case of a regulated monopoly, which is what the BAA is.

Like the other airline used in Stansted, we will continue to oppose those plans, and we will continue to call for a more sensible development of the facilities that airlines and passengers want and are willing to pay for.

We hope that eventually the CAA, who are one of obviously the more least or less effective regulators will begin to listen to what users actually want, instead of being captured by the producer and complying with what the BAA intends to do.

Our relentless focus on cost reduction continues.

We think we have a major cost reduction in our hands in the next 12 months in the form of the recently announced Web check-in.

This will we expect reduce the number of people that carry on or increase the number of people that carry on bags from 25% currently to almost 50%.

They will make it a very attractive service for those passengers.

Those who are traveling with hand luggage will now bypass all the airport check-ins, go straight to the boarding gates, where they will also avail of priority check-in.

By charging passengers who want to check in bags, we think we reduced the number of people checking in bags.

We significantly reduced the number of people going to check-in maybe in half, which will have a major downward impact on our facilities costs at airports such as Stansted and Dublin where we rent on an annual basis check-in desks, but also which significantly reduced our handling costs.

As we have guided before, we believe that from a revenue point of view, it will be revenue neutral because we are going to pass on those expected savings in the form of lower average airfares commencing with all bookings on route through the 15th of March.

We remain cautious in the outlook for the remainder of the fourth quarter.

Again, although I think some people may have slightly overdone this somewhat, interesting in the fourth quarter this year we are still engaged in a large capacity growth.

As you will see when the January traffic figures were released earlier this week, that traffic growth is being delivered, but being delivered at slightly lower yields.

I think one of the big drivers in March this year will be obviously Easter is not in the fourth quarter; however, corresponding in the fourth quarter of next year, Q1 should be significantly stronger than compared to the period last year.

And we will have a lot of the new route development actually up and running at that stage.

However, we are now guiding that the yields in the Q4 where we have a good degree of visibility will be in the middle of the range minus five to minus 10 as previously guided.

The good news is that our full-year net profit guidance is unchanged.

This I think is a tremendous performance at a time of record high oil prices and at a time when we are continuing to expand rapidly.

Intense competition in the market continues, but we're beating the competition in every market in which we operate.

We are continuing to see other competitors from EasyJet right up to British Airways announce either reductions in capacity in markets where they compete head-to-head with us, or in some cases, we draw out from those markets altogether.

We're talking to a number of new bases, the details of which we will announce later on in the spring, which will launch in the back end of this year when we start taking delivery of more aircraft from Boeing.

So overall I think these are a very good set of results, a very more robust response by Europe's best low-cost airline in difficult trading circumstances where obviously oil prices are dominating the economic environment.

But we're continuing to deliver increased traffic, increased profits and continuing to focus on a daily basis on reducing cost and maintaining margins.

That is the end of the introductory remarks.

I will now hand you back to the operator who will open it up for questions and answers.

Thank you.

(OPERATOR INSTRUCTIONS).

Chris Avery.

J.P.

Morgan in London.

A question on fuel and a question on capacity.

If the fuel price stays at $60, can you give us some kind of guidance on what next year's fuel expense will do, or alternatively give us an average in price for this year so that we can do some kind of calculating on how much the expense in the P&L goes up next year?

And the second question on capacity, we have 31 planes coming in next year.

What percent capacity growth does that give you, and how are you going to finance them in terms of the balance of on and off-balance sheet?

Thanks, Chris.

In terms of the fuel, our average rate for the 12 months ended March '06 is going to be equivalent to about $53 a barrel.

Every dollar a barrel over that in terms of the average price for FY '07 will equate to an increase in cost of about $10 million. (multiple speakers).

Sorry, Euros.

So take your figure, if oil prices stay at $60 a barrel for all -- at our average price for the next 12 months compared to this year, it will add EUR17 million to our cost base.

In terms of the 31 planes next year, that equates to a seat capacity allowing for the timing of the deliveries of 20% (multiple speakers) -- well, assuming 20% in traffic growth assuming the same load factors, so 20% capacity growth.

And the last question, which is in the split between operating leases and direct ownership, we have not decided that yet, but we would expect that again the overwhelming majority will be owned, and we would take operating leases on the minority.

Probably, Chris, about eight out of the 31 would be on operating lease.

The balance will be on balance sheet either debt or finances.

[Jess VanClevervan].

Exane BNP Paribas London.

A couple of questions.

One on airport charges at Dublin.

Should we assume that you are paying lower airport charges this summer at the temporary facilities?

And the second question on the new baggage charging structure, I just wanted to check, confirm that the baggage charge falls into ancillaries next year, and perhaps if you can give us some guidance on how that affects average fares and ancillaries next year?

Thanks.

Thanks for that.

In terms of the airport charges at Dublin, we don't comment on the detail of any individual airport and nor would I in the case of Dublin.

In relation to the baggage charging structure, we have not yet made a decision as to where the income stream will be, whether it will be in passenger yields up above or whether it will be in ancillaries down below.

And I don't think we will make a decision on that for another couple of months.

We don't (technical difficulty)--

You will not be able to identify what the baggage income is going to be.

We're not in the business of showing our competitors how to improve their business models, although clearly many of them are improving their business models by replicating or copying Ryanair's ideas usually a couple of years after we have introduced them.

But, you know, our role is to lead and theirs is to follow.

But just concerning part of the decline in average fares in Q4 is down to that change isn't it?

No, they had no impact.

For bookings made after the 15th of December -- I think in March, sorry -- by the time we get to the 15th of March, we will have about 98% of all of March bookings in and 99.9% of Q4 bookings in the system. (multiple speakers).

So effectively they will become effective through Q1 and Q2.

John Mattimoe.

Merrion Stockbrokers in Dublin.

Michael, can I just ask you mentioned a number of competitors are moving off of a lot of your routes that you operate in.

Could you give us some type of sense maybe on what proportion of routes you have either seen the withdrawal of a competitor or a material reduction in their capacity, and maybe just kind of following out from that, given that oil prices are very high, and you are very well positioned with your own cost base?

Would you be expecting an acceleration in that type of withdrawal from routes with direct competition with you?

Or maybe looking forward to next winter, do you think we are seeing an increased probability of attrition from the market?

And I guess maybe with oil where it is, are you surprised that we have not seen maybe any casualties at this stage?

It is difficult -- we don't run our business here, John, on the basis of certain ex-competitors will withdraw or ex-competitors will go bust.

We think it is an inevitability over time that they will.

I think what we are pointing to is more a trend.

Like there is an underlying trend going on in the marketplace for the last 12 months, and that is that there is not a lot a capacity being added to the marketplace in Europe generally.

And the real capacity movements are our capacity being taken out a short haul European markets mainly by the majors and diverted into middle or mid or long-haul operations.

You know, you can highlight the routes that EasyJet have sort of announced they are pulling.

The Gatwick (inaudible) is reducing the Gatwick Shannon supporting a week -- seven a week.

But it is a lot less significant than BAA, say, effectively pulling most of their Manchester routes.

Most of the routes in the Manchester base that compete with our Liverpool destinations have been pulled.

Or just BAA's overall reduction of -- I mean if you take their December passenger figures, they were down about, their capacity was down about 3% in the short haul with a lot less capacity being allocated into the medium and long-haul market-base.

Those are very significant capacity switches, and that will continue.

But what do we foresee will happen in the next three, six, nine months?

We don't.

Our objective for the next three, six, nine months is to continue to reduce our unit operating costs and continue to manage the business.

From a point -- from a base -- from a stocking point where we already have an enormous price advantage over everybody, not just BAA but everyone down to EasyJet and an enormous unit cost advantage as well.

I think it is interesting.

You know we're talking -- there was some hint this morning that there was some disappointment in Ryanair's increased profit in the third quarter, whereas one of our competitors, EasyJet, has already confirmed significantly greater losses for the same quarter.

But, you know, I think that's just that we have a higher bar of performance, which we are happy to take.

Okay.

And in terms of just the competitive environment, would you see any need for maybe increased tactical attacks on any certain competitor routes maybe to encourage them to redeploy some of that capacity elsewhere?

Generally we don't engage -- I have never engaged in tactical attacks on competitors.

We are remarkably sanguine about competition.

We simply roll out -- you know, we select new destinations and new bases by virtue of where we have the best combination of low-cost base and low-cost base efficient facilities.

I will give you an example.

If we have the offered choice today or tonight of launching some spare capacity in on top of a competitor on a particular route or giving it to either a new or an existing airport who came up with a better cost deal, the better cost deal would win every time.

We're too big and too diverse to be going around looking at tactical responses to people who are whose fares are 80% higher than ours or whose costs are higher or 80% higher than ours and whose fares are 50 or 60% higher than ours.

So we don't bother with it.

Okay.

That is helpful.

Thanks, Michael.

Jim Parker.

Raymond James in Atlanta.

Just regarding your ancillaries and your plans for online gaming, will you provide us an update on the status and when you may introduce that and to what extent?

It is going to be just on aircraft or on the website, or what can you tell us about that?

Okay. (technical difficulty)-- hello?

Yes, Michael.

Okay, sorry.

I was checking to see if we were still online.

The online gaming, I think you will see some development probably towards the end of the fourth quarter or maybe it will even be the start of the first quarter.

We will probably roll out our first version of the online gambling facility on the website.

We are in active discussions with a number of the bigger mobile telecoms about putting the mobile phone technology onboard the aircraft.

But we're still a long wait away -- maybe it could be as much as 12 months from in-flight gambling entertainment.

We're finding it very difficult in discussions with a lot of the technology part with the gaming companies.

What they all seem to want is access to the website and to our volumes across the website.

They are all a lot less interested in the onboard gaming or potentially the onboard gaming, which we believe from an entertainment point of view would be a big seller.

But we will be able to test that I would imagine probably sometime around May/June time.

We will be launching something online and then trying to encourage or persuade passengers to try it out and give it a go.

But we have been driven in that by the discussions with the kind of content partners who are mad keen.

I mean they see a website with 42 million passengers a year with 15 million individual users a month that is growing at about 25% compound, and they are really keen to get at the website.

We're not certain that that is where the real upside is going to be, but if that's they want to go in the short-term, then we are happy to go there.

Thank you.

Something on the mobile phone technology, I think that looks at this stage based on the present discussions we should be rolling something out by the end of this calendar year.

Chris Reid.

Deutsche Bank in London.

It was just a couple actually.

Can you talk a little bit more about the baggage handling if that is all right?

I suppose trying to get a feeling of whether you think the profit is from it, or if you like the revenue from it, or sort of higher quality or lower quality than the profits from the rest of your business?

And why you are sort of so confident that people are not going to get ticked off with the whole idea of paying for their bags, checking in early?

I mean because obviously it seems essential mostly from a financial point of view, but obviously from a people point of view, you know, your average punter might not be too happy.

And then the other question was just on sort of the network.

What sort of level of maturity do you think there is across a network at the minute in terms of new routes, and how do you think that will change over the next 12 months?

Thanks very much.

In terms of the introduction of Web check-in, we see this as being revenue neutral.

We do, however, see it as another opportunity to attack our cost base by looking at the key drivers of airport handling costs, which are obviously check-in desk rentals, check-in staff and baggage handling.

So that is really our primary focus with Web check-in.

Obviously we think it will force a lot of people to carry less bags as they will have the option to benefit from the across the board fare reduction.

So we think that will definitely encourage a lot of people to take less bags, and we have done this before in terms of what we did in terms of drinks onboard when we used to give away free snacks as well.

We have turned something that was at cost into a -- well, it was revenue neutral in this case, but also allowing us to further reduce our catering costs as we did in that case.

Except in this case, we are now going to reduce our airport and handling costs.

In terms of new routes, we are still inundated with people who want us to fly to their airport.

Still a huge amount of opportunity out there.

In terms of our existing route base, as you see out of our Dublin base, even though we have not any capacity in seven years or not much capacity over the seven-year period, we have over the last year replaced the 737-200 to Dublin and put them in place of the 737-800.

So routes that you would have considered that we started in the mid-80s as mature have still benefited from a significantly increased capacity, although at a slightly lower average fare given the amount of capacity we put in this year.

So overall we certainly don't see any great signs of maturity across our route network, and we think there are our ample opportunities for further route development.

John Sheehan.

NCB in Dublin.

I just had a few questions.

Could you just confirm that the hedging now in place is 100%.

I think it was 90 when you last spoke.

Secondly, could I just get a rundown on dollar hedging that you have in place?

And then the Q4 towards the middle of your range, ex-Easter would your view still be that that would be marginally down?

Marginally down in what sense, John?

The bottom-line, is it?

Yes, if you stripped out the Easter effects on the yield guidance for the fourth quarter?

Well, it may be impossible to know, not just impossible to strip out the Easter effect in Q4, so we would not be able to comment or answer that question.

In terms of the hedging --

Yes, John, we have got pretty much -- are almost fully covered for this particular quarter.

Obviously we're in 97 or 98% I think.

We have moved up our profile, and we have also had a slight reduction in the amount of damage required because we are operating at a slightly smaller schedule than originally envisioned.

In terms of the dollar, we are a still running a 12-month book, and we are running an 18-month book as well.

So in summary we have 18 months of cover.

Our current book is about $1.3 billion.

Our weighted average rate is just under 126 for the next 18 months, and we have approximately 82 or 83% of our forward requirements for the next 18 months locked in at that particular rate.

That is great.

Just one other one on the sector length, I think it was reported it is up 10%.

Is that something you would expect to see growing at a similar rate going into the new year?

Certainly, John, that obviously depends on route collection, although given that we are launching, say, some of the five aircraft coming in certainly into Q1, operating out of the Dublin base, a lot of those would be on a slightly longer average sector than we are flying.

Therefore, I would certainly expect based on the routes we have launched so far that we would expect to see an increase in average sector length.

Obviously the remainder of the year it remains dependent on new base, but I think that percent as a pretty high run-rate certainly would not like to see anything like that over the first six months of the year.

Andrew Lobbenberg.

ABN AMRO.

If we look at some of the new routes you have launched, you have been lodging at slightly less than daily frequencies.

Is there any sort of strategic development we should draw from that, or is there some other reason?

And then at a couple of your airports in Germany, you have had some challenges with the local courts not very welcoming airport development at Lubeck and at Niederrhein.

Can you tell us what is going on there?

And finally, I guess I would want to know what cold remedy Michael uses because I really want to avoid it.

It seems useless.

Thanks for that, Andy.

I can confirm that the cold remedy is (inaudible) useless.

It is just old age and rust.

Michael, do you want me to deal with that frequency issue?

Well, yes, we have not heard from you yet, which is unusual, Michael.

I don't have a cold over here, nor do I have a remedy by the way.

On the issue of frequency, Andrew, one of the things that has been driving that has been the demand from airports has been so acute, we have been trying to satisfy a lot more than if we did them all daily.

In some cases, obviously in a small minority of cases, it is a nice way to incubate a route as well up to full daily service.

If you look at Shannon, that latter issue has been the case, where a lot of the routes could not be sustained on a daily basis realistically.

However, conversely we have done some less than daily frequencies for three weeks from Stansted and Liverpool on the face of that, which could have withstood them daily, but we wanted to involve more of our partner efforts downstream like in France and in Italy and so on, and hence the spreading of them on a less than daily basis.

The situation in Germany on the airports, the issue in Lubeck is specifically to do with the city and the neighborhood there.

The city was seeking the only airport.

They have since sold it to Infratil who owned Prestwick.

We have an agreement with Infratil to establish a base there conditional on enlargement of the airport extension of the runway and a number of taxiway developments and a building of an enlarged terminal, all of which was subject to a court case taken by the local residents.

Now there's a lot of environmentally protected insensitive areas around there, including a bird sanctuary.

Because the city had fouled up on its planning applications historically, their applications fell over in this location, but they are quite confident that they will be successful in the future.

It's going to take about another year and a half.

These processes are even longer in Germany than they are in Britain.

But our growth at Lubeck continues and obviously not as quickly as what otherwise had been the case, but it is a minor hiccup.

We have lots of opportunities both in Germany and elsewhere.

The situation in Niederrhein has got to do with the usage of the name of the airport and is largely and I tend to buy Dusseldorf airport to stifle competition.

We have bought that before.

We have beat them before.

We're pretty confident we will beat them again.

It is a wonderful, low cost, efficient, privately owned facility of a Dutch quarter which serves us very well and serves the community there very well, and I think it will take more than just the anti-competitive instincts of Dusseldorf airport to stop its progress.

Thanks for that.

I must say, I recall reading in the press that there was a similar court attempt to what is going on in Lubeck to try and over turn the operating certificate of the airport altogether.

That was successful for a couple of days.

Correct me if I'm wrong, Sean, but I think they got that certificate back, or it is almost automatic that they will get it back.

That is the case.

Yes.

Yes, there has been no interruption in services there.

I mean I think like look, the realities in Germany at some of the smaller airports where you are taking on either some of the bigger airports or Lufthansa through different guys.

You know, we ran into this originally when we were expanding out in Frankfurt Hahn.

I think it demonstrates two things.

One, the flexibility, that inherent flexibility built into the Ryanair model, whereas there was a problem with Lubeck this year.

In other words, we could not commit to the base.

We simply flipped the aircraft and put them into East Midland within the space of a month.

We previously ran into a problem in Strasbourg with the local courts.

We flipped the aircraft 40 miles up the road to Baden-Baden, and all the traffic has followed us.

I think you should also understand at the same time as we are having those kind of issues in smaller airports like Niederrhein and Lubeck, much more significant is the recent announcement of the new long-term arrangement with Frankfurt Hahn airport where where going to commit to adding two aircraft a year each year for the next five years, which will take us from a fleet of six up to (multiple speakers) 18 aircraft.

And from what, 3 million passengers to close to 8 million passengers a year over the next five-year period.

So there is all this generally, as you know, there is skirmishes, local skirmishes everywhere, maybe we will poll with the local courts, Strasbourg with Air France.

You know, there is lots of people trying to put roadblocks in the way of preventing kind of local airports or local communities getting access to low fares.

But what we demonstrate time and time again is most of (technical difficulty)-- the market size and it's the market that drives it out.

The other point that I would like to add to what Michael had on it, one of the advantage that we're discovering of this doing four and three a week, is it does mean that an awful lot of the new aircraft capacity we are taking over the next 12 months will be used to kind of bring up a lot of those routes to dailies.

You know, because where we are going four times or splitting an aircraft doing four, three and four times a week, you have an (inaudible) capacity demand there to take those routes up to dailies.

So we're doing, as Michael said, because we simply do have more airports than we can handle.

They are begging us for them.

I mean we are down airports now looking to supply there once or twice a week just to get us in there.

But they provide enormous growth opportunity to taking those up to dailies.

Joe Gill.

Goodbody.

Two questions.

First, in addition to adding 31 aircraft to the next year, does that imply you are going to be approaching over 100 extra pilots, and what is the market like to recruit pilots in the current environments?

And second, could you just give us some thoughts in relation to your views on yield management for the summer not in this year if oil stays where it is?

And in particular, given the sensitivity of a dollar a move adding EUR10 million to your costs, if it stays where it is today, it seems like you need to get an extra EUR2 per passenger in order to offset that.

What are your thoughts on that when you are growing capacity by 20%?

Does your Web check-in changes help or hinder that, or is it neutral completely?

And do you have any idea as to whether flag carriers would be inclined to add surcharges if oil stays where it is today?

Yes, we will add 31 aircraft in the next 12 months or over the next 12 months.

It means we will be recruiting something on the order of 300 pilots over that period of time.

Half of those or 150 will be first officers presently building up experience in our own operations promoted to captains.

And there is still no shortage of people coming to us, in particular from other airlines.

In recent months, I would say the last three or four months, we have seen people joining us from EasyJet, from SAS, from most of the UK charter airlines.

We have had one or two from Aer Lingus, and our first application who joined us, too, came in from Air France where obviously the guy was afraid of getting lots of money for sitting around doing nothing and wanted to work for a living.

So we have seen lots of commentary on historical shortages of pilots.

I mean the only people I have ever heard come up with those kind of lines are the various pilot trade unions.

There has never yet been a shortage of people who want to work 18 and fly 18 hours a week and get paid 130,000 a year for doing it.

And we certainly don't have any shortage.

There will in a couple of years time -- I mean one of the things we are noticing and we are having difficulties is we presently have three simulators or two simulators for our own 737-800.

We're running up into some pinch point there ourselves.

Just there is a combination or a double hit of new people coming in being trained and also our own recurrent trading going through.

We will be announcing something in the not too distant future to increase the number of SIMs that we own and operate, and that is really our bottleneck.

It is not to supply of pilots, it is a SIM issue.

Pilots continue to come to Ryanair for the pay is better than most of the competition.

The rosters and the lifestyle is certainly significantly better as they will admit themselves, and above all, we continue to have enormous demand from people, particularly among flag carrier pilots who want to get promoted rapidly.

A lot of the pilots who joined us -- who joined us from Lufthansa, from Air France, from SAS are coming to us because I think they realize they can be a captain in Ryanair within the space of -- subject to their experience-- 12 months or 24 months, where they are facing five or 10 years in the flag carrier, zero growth airline.

In terms of yield management for the summer, I think your figures are correct.

We would operate on the basis -- use the figure we were at previously was $60.

If you take the kind of current market around 63, that would be about 100 million in additional cost this year.

We need about EUR2 on the passenger yield to make that up with 42 million passengers.

Plus our outlook on yields, it is exactly as it always has been.

We don't have a clue.

The general model is that yields will fall by a couple of percentage points every year.

We suspect that they won't fall this year, but nor would we believe that they will rise.

It will largely be driven by profit competition built on pricing.

But as we face oil prices of high 50s or low 60s into quarter one, so do most of the competition.

They have maintained their fuel surcharges through the winter as we suspected they would, and I think you may see another round of fuel surcharges.

Our underlying fare increase is coming out of into Q1.

I mean I think you're going to see the underlying reason why fuel surcharges stuck last year was not because consumers all over Europe had sympathy with the plight of airlines paying higher oil bids.

Consumers all over Europe simply were forced to pay higher affairs because the flag carriers had to exercise some capacity restraint.

We see no change in that environment or in that outlook, and certainly the flag carriers who will mainly be loss-making at these higher oil prices will be out there looking for either underlying fare increases or further fuel surcharges.

But we from a yield perspective will be yield -- will be price passive, load factor active.

Do we think that the baggage charge will have any impact on that?

No.

We believe the baggage charges will be revenue neutral, although they will add 30 million in cost.

And that will help us to defray some of the cost of the higher oil bids.

But we do believe that the price reductions will start off on the 15th of March.

We will defray the potential revenue earnings from the baggage charges.

And also mentioning our objective, even though we're never going to get there, ultimately we would like to earn nothing from checked in bag charges by not having any checked in bags.

Now clearly we will have some.

We're never going to get to a stage of abandoning it.

But the lower it gets, the lower cost we will have.

I mean even down to the kind of, say, the lighter the planes are, the lower the fuel required and the lower the fuel consumption will be.

But the big conundrum for us, as I think a number of you rightly pointed out in your coverage of the results this morning is, what is going to happen on oil from the first of April next year and what happens to yields?

I do think people are being a little bit pessimistic, though, in terms of the oil outturn.

Remember our comparables in the first half of this year will be a lot easier because we were paying these kind of oil prices last summer.

In some cases, higher.

And it all depends on where it is going to be.

Have we changed our hedging strategy?

No.

We continue -- our policy is always to try to hedge out 12 or 18 months on oil, but we are not hedging at $50 a barrel.

We would hedge if we thought there was an opportunity out there somewhere in the high 40s, low 50s.

But at something such as the mid-60s, we will take our chances.

[Jonathan Werber].

HSBC in London.

If I could firstly just come back to the guidance on average fares for Q4, and I accept that you cannot strip out the Easter effect from last year or anything like that, but maybe you can ask the question in a slightly different way.

If you could just talk through the dynamics of the market, which we will see average fares down by pretty much more in Q4 than they were in Q3, when, in fact, they were up slightly?

And then the second question is, are you any closer to sharing any of your large cash pile with shareholders?

Well, we will answer the second part first and the answer is no, although it is clearly something that is going to be an issue for us in the coming year or two.

But we want to see -- the net cash (inaudible) at the moment is about 270 million.

I think if that got to something like 300 or 400 or 500 million, then we would start to look at doing something.

And the second part of the question, I think you're looking -- if you look at this year's quarter four against last year's quarter four, obviously Easter was in last year's comparable.

It is not in this year's.

This year the capacity growth is 25, 27% in Q4.

Comparable Q4 last year the capacity growth was only about 12 or 13% if I remember from memory.

So you had a much more stable environment in Q4 of last year.

You have a much -- we have more capacity growth this year.

An awful lot of that capacity growth is in the Dublin UK market, where in one fell swoop, we have replaced a fleet of 737-200 with a 737-800.

That is a 45% capacity growth in the previous quarter of the year, and as you can see from our January figures, we are maintaining the load factor factors, but we are doing so at the expense of yield.

However, remember that if you go back to the darkest hour being before the dawn, to the extent that the yields are worse in Q4 through route launches, capacity growth, etc., we have very different capacity growth which will move into April, May, June.

The last four aircraft came from Boeing all in April.

You should see a correspondingly better -- well, yields -- capacity and yield -- capacity growth and, therefore, yield performance into Q1 and maybe into Q2 as well.

Now I think that does not give you any great guidance, but to the extent that the yield performance in Q4 is going to be negative as we have been guiding, we think Q1 and Q2 could be somewhat more benign.

You have Easter there.

We're opening up effectively no new routes.

All of our new route growth this year is happening much earlier than it ever happened before because of the delivery profile on the aircraft, and you may well see the flags of our competitors out there with oil at 60 or $65 a barrel looking for either a fare increase or more fuel surcharges.

That is not a forecast, but looking at it in the round, I would not be quite as pessimistic as the commentators are.

(OPERATOR INSTRUCTIONS). [Owen Gibbons].

Credit Agricole in London.

Three sort of quick questions if I can.

One, just on the cash flow.

There seemed to be quite a big swing in the Accounts Payable.

Is that just a timing issue, or is there something else in there?

Is it just seasonal or what have you?

The second question really then is just on the baggage issue.

I can see how the cost and the revenues sort of stack up, but I just wanted to explore a bit more whether you think this will have any impact on the operational performance of the business in terms of increase in embarkation and disembarkation times because significantly more people have baggage they have got to get on the plane, etc.?

So whether you have looked into that and whether you think it is an issue at all?

And then the final question then really is, if fuel does remain about $60 for the near-term, do you think its continuation would make a 20% margin for '07 a pretty difficult target to achieve or even a realistic target to achieve?

I will deal with the last one first.

If fuel stays like at $65 a barrel, whether we will be maintaining a 20% margin is going to be absolutely dependent on yield, and there is no other way of answering it.

We have a lot of natural hedging built into our model as you saw last year.

Where again I emphasize we went through the first half of this fiscal year completely unhedged on oil prices, and we are paying oil prices in the high 60s and low 70s.

But we are covered by fuel surcharges by competitors.

I mean instead of our fares falling, I think they rose in the half-year by an average of 3%.

With a 3% yield increase, the next 12 months would go a long way toward paying for any significantly higher oil prices.

On the baggage issue, there is no operational issue arising from the baggage.

The impression that lots of people are going to be arriving now with more carry-on baggage, they won't.

We will be encouraging that, but it is not going to affect the turnaround.

Anybody who gets to the gate will have gone through the baggage kind of check at the security point.

There will be a baggage check down at the boarding gate, as well as if somebody has managed to sequester themselves down there with two big suitcases, we are not going to be arguing with them.

They are simply off the flight, and they will be sent back up to check-in.

Try and buy a ticket on the next plane.

It should be very quick.

You'll have in terms of the priority boarding because all the hand luggage passengers when we have the priority boarding, they will be on first after the women and children.

And they tend to board quickly anyway.

Remaining passengers will have already gone through check-in and left their -- checked their bags in as normal.

People tend to confuse complications at check-in with complications at the boarding, and our boarding policy is very straightforward and very simple.

So no, we don't think it will affect the 25 minute turnaround.

We did look at, for example, at whether we would look at introducing allocated seating, and we went away from allocated seating in favor of the priority boarding for the Web check-in.

Because of the allocated seating, there was a possibility people would be getting confused as to who is sitting where and you cannot run allocated seating on some of the aircraft with free sitting on the rest of the aircraft or vice versa.

So no, we think it will have no operational impact whatsoever, except we will be carrying a few check-in bags, we need less resources at check-in and baggage holds.

We certainly need less staff in check-in and in baggage handling.

We will have fewer lost bags in the system and a lot lower-cost airport handling.

And I want to ask Howard just to deal with the cash flow part of the question.

Yes, in terms of the creditors, you really need to look at both creditors and accruals, because some elements obviously if we don't have the creditor's invoice, then we obviously screw it up.

I suppose (technical difficulty)-- I just thought you might (technical difficulty)-- okay (multiple speakers).

In terms of creditors and accruals, you have really got to take those two together.

And there is a couple of things going on when you look at both those lines.

Firstly, obviously is the timing of the invoicing and obviously whether you get the invoice in or whether you make the accrual.

The second issue is in relation to our aviation insurance.

Now aviation insurance is typically paid in January of the year.

In fact, we paid it in December.

We paid it little bit earlier, which will be a great surprise to you that we pay anything earlier.

However, we got an early paid discount, and that is a fairly significant bill obviously for us to pay much earlier.

Our aviation bill will be running -- for this period be running close to $30 million.

The second change is it relates back to Easter and our schedule.

Our schedule we did not have our full schedule loaded at the end of this year.

That is because we had the issue about Dublin airport, and we had delayed the launch of our schedule that we were not running with a full schedule from about the 25th of March onwards.

So, therefore, we would have had a lower level of bookings.

We held it back because we did not have the finalization in terms of Dublin until the 20th of December.

The third thing, of course, is that with a lighter schedule we obviously had Easter moving forward into April.

So we would have had a lower level of bookings in place for the Easter period, and obviously that would be at a lower average fare because many of the bookings would exclude the Easter period.

So I'm sorry that's quite a long answer, but I think there is a couple of things working at that.

So in summary then, timing in terms of accruals and creditors and invoices.

The second thing then is the aviation insurance premium was paid earlier than normal, and the third thing is the impact of the schedule being launched later than normal and Easter being later than normal, which resulted in a lower level of bookings at a lower average fare.

Right, no, that is very comprehensive.

(OPERATOR INSTRUCTIONS).

Chris Reid.

On your presentation you talk about doubling profits by 2012.

Is that a change from the investor day when I think you said you were going to double it within five years?

And then the other question is just on Aer Lingus.

It is a bit hard for us sitting over here in London getting a feel for what how is this sort of dogfight with Aer Lingus going.

What is your view by the level of Aer Lingus' aggression and expanding its network at the minute and its linkup with Emirates, and whether or not that is sort of impacting your business?

The plan that the business model creates is taking '07 out to '11 will double the traffic.

I mean in each case it depends on where your starting base is.

We will double the traffic from 34 or 35 million passengers to 70 million passengers by a level.

We expect to double the profits in that same period.

And if you take it out another year, it will go from '06 from FY '07 out to FYI '12, we would expect to double again from 42 million passengers to 85 million passengers.

But like when you go out five years, you're talking about a rough number because it is plus or minus option confirmation.

But again the underlying business model, which we have always tried to present fairly simply, is that unit cost will fall each year, average fares will fall each year, but we maintain our 20% margin profits will double over a five-year period as we double traffic.

Clearly it is being impacted on the cost line at the moment by oil prices, but it was also positively impacted last year by higher yield increase whereas previously we had suffered yield declines.

That is not to say it is going to be smooth every year.

Will it be 20% every year?

No, there may be a year where it may fall 16, 17%.

There may be a year as there was two and three years ago where it jumps to 29% and 24% in two years time since the introduction of the website and the launch of the 737-800.

But what you're looking for every year is further discipline -- our disciplined growth, which we are delivering and disciplined cost management.

And if you strip out the oil out of the fuel bill, which I know is a big issue, the underlying unit cost reduction here was 6%.

No other airline anywhere in Europe in single unit operating cost fell by 6%.

Most of them could not engineer a unit cost reduction if it jumped up and bit them.

As for the dogfight in Ireland with Aer Lingus, and I don't mean to be in any way disparaging, I have not a clue what you're talking about.

There is no dogfight here with Aer Lingus.

This would be a bit like an Irish wolfhound taking on a jack russell.

The extent of the dogfight with Aer Lingus is they are the airline that demonstrates the most tactical (inaudible) in the last number of years in getting the (expletive deleted) out of our way.

Most of the (inaudible) has been switched away from the UK routes where they competed with us into European routes where they don't.

We suspect increasingly as we expand into Europe in the next year or two that they will start pulling capacity out of European routes where they compete with us and trying to find European routes, of which there are a number mainly at the main airports, where they won't compete with us.

But in these markets we are going in like I think the ones that have tried (inaudible) flying three times a week.

Our plan will be seven times or at least daily and double daily if (inaudible) three times a week, we will be double daily just as quickly as we can get there.

There is really no competition between us and Aer Lingus.

I don't think that they are linked up with Emirates in the Dubai.

I think they are actually going to be competing against Emirates.

But also for what we can offer you is the latest coverage here seems to be that the government is, and so far as you can tell the Irish government is capable of doing anything, seems to be moving ahead at some speed with the Aer Lingus (inaudible).

Speed in the Irish government terms could be anything between now and 2012 in terms of the flotation, and the monies raised -- I mean one of the interesting ones is the speculation this weekend was that the monies raised will be used to fund the deficit and the Aer Lingus pension fund, which would seem to be certainly on the face of it to be a clear case of a legal state aid. (inaudible) -- the Irish taxpayers floating a company so that we give all the proceeds back to the workers in that company.

But it has been done before and tried before in Ireland, so it may well be done again.

Certainly if there's any question of the proceeds of the sale, it would be news to bail out the Aer Lingus pension fund.

I think we will be taking a very strong line on it with the European Union in terms of it being another round of unlawful state aid for Aer Lingus.

Okay.

Thanks very much.

The underlying in terms of a competitive response to ourselves and Aer Lingus, absolutely none whatsoever.

Like wherever we decide we want to show up, our fares would be 80% (technical difficulty)-- and the split of market share will be as it is in most of the UK routes, 80% Ryanair, 20% Aer Lingus.

There appear to be no further questions at this time.

Mr. O'Leary, I shall hand the conference back to you for any closing comments.

Okay, folks.

Again, I would like to thank you very much for participating today.

I think if I leave you with a message, it is that obviously fuel is a major issue out there.

I don't think you should be overly pessimistic on fuel.

Remember in the first two quarters of this year, we were unhedged and went through a summer period with 60 and $70 barrel on oil.

We still delivered 20% plus margins in the first half of the year.

We are continuing to aggressively target cost.

We (technical difficulty)--.

A lot of the heavy work or the hard work on the route expansion, the base expansion has been done in this year's Q3 and Q4 (technical difficulty)-- coming through in Q1 and Q2 of next year Allied to Easter moving into Q1 of next year.

We believe that the Ryanair business model is untouched in Europe.

Nobody comes close in terms of competing with us either in unit costs or on yields, and therefore, we believe we will continue to grow at a disciplined rate of 20% plus for the next five years.

I think we will continue to reduce underlying operating costs.

We believe we will continue to reduce airfares (technical difficulty)-- surcharges, and therefore, that we will double the business over the next five years, and we should expect to nearly double the profits as well.