Ryanair Holdings PLC (RYAAY) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Ryanair quarterly one results conference call. [OPERATOR INSTRUCTIONS].

Now I'd like to hand over to the chairperson, Mr. O'Leary.

Please begin your meeting, sir, and I'll be standing by.

Okay.

Thank you very much.

Good afternoon, ladies and gentlemen.

Welcome to the Ryanair Q1 results conference call.

I assume everybody's received the copy of the results, together with a copy of the investor presentation.

Those of you who haven't, you can print them off on the website, now at ryanair.com on the Investor Relations page.

Normal form-- I'll take you through some of the highlights and some commentary and then ask Howard to take you through the MD&A for the quarter.

Bumper set of results this morning.

Traffic grew by 20% to 10.7 million passengers.

The key number in it, obviously, was the yield's increase of 13% in the quarter.

Ancillary revenues climbed 31%; consequently total revenues rose 40% to EUR566 million.

Unit costs excluding fuel fell by 2%, as fuel costs during the quarter rose by 52% to EUR167.5 million.

As a result of these figures, the after-tax margin for the quarter rose by 4 points to 20% as the Q1 adjusted net profit increased by a record 80% to EUR115.7 million.

These bumper Q1 profits, which we did signal at the time of the annual results, generally reflect a much stronger yield environment.

That yield environment has largely been characterized by the presence of Easter in the quarter and Easter's absence for the prior year comparable; the addition of more “sun” destinations; the impact of competitors' fuel surcharges, which has driven passengers in our direction; and the early impact of our baggage charging initiative.

Obviously, we would caution everybody that whilst we had a bumper yield environment in the first quarter, we don't expect this yield buoyancy to maintain at similar levels during the second quarter, of which we have a high degree of visibility now, and, in particular, during the second half of the year for reasons we'll come back to.

Ancillary revenues grew by 31%, continuing strong performance off a very substantial base; and we expect for the next couple of years that ancillary revenues will continue to outpace that of the growth of scheduled traffic.

In terms of the new routes, the new bases at Liverpool and East Midlands and Shannon continue to perform very well on terms of passenger number, particularly as we move into the summer period, although the yields at Shannon continue to be below our expectations and disappointing.

We intend to announce two new bases over the coming months, with a launch date in early 2007, as we take delivery of a significant expansion-- or of a significant number of aircraft this winter.

As I said, unit fuel costs fell by 2% during the quarter.

Fuel costs, however, continue to be high and volatile.

We recently extended the hedging position, as you know.

It's in the public domain that we were previously 90% hedged to the end of October at $70 a barrel.

We had hoped to see lower pricing during July, which has been typical in July the last couple of years.

It hasn't happened.

As a result, we're now 90% hedged for November and December at $74 a barrel.

Thereafter, we remain unhedged, but we continue to look for opportunities to hedge out the quarter January to March 2007 so that we eliminate any further cost uncertainty from this fiscal year.

Again, to put that in context, last year, if you recollect, we were hedged out the full winter period at a credit of just over $50 a barrel, about $51 a barrel.

We had hedged 90% of last winter's requirement at this time at $49 a barrel; the current hedges are at $70 or $74 a barrel, which will have a significant impact on profitability during the last two quarters of this fiscal year.

During the quarter we exercised options for delivery of ten further Boeing 737-800 series aircraft.

These will be delivered in 2008.

We already have more bases - more destination airports than we can handle.

We continue to grow strongly.

We believe that the strategy is right - continue to grow now and establish the Ryanair footprint all over Europe, particularly at a time when some of the flag carriers are cutting back some of their routes and leaving opportunities to us, as well-- and also some of the other low-fare carriers are cutting back in markets where they compete with us.

We strongly welcome the takeover of the BAA airport monopoly by Ferrovial, which was completed during the last quarter.

We look forward to the Ferrovial review of the BAA's plans and costings for the second runway at Stansted, and we're [inaudible] them to strongly consider the Stansted Airport users' submission to the CAA, which envisaged with a significantly smaller land grab around the airport.

Then the second runway and second terminal can be built at a cost of about 1 billion pounds, rather than the 4 billion pound gold-plated folly which was proposed by the BAA airport.

We continue to campaign, particularly with the CAA, the OFT, which are the regulatory authorities of the UK, highlighting the fact that the BAA at the start of the year were telling the regulators at the CAA they couldn’t afford to build this second runway at Stansted without doubling passenger charges.

Yet, three months later during the Ferrovial takeover, they were able to find a spare, oh, 1 billion pounds lying around the office for special payments to shareholders.

They rejected the Ferrovial bid.

We welcome the OFT probe into the present monopoly ownership of Heathrow, Gatwick and Stansted and continue to campaign strongly for the breakup of the BAA airport monopoly, which has delivered such abysmal facilities to consumers in the London area at such high prices to the airline users.

Our outlook for the remainder of this fiscal year has remained cautious.

As we emphasized at the time of the full year results in June, we expected a bumper set of Q1 results, largely by virtue of the fact that Easter was going to be in Q1 and not in the prior year comparable.

We expect a strong second quarter; however, the yield performance won't be anything of the color of the 12% growth you've seen in the first quarter.

We're guiding yield growth in the second quarter-- we're halfway through it now-- between 1% to 2%.

But, as we move into the winter, we continue to believe that the yield outlook for this winter will be negative.

We expect to see yields in the final two quarters decline by between 5% and 10%.

There's a couple of contributors to that.

Firstly, Ryanair is continuing to grow very strongly.

This winter we will increase our own fleet by 27 aircraft.

That compares to last year's net increase of just 15 aircraft.

In total, it was actually 24 aircraft last year.

So, in gross delivery terms, it's about the same; but in net capacity increase, this winter is significantly higher.

We believe we're going to be opening up a number of new routes and new bases during the [expletive] winter period at a time when we will be facing price dumping from a lot of the loss-making, low-fare airlines, whose only recourse to staying in business this winter, we believe, is going to be price dumping and a drive for cash.

We'll be facing significantly higher oil prices, and we're now hedging at $74 a barrel compared to our original forecast of $70 a barrel.

In general terms, we don't believe the airlines will have the ability, particularly in Europe, to pass on those higher oil prices this winter in the form of further fuel surcharges, or at least not on the European short-haul networks.

We suspect they'll continue to try to increase the surcharges on the long-haul, although the recent investigation by the OFT and the DOT into the BAA fuel surcharges may restrain even that [inaudible] to impose fuel surcharges on the long-haul passengers this winter.

Based on our current fuel hedges and the forward price of oil for the unhedged quarter, we anticipate that the increase in net profit after tax for the fiscal year will still be within the range of our previous guidance of +5% to +10%.

Almost all of these profits will be generated in the first and second quarters, with a consequent reduction in profitability during Q3 and Q4 compared to last year.

We are also guiding that if oil prices go higher than $74 a barrel, we may even sustain a loss for the first time during the fourth quarter this year.

That's the quarter from January to March 2007.

Overall, we remain on target to achieve our objective of becoming the world’s largest international scheduled airline by passenger traffic, while at the same time growing our profitability and reducing our unit costs for the benefit of our passengers, our people, and our shareholders.

I'd also like to draw your intention to the investor slides that have been published on the website.

In particular, slide 8, which shows the strong balance sheet at the quarter end.

Net cash during the quarter has mushroomed from EUR294 million to EUR543 million, largely by virtue of the fact that the aircraft deliveries during the quarter were taken on operating lease rather than on mortgage finance.

They've also added in the slides, which is new at this time, and it's slide number 14, which is our response to the growing coverage of air transport emissions here in Europe.

Clearly, July is the quiet time, and people in the newspapers have nothing else to write about other than war in Israel and the contribution of aviation and air transport to global warming.

So, we're trying to correct that by putting out some facts out there.

Air transport currently generates just 2% of greenhouse emissions.

In the EU, the aviation is responsible for 3% of CO2 emissions.

Road traffic is 22%.

Power generation is almost 40%.

There is kind of some lunatic proposals running around in Brussels that the way to solve, therefore, the global warming crisis is going to be to tax the crap out of air transport.

Firstly, taxing emissions has never had any success.

They've been taxing road transport for the last 20 years, and it has done nothing to reduce either the growth of road transport or the inefficiency of road transport users.

You just witnessed the explosion in uptake of SUVs, which create greater emission-- fuel emissions.

We believe the sensible way to tackle this issue is not to simply impose a tax upon all the air transport.

By the way, if they do impose a tax on all air transport, it will have no impact on Ryanair whatsoever because the price differential between Ryanair's low fares and all of our competitors' high fares across Europe will be maintained.

People will continue to use the low-fare alternative.

However, if these idiots really want to do something sensible for global warming or to reduce emissions in aviation, they should be encouraging the kind of investment that Ryanair has made in new aircraft fleet over recent years.

With our new aircraft, the 737-800, Ryanair's emissions have been reduced by 50% on a per-seat basis.

On a per-seat basis, our fuel burn is 45% less, and our noise emissions are 45% less.

The way to sustain strong growth in the aviation industry, particularly in Europe, without damaging the environment is to persuade airlines to trade up to new, quieter, more environmentally efficient aircraft and then penalize the flag carriers who are still operating with old aircraft, noisy aircraft and operating with very low load factors, which makes them inefficient forms of transport and who are also continuing to adhere to the model of connecting travel, where passengers, instead of taking one flight to get to their destination on a direct basis, are being forced to take two and three flights indirectly to get where they want to go to.

That concludes my introductory remarks.

Howard, will you go through the MD&A, please, and then we'll open it up to questions.

I'll just read the summary here of the MD&A, and I'll add one or two things to what Michael has said.

Very strong profit growth - up 80% in the quarter to EUR115.7 million, compared to an easy comparison of EUR64.4 million, given that Easter wasn't in the prior quarter.

Operating revenues grew by 40% to EUR566.6 million, faster than the 25% growth in passenger volumes, as average fares rose by 13% and ancillary revenues grew by 31% to EUR76.6 million.

Total revenue per passenger as a result increased by 12%, while our Passenger Load Factor in the quarter improved by 1% to 84%.

On the operating expenses side, these rose by 32% to EUR429.9 million, reflecting the kind of increase in the level of activity that we had during the period and those things that are driven by the increase in the level of activity, which are fuel, route charges, staff costs, and airport & handling costs.

Fuel has now increased to almost 39% of our cost base-- of our total operating costs-- compared to 34% in the quarter to June 2005.

And, fuel costs themselves increased by 52% to EUR167.5 million.

This obviously reflected higher average cost per gallon during the period.

We did get some benefit from a positive movement in the U.S. dollar exchange rate to euro; and we also got a 2% reduction in fuel burn, as we've installed winglets on about 67 of our 107 aircraft at the moment.

We are planning to fast forward that program, and we expect to have that largely complete by the back end of this year.

Any of the new deliveries, obviously, coming in from the start of this year onward will have the winglets on board.

Therefore, excluding fuel, unit costs declined by 2%.

We expect to deliver a 3% unit cost reduction, excluding fuel, for the full year.

We would highlight that staff costs rose by 35%, reflecting an increase in our crewing ratios, primarily as a result of increases in our average sector length.

Within that, we also are taking more pilots who are not 737 pilots-- we're taking other MD-80 pilots-- so we're having to give them a slightly longer training period, which will result in a one-off adjustment to our crewing ratio.

However, despite the significantly increased fuel costs, our operation margin increased by 4 points to 24%, and operating profit increased by 71% to EUR136.7 million.

Net margins as a result of this increased by 4% to 20%.

Our [adjusting] earnings per share increased by 77%, slightly lower than the 80% we record in profits, as we had some air pilot [inaudible] options exercised during the year.

The balance sheet, as Michael highlighted-- very strong in terms of net cash at EUR543 million.

Obviously, we will have some more aircraft financed via debt.

We will have a mix of debt and operating leases and some Japanese operating leases, which will be on balance sheet - financed debt.

We expect that net cash balance to narrow somewhat as we went through the winter period.

With no debt drawn down and long term debt net of repayments accordingly decrease by EUR36.3 million.

Shareholders' funds rose by EUR117.9 million, largely reflecting the movement in the profitability during the period.

Michael, I'll hand back to you for the open up for questions.

Okay, Giovanna, if you wouldn't mind, we'll now open it up for questions, please.

Thank you. [OPERATOR INSTRUCTIONS].

Our first question comes from Mr. Avery.

Please go ahead with your question and announce your company name and location.

JPMorgan in London.

One statistic there I wasn't aware of.

I hadn't noticed that noise per person from Ryanair was 45% down.

At the Chief Executive level, it's still rising, Chris.

Exactly.

The 42 million passenger forecast that you've got for this year - that's growth of 20%.

You've given us 25% passenger growth in the first quarter.

And you've got significant capacity expansion coming over the winter.

That 42 million is too low now; isn't it?

We don't see-- I don't intend to change the guidance at the moment, Chris, on the 42 million.

Some of the new aircraft that come later in the year will be operating some longer sectors.

We've now announced flights from London to places like Marrakech and Fez.

But I'd be fairly confident that we will hit the figure of 42 million.

I'd be pretty confident that you must beat it if you-- otherwise, your load factor is going to be collapsing, and you're not predicting that for us.

No; we're not.

But we are predicting a very difficult winter.

Yes.

And the load factor is going to go down 1% for the year.

Yes.

We need to do quite a bit more to generate only 42 million passengers.

Can you help us on the aircraft coming in?

You've got 33 aircraft coming in during the year.

You've taken some already on operating lease in the third quarter.

Can you just give us a rough split how the 33 is going to break out between mortgage, Japanese operating leverages and straight operating leases?

At this point, we take the 30 aircraft to go for the rest of the fiscal year-- at this point, and these are subject to change, we would intend to take 13 on operating lease--

13?

13. 13 on straight debt, [inaudible] finance, and 4 Japanese operating leases.

And, final question.

Are you anticipating any disposals of 737-800s?

We are continuing to work on the forward selling some of the earlier deliveries, but we have no transaction concluded yet.

But they would be for delivery in 2007.

September 2007 [inaudible], Michael.

And quantity?

We're looking at five.

The earliest deliveries we got were 1999 - those five.

Thanks.

Our next question comes from Andrew [Light].

Please go ahead with your question, and announce your company name and location.

It's Andrew Light with Citigroup in London.

On the yield performance during the quarter, can you just break it down roughly between April, May and June?

No.

Okay.

On the--

Hang on a second;

I'm being overruled here.

Andrew, Jimmy Dempsey, Investor Relations.

Pretty much all of these are-- a high proportion of the yield increase happened in Easter, or in April.

I suppose we got about a 1% to 2% increase in yield in the other two months.

So, pretty much all of the EUR5 increase in yield happened through Easter.

Right.

Okay.

So, that's a significant double-digit increase in April itself.

Is that fair to say?

Correct.

Again, the prior year comparison is artificially low because it didn't have Easter in it.

Sure.

On the-- I think you had a figure a few weeks ago on the net revenue increase and the baggage charging initiative-- I think around EUR2 a passenger.

Is that still running at that level?

And, where are you in terms of renegotiating airport handling contracts?

No; it's EUR1 running through the first quarter, rising over time.

We had about half the traffic already forward booked into the first quarter when we launched the baggage charging initiative.

We expect a rise to about EUR2 a passenger by the end of the fiscal year.

We're in the midst of renegotiating the airport contracts.

Expect to have most of those finalized by probably the end of September.

The reason the end of September is we are reducing the carried-on luggage limit from 20kg back to 15kg.

We'll also look at some further initiatives on web check-in and priority boarding.

And is that-- That EUR2 a passenger - that's on average across the total passenger base rather than those that--

Yes.

Right.

Okay.

Thanks very much indeed.

Our next question comes from [Jonathan Wobert] at HSBC.

Please go ahead with your question, and announce your company name and location.

Jonathan Wobert at HSBC in London.

Firstly, just a question on labor.

Staff numbers went up by-- I think it was 32% in the quarter.

I understand that the increase in the crewing ratio is a big factor behind this.

Can you give some sort of guidance as to whether that's the growth rate in staff numbers for the rest of the year, or will it be something different from that?

And then also related to labor, can you just remind us of where you are on various labor talks at the moment?

I know you had a pilot settlement earlier in this calendar year.

Dublin, I think, was still outstanding.

If you can just remind us where that's got to and whether there's any other groups in the workforce where there are outstanding issues.

And just to come back to the earlier question from Chris Avery, I think it was, in terms of passenger growth.

If I can ask it in a slightly different way, maybe just to clarify in terms of the winter capacity.

Can you give us your idea of what the actual seat growth will be in the winter year on year in terms of seats put into service rather than aircraft delivered?

And then, finally, on costs ex fuel, your guidance is that they will be down 3% year on year for the full year.

In the first quarter, they were down 2%.

So, where can you do better in the rest of the year than you've done in the first quarter?

Okay.

In terms of staff numbers, we would expect the staff cost increase to be about 92 at about 35% through the year.

There's about a-- by the time we get to the back end of the winter, you're going to see the fleet capacity grow by almost 30%.

We will front end some of the-- We have to front end the pilot training improvement, which we are doing to avoid any shortage of-- to avoid any lease-ins in the period January to March next year, which largely came about this year as a result of a backlog of training on the simulators because we were late in getting the Dublin 200 pilots to agree to convert onto the 800s, and we blocked up our own sim capacity.

So, we had pilots on the books who were unable to fly at that time because they were untrained.

So, we'd expect, and we've signaled to the market this year, that you should expect staff costs and fuel to run ahead of the growth in scheduled traffic.

All of the other cost lines will run behind that.

In terms of labor settlements across the system, all of the labor across the system has been settled.

It was settled in April, with the exception-- including 15 of the 16 pilot bases.

The only exception was the Dublin pilots, who have refused, despite a couple of invitations, to come and talk to us directly on the pay increase.

We have a developing situation in Dublin here.

At the moment in Dublin, there's about one-third of the pilots who are actively engaged in trying to use this new labor legislation in Ireland here last year, where any group who aren't recognized by or aren't members of the union can take an employer that doesn't recognize unions off to the labor court and have kind of their wishes imposed on the company by being rubber stamped by the labor court.

That process is being challenged by us.

It's up at the supreme court at the moment.

We expect to get a decision out of the supreme court when it comes back from summer holiday, so in September or October.

I can't give you any further update on that, other than we are waiting for the supreme court decision, along with the other background noise in Ireland in terms of the cases, like the one a couple of weeks ago where we failed to get the identities of three pilots-- or three alleged pilots-- on an anonymous internet website-- reveal their identities-- who have been making criminal threats against named other pilots.

We lost that.

Those are skirmishes.

Don't worry too much about them.

They'll be more skirmishes before we get to the end of this war here.

But, to put it in some context, of the 16 pilot bases, we had direct negotiations in 15 of them in April.

One of the 15 voted for a five-year pay deal with improved rosters.

The other 14 voted for a one-year pay deal with similar rosters to the ones they have.

We're quite happy we put those deals in place at those bases.

We do, however, continue to recruit pilots - a large number of pilots.

They're coming to us from all other airlines across Europe, most notably in recent months EasyJet, Air Berlin, BA, and Air France.

You name them; they've come to join us.

All, without exception, come to join us for the pay is generally better than what they're presently on.

But there's a lot of uptake for these new rosters, where we're now rostering pilots with a five-on/four-off roster as opposed to a five-on/three-off roster.

Any new pilots joining us are joining us on those new terms, which were accepted by one of the 14 bases and rejected by the other 13 bases.

The pilots in Dublin, for what it's worth, there's about a third of the pilots engaged in these legal activities against the Company.

Two-thirds aren't.

And the split of pilots at the moment in Dublin is about 50% are direct employees, and about 50% of the pilots are contractors.

We expect that their legal maneuvers with the pilots' union in Dublin will continue for-- I don't know-- a month, a year, a decade.

We'll continue to assert our legal rights because the constitution in this country guarantees every employee the right to join a union and also guarantees every employer the right not to recognize that union if we would rather deal directly with our employees, which continues to be the case.

In terms of labor settlements, we have labor settlements in place for the remainder of this fiscal year or another four-year period with every employee group within the Company with the exception of Dublin pilots.

The Dublin pilots continue to [represent] themselves in direct negotiations with us.

We recognize their right to do so.

It just means they didn't get a pay increase, and we're probably doing a little bit better financially as a result of those guys foregoing the current pay increase.

In terms of seat capacity growth this winter, let's hand you over to Sean Coyle.

The seat capacity growth for the second quarter, Jonathan, will be about 20%.

Then the remaining two quarters, it really is dependent on where we take the aircraft.

We have around 85% of our aircraft placed at this point in time, and roughly 16 or 17 aircraft as yet-- undecided just where they go.

So, depending on the sector length and where those aircraft go, seat capacity could vary.

But, at the present time, it will be about 20% more growth in the number of seats, and then we're factoring in a 2% falloff in load factor for the full winter half, so probably a 19% growth in actual passenger bodies.

All right.

Okay.

And, sorry; the last point-- I just took a headline - down 2%.

What was the last point?

The cost ex fuel, which were down 2% in the first quarter, but the guidance for the full year is down 3%.

So, where can you do better through the rest of the year?

Do you want me to take that, Michael?

Yes, Howard, if you like.

I suppose one of the things we highlighted there is, obviously, we are looking at a new deal in terms of our airfreight maintenance.

We think that will start to kick in towards the back half of the year.

In terms of fuel and oil, we've fast forwarded the retrofitting of the winglets.

We think that will help reduce our fuel burn.

And some of the new airports and bases that we laid out this winter will be significantly lower cost again.

Yes.

I think the other area which we would have highlighted in the first quarter is the route charges.

We expect them to fall as we move through the year as well.

So, pretty much across all of the lines-- marketing is going to be growing at a slower rate than the growth in passenger volumes again.

So, pretty much almost across every line-- other operating expenses are also rising at a slower rate than the growth in passenger volume.

So, pretty much every line other than staff costs and fuel we would expect to rise at a slower rate than the growth in passenger volumes.

And a slower rate than in the first quarter, presumably?

Fractionally.

Fractionally.

Obviously, if we're going to deliver at 3%.

Typically, we do better across Q1 and Q2 with our cost reductions, and we give some of it up in the back half of the year when we have a lower load factor plus a higher fixed-cost base.

So, we should see that accelerating as you move through Q2 and slowing down as you move through Q3 and Q4.

Okay.

Thanks very much.

One of the other things that we omitted there is that some of the new airport cost reductions and the handling cost reductions will kick in from October onward as well.

Our next question comes from Andrew Lobbenberg.

Please go ahead with your question, announcing your company name and location.

It's Andrew from ABN in London.

A couple of questions.

Can you give us guidance on what you would expect, and it's a best guess because I know the schedule's not set for the winter, but the sector length for the full year.

I think it was 5% in the quarter.

And on ancillary revenues on a per-passenger basis, it continued to grow on a per-passenger basis but at a somewhat slower rate than we've seen in some recent quarters.

Do you expect it to grow at a faster rate or stay at about that level?

And then in terms of costs between depreciation and maintenance, there was a restatement of some costs from maintenance to depreciation.

Can you just clarify how that's going to pan out over the full year?

Are we going to see that same shift of costs throughout the year?

Sean, you'll take the sector length?

Sure.

Andrew, the first thing, of course, to factor in with sector length is, obviously, we haven't allocated all the aircraft yet.

But, it's likely that sector length will probably rise by somewhere on the order of 7% over the full year.

That was the combination of the longer sector that we've launched from Dublin and Stansted this April and also coming into the winter with the London to Marrakech and longer routes and such as that.

Over the winter period, we are also looking at cutting back on frequency on some of our longer sector lengths.

We've done quite a detailed route profitability analysis and have cut back our [inaudible] on some of the longer sectors out of London.

So, we are trying to tweak the schedule as much as possible to tailor the route length and route profitability around what's happening in the fuel price.

But, I think overall for the year you are going to see a rise of somewhere around 7%.

In terms of the ancillary revenues, Andrew, yes; they're growing at a slower rate.

That rate will continue to slow over the next three or four years as the rate of ancillary revenues-- the rate of currency-- the rate of revenues from current ancillary services begins to mirror or slow down to mirror the growth in headline traffic.

That will obviously be supplemented by any new ancillary revenues streams we can stimulate.

And we expect in the next couple of months to be announcing [tie-up] for launching the internet gambling initiative, which I expect we'll announce in the next two months, and a link up with a selection of the partner for the inside mobile telephony, which is subject to regulatory approval.

We expect it will be on board the aircraft by the second or the third quarter of 2007.

Those obviously would stimulate, again, a slightly faster rate of growth of ancillary revenues, as would any new ancillary revenue streams.

But the existing ancillary revenues will continue to grow slightly faster than scheduled traffic.

But the rate of growth will decline, if you like, over the next couple of years.

I think within three to four years, it will begin to just mirror the rate of scheduled traffic growth.

And, I've asked Jimmy Dempsey to take the restatement of the depreciation and amortization question.

Andrew, effectively what's happening is an accounting adjustment between-- well, accounting for spare parts on inventories.

They're moving to non-current assets.

We'll see an adjustment throughout our comparative numbers in each quarter of the EUR13 million for the full year.

I can distribute it to all of you after the call, a breakdown of that in the quarter.

But it's-- In effect, it's a pure accounting adjustment between depreciation and maintenance in the profit and loss account, which has no impact on profitability.

It's just a pure classification issue, but its EUR13 million.

So, I'll distribute that after the call.

Is that okay, Andrew?

Yes.

That's grand.

Thanks very much.

Our next question comes from Joe Gill.

Please go ahead with your question, and announce your company name and location.

It's Joe and Goodbody in Dublin.

Just a few questions here.

First off, in terms of-- If we look through into the second half, if you were to assume oil stayed at $74 a barrel equivalent through that six months and if you managed to have flash yields in that period of time, and I know you're guiding lower than that-- if you did have flash yields, would the business be loss-making or profitable at that level?

Secondly, in relation to ex fuel costs going down 3%, will you get a benefit in the fourth quarter from the absence of lease-ins, which I know you've had to do in the fourth quarter in the last financial year because of pilots running out of hours.

Is that problem resolved with the whole staffing approach?

And, third, in relation to aircraft acquisition over the next 12 months, just any guidance in terms of the split between debt financing and operating leasing of the entire lot being taken in?

And, on the aircraft deployment, Sean mentioned 16 or 17 have yet to be deployed.

Any guidance in terms of the split between existing bases and new bases for those 16 or 17 aircraft?

And, the last one is on your Q1 Easter boost.

That was so strong.

Presumably, it must have been a significant wrench out of your last Q4 - the fact that it gave you so much momentum in the first month of Q1.

Yet, in Q4, your yields fell just 4%.

So, going back to this whole debate of the yield environment and fuel surcharges and all that, if oil stays at $74 over the next nine months, your thoughts on the yield environment in general.

Thanks very much.

It's a bit difficult now because you're into the realms of speculation.

While we've a good visibility to the end of Q2, as do many of our competitors, you may know, we have a lot of people talking up the business to the end of this summer.

It's all this summer, this summer, this summer.

But very few people talk into next winter.

What happens if oil stays at $74 a barrel and we have flat yields for the winter?

We'll be profitable in both Q3 and Q4.

If oil was to stay at $74 a barrel and we have flat yields during that period, we would be raising our guidance for profitability for the full year.

But, I'm not sure we'll even have visibility on that until probably about January of 2007, bearing in mind-- you remember that big switchback we had at the time of the [inaudible] way back in January 2004.

The benefits of lease-ins in the fourth quarter-- yes; that's one of the elements that reduces the costs in the fourth quarter.

We are doing our utmost, taking a significant penalty in terms of staff costs by fast forwarding the pilot recruitment at this time of the year.

We by the end of September will have all of the pilots identified and going on courses to operate the entire 30 aircraft we're going to take this winter.

And we have no blockages in the simulator now.

Something could go wrong in all of that, but, as best we can, we should have managed that so we won't have any lease-ins in the fourth quarter.

I think [inaudible] in that respect has been seen by a number of our competitors, who are presently short of pilots and are leasing in at the moment.

It's a lot got to do with the fact that we've recruited some of their pilots in recent months, and they're training to fly Ryanair's aircraft.

In terms of the aircraft acquisition program, of the 30 aircraft, we will have 13 on operating lease, 14 on Japanese operating leases-- 4; sorry.

But, 17 in total on operating leases, and 13-- the split is at the moment 13 would be mortgage financed - onto the balance sheet and mortgage financed.

Michael, the [Jalcos] will be on balance sheet.

The Japanese.

On balance sheet.

Sorry.

Finance leases.

Okay.

Sorry.

We have 13 on operating leases and then 17 on--

So far with debt financing.

Yes.

Sean, do you want to take the aircraft deployment, please, between the existing and new?

I caution now that this is a guidance because we have yet, as Sean said, to announce the remaining 16 aircraft.

We will be announcing a couple of new bases in the next two to three months.

The 16 or 17 will be split roughly 10 into existing bases and either 6 or 7 into new bases.

We're still trying to work out exactly how many spares we will operate with next summer.

That's the reason for the difference between the 16 and 17.

Of the existing bases, some have already received aircraft [inaudible] Shannon and [inaudible] have been announced.

We do have contractual commitments for further aircraft into other existing bases.

But the split between where those aircraft will go hasn't yet been decided.

Likewise, the two new bases that we're pretty much certain as to where we will put one of them-- and we're almost there on the second one.

But, they won't be announced likely until the start of September.

Remember, all of those are interchangeable.

If somebody else came in with a better offer tomorrow or up until the day before we announce them.

They're still interchangeable.

The last part of the question, Joe-- I'd written down here Q1 Easter in it so strong.

I haven't got the last bit of it.

Just, it was so strong in the month of April that it must have been a significant wrench out of Q4, given that, on its own, Easter seems to be a big issue in the industry.

So, if your yields fell just 4% in Q4, let's take Easter as a major part of that.

What are your thoughts rolling forward if Easter doesn't affect your Q4 in the current financial year and if oil is at $74 and the debate about where you might be in the industry?

It's almost impossible to know.

I would argue currently we would be better off this winter if oil hit $100 a barrel and there was another round of fuel surcharges and bankruptcies across Europe.

But, there's no point in speculating.

We know if oil prices rise higher, there would be some-- there might be some impact on yields over the winter.

Our pessimistic view of yields may not be realized.

But we're better off to be facing into the winter pretty pessimistic with the likelihood that we'll beat that rather than being overly optimistic, which we think a lot of our competitors are at the moment.

What we experienced last winter was that even the airlines who had surcharges in there were dropping their headline fares while maintaining the fuel surcharges, which is effectively the same thing.

They were engaged in price dumping as we moved through the winter.

If you look at some of the flakier low-fare carriers who even at the moment look like they're running out cash, and we all know who they are, it's very hard to see how they're going to survive an entire winter unless they just dump fares and try to run for cash flow only.

If that's the case, there could be a real blood bath in the coming winter.

I don't think it makes much sense for us to be trying to predict where the yields will be in Q4.

I don't think they'll be any worse than our -5% to -10% guideline or guidance.

And there's a prospect they could be better.

But, until we get midway through the third quarter, we really won't have any idea.

Okay.

And just two supplementaries.

I apologize for taking the time here.

But, to Howard, please.

In relation to your comment on cash narrowing from the high level at the end of the quarter as you go through the year, based on what you said about the financing structure, roughly what level of squeeze on the net cash happens between here and the end of the financial year?

Secondly-- last question-- in relation to a comment you said on ex fuel costs for Q2 probably falling a bit more than your guidance for the full year of 3%-- if we get yields up something like 2% in Q2, isn't this the most important quarter of the year for those type of dynamics to be happening?

Yes, Joe.

In terms of the aircraft financing, where clearly the net position in terms of cash is determined by the level of profitability [inaudible] for the year.

Financing somewhere between-- of the 17 of the 30 aircraft, it will obviously have a significant impact on the financing program.

We also got the advance payments for the aircraft coming in within the next 24-month period.

I expect that cash balance to narrow.

I don't know the full extent of it.

But, certainly we'll narrow it by EUR150 or, at the outside, maybe EUR200 million, at most.

In terms of the unit costs, I'm kind of agreeing with you there.

I think that we need to be, obviously-- As our load factor improves into the second period, we generally get an improvement in our unit cost.

I think you will see some improvement up to the 3% rate.

You may see some of that fall back as we roll through 3 and 4, but that's obviously-- you talked about issues like the aircraft leasing.

We've also got our new routes and bases coming on in the winter period, which will also help offset some of the-- help in achieving some of the reduction.

Okay.

Thanks very much.

I think it may be helpful just for me to give you a bit more color on the yield situation.

I know there's a bit of disappointment generally out there that yields were so strong in the first quarter, up 12%, yet we're only giving 1% to 2% in the second quarter.

It helps if we continue to focus on the fact that what we do here is we drive this business for traffic growth and to maintain load factors at 85%.

We continue to be largely price takers on yield.

We will sell the seats at whatever price we have to sell it to fill up to kind of 85% year round.

And, given that today is August 1, we have a large degree-- a high degree of visibility now for the second quarter.

So, the yields are what the yields are going to be in the second quarter.

At the moment, unless we get some significant spike in September, like a deluge of monsoon rain across Ireland and the UK for most of the next two weeks, you can take it as right that the yield performance in the second quarter is going to be 1% to 2% up.

Why is that not as good as the first quarter?

Well, because it is what it is.

The first quarter did have Easter in it.

The first quarter had a much lower comparable in it against the prior year.

The second quarter is going to be what it's going to be.

As far as yield is concerned, it's the third and fourth quarters.

Again, yield will be what it will be because the business model here is we manage this business for an 85% load factor.

That's what drives the ancillary sales.

That's what drives a lot of the unit cost reduction.

That, frankly, is what is driving a lot of our competitors to take capacity away from markets where they compete with us head to head as we continue to rollout the footprint all right across Europe.

Anymore questions?

Our next question comes from John Mattimoe.

Please go ahead with your question, and announce your company name and location.

It's John Mattimoe from Merrion Capital in Dublin.

Just two-- three questions, the first two just in relation to the incremental aircraft this winter.

You're saying that this 27 against 15 net last year-- Just correct me if I'm wrong, but of the 15 net last year, if I understand right, about 9 of those would have had 45% more seats than the comparables.

So, the capacity growth comparison wouldn't necessarily be 27 against 15 on an adjusted basis if that's right.

And then as a follow on to that, just in relation to the deployment of those larger aircraft, if I remember rightly, the 9 were replaced in Dublin in the middle part of the winter so that the year-on-year impact of that extra capacity increase in Dublin should wash through by the end of the third quarter.

If that's correct, does that have any implications for your thinking of the splits in yields performance during Q3 and Q4?

And, lastly, just in relation to the ancillary revenues, would the unit ancillary revenue performance for the first quarter be representative of what you think the outturn for the full year will be?

You want me to take that, Michael?

Yes; okay.

I can take that.

Sorry.

The increase in the aircraft capacity this winter - yes; that's about right.

The aircraft deployment - how that affects the yields between Q3 and Q4 - at the moment we are not building anything in for that.

We have a relatively neutral-- we expect that they yield for both third and fourth quarter will be down between 5% and 10% for both Q3 and Q4.

It's not kind of worse in one or the other.

But, remember, when we do our budget, we're doing our budget almost 12 months in advance or two seasons in advance of the following winter.

Normally, what we expect for yields when we're doing a budget in February of 2006 for the last calendar quarter of '05 and the first calendar quarter of '07-- are, generally speaking, best guestimates and have proved in the past not to be particularly accurate.

Generally, the more conservative we are, the more likely we are to hit them.

I missed the third part of that question.

Sorry.

It was just on the ancillaries, Michael-- if the Q1 unit ancillary performance is representative of what you expect for the full year.

Yes.

Sorry; yes, subject to anything that may flow to us from the-- revenues that may arise in the second half of the year from the website gambling.

But I don't think it will be significant.

Great.

Okay; thanks a lot.

We expect the ancillary revenues will continue to grow at a slightly faster rate than the scheduled traffic growth for the remainder of the year.

Okay.

Thanks a lot, Michael.

Our last question comes from Edward Stanford.

Please go ahead with your question, and announce your company name and location.

It's Edward Stanford from [inaudible].

Just one question on Shannon.

You mentioned that it was underperforming relative to your expectations.

Could you just give an idea of (a) what's causing it in your view and (b) how you-- how quickly you think that will recover to your level at which you assume in your business plan?

Shannon has gone well for us in terms of passenger numbers, but the yields have continued to be to the lower end of our system-wide yields.

Shannon was always going to be a difficult build.

It is the airport at which we probably have our lowest cost base of any of the airports in the system.

But we are committed to large traffic volumes.

We're also committed to increasing that traffic from 1 million passengers to 1.5 million passengers over a five-year period.

What we're doing is we're continuing to undertake surgery of the operation at Shannon.

As a step earlier on in the spring, we announced we were going to cancel-- I think we canceled a Shannon-- Sean's come in here.

Shannon to Lubeck and Shannon to Stockholm.

We canceled Stockholm and Lubeck.

We replaced those with a Malaga - Shannon and a Biarritz?

[inaudible].

Biarritz, Carcassone and Malaga.

They've been better performers.

We've already announced that this winter we're reducing one of our-- we have three routes from Shannon to London.

We serve at Stansted, Gatwick and Luton from Shannon.

We're pulling the Shannon - Luton and replacing that using that and some other aircraft capacity to introduce the Shannon - Edinburgh and the Shannon - Bordon of this winter, which we think, given that they're UPAP destinations, they'll be stronger performers through the winter.

Shannon is an airport services a city with a population of 300,000 people in the west of Ireland.

It's a tough sell developing a base in the west of Ireland.

But, passenger numbers have been ahead of expectations.

The yields have been below expectations, but the cost base is significantly lower than almost any other base we have.

Thank you.

Any other questions?

We appear to have no further question at this time, so I'll hand the conference back to you for any closing comments.

Okay.

Thank you, ladies and gentlemen, for joining us on today's conference.

If I could leave you with a couple of thoughts, obviously, they would be that this morning the results of the first quarter were a bumper set of results.

And we think that the result of the performance for the second quarter is going to be strong.

As we previously guided, we expect to make now-- Certainly 85%-plus of the annual profit for the year will be in the bag by the end of the second quarter.

And, then it largely depends on what happens with the two variable factors this winter - what happens to oil prices.

We've now hedged away a lot of that uncertainty up to the end of December.

We will be doing our best to take avail any opportunities that may arise in the next couple of weeks to hedge out the January to March period at or below $75 a barrel.

Fuel obviously will have a major bearing on the results of the second half of the year, and yields will be pretty much entirely what will determine the profitability outcome for the year.

If the yields fall by between -5% and -10%, then our guidance, which is for profit growth this year of between 5% and 10%, will be achieved.

If yields fall by less than that during the third or fourth quarter, our profit outturn will be a little bit better than that.

Short of some Armageddon or some extraneous events that we can't currently predict, we'll be very surprised if the yields are any worse than -5% to -10%.

But, this is the airline industry, so you never know.

I think, however, we believe that we are comfortable with the overall guidance for this year, except that people might be a little bit disappointed with our negative outlook for the winter, particularly on the back of a strong first quarter.

Frankly, we're better off at this stage to be conservative for the coming winter and be pleasantly surprised rather than being overly optimistic and being negatively surprised when we get there.

I have nothing else to add to that.

If nobody has any other questions, then we'll sign off, please.

Thank you very much.

If anybody has any individual questions they'd like to pose to myself, Howard or Jimmy Dempsey, please feel free to call us.

We're here in Dublin all day.

Other than that, I'm sure we'll see you either at the-- we're holding a Ryanair investor seminar in New York in late September.

The invitations have gone out.

If anybody hasn't got their invitation, please contact Jimmy Dempsey.

We'd be delighted to see you in New York.

Other than that, I'm sure we'll see everybody on the full investor roadshow at the half year results in the first week of November.

Thanks, everybody.

I appreciate your joining in and look forward to seeing you soon.

Bye-bye.

Ladies and gentlemen, thank you for your participation.

This concludes today's conference.

You may now disconnect your lines.

Thank you.