Ryanair Holdings PLC (RYAAY) 2006 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Ryanair half-year results conference call. At this time, all participants are in a listen-only mode until we conduct the question-and-answer session; and instructions will be given at that time. (OPERATOR INSTRUCTIONS) Just to remind you all, this conference is being recorded. I would now like to hand over to your Chairperson, Michael O'Leary. Please begin your meeting, and I will be standing by.

Okay, thanks, Kim. Good afternoon, everybody. Ladies and gentlemen, and welcome to the Ryanair half-year results conference call. I hope you have seen this morning the half-year results release. For those of you who have not, it is available, together with the slide presentation, on the website, as www.Ryanair.com. Just go into the investor relations section.

This morning, as you know, we announced record half-year results of EUR329 million after-tax. For the half-year, traffic grew by 23% to 22 million passengers. Yields were up 9% as revenues rose by 33% to EUR1.256 billion. Unit costs increased by 7.5% as fuel costs rose 42% to EUR337 million. Despite these significantly higher fuel costs, Ryanair's after-tax margin for the half-year rose by 1 percentage point to 26%. At the half-year, net profits increased by 39% to EUR329 million.

I think they're another very strong set of results. We have delivered record half-year profits despite intense competition, very high oil prices, and the impact of the security shambles here in the UK during the month of August. I think the fact that these results are so strong reinforces yet again what a robust model Ryanair operates, where lowest fares continues to drive significant traffic growth and continues to allow us to grow profitably, despite these external curve-balls that may be sent in our way.

Summer yields have risen by 9% despite a 22% increase in seat capacity. As we have highlighted before in the last couple of quarters, this benign yield environment continues. It is driven primarily, we believe, by the multiple fuel surcharges imposed by European flag carriers, which continues to widen the gap between their lowest fares and Ryanair's fares. Our unwavering determination or refusal to countenance any fuel surcharges means we're delivering rapid traffic growth and generating higher profit.

Our ancillary revenues for the half-year have grown by 27%; again, continuing to grow at a faster rate than the growth in passenger volumes.

One new announcement is that our hotel partner, Need a Hotel.com, has given us notice of a termination of their contract with us at the end of our fiscal year. It will have no impact on our revenues or profitability for the remainder of this fiscal year. We are very confident that we will -- we are going to go to tender. There's a number of partners have already expressed a desire to replace Need a Hotel when the contract comes to an end. We are confident that we will be able to replace those with a similar hotel wholesaler who will continue to allow us to provide low-cost hotel rooms for our passengers, while still generating significant ancillary revenues for Ryanair.

In addition to the normal stream of ancillary revenues -- the hotels, the car rental, the insurance -- we have recently announced or unveiled the bingo gambling website, our (indiscernible) link-up with Jackpot Joy. We expect that to roll out successfully over the next couple of months. In time, as of when we get regulatory approval to put the mobile phones onboard the aircraft, we expect to be rolling that out onboard the aircraft as well.

The first of November last, in recent days, we announced or introduced new service enhancement, which essentially we start charging for the priority boarding, Web Checkin service, a very small fee of 2 pounds or EUR3 per flight. We have also extended that to passengers with checked-in luggage, who can now -- for a similar fee payable at the airport immediately after check-in -- buy a priority boarding sticker, which allows [particular] traveling with families to qualify for priority boarding.

As you know at the moment the priority boarding is limited to the passengers traveling with hand luggage who have Web checked-in. We believe there is a demand; families particularly will pay the extra fee to qualify for priority boarding. We think that will help ancillary revenues, particularly over the winter period, in addition to the baggage charges, which continue.

Unit costs over the half-year have increased by 7.5%. Again this is primarily due to two things that have been well highlighted to investors -- higher fuel costs; the once-off step-up in staff costs associated with increasing the crewing ratios on the aircraft as the flight sectors get longer, and the expansion of the Dublin airport this year. Dublin is one of the most expensive airports we operate at, so that was always going to have an impact on our airport and handling costs.

Over the half-year, as I said, fuel has risen by 42%, but has not been able to damage our remaining profitable growth. We are already hedged at 90% out to the end of March 2007 at $73 a barrel. We chose to do that because the budget figure for the remainder of this winter was at $74 a barrel. As soon as the oil prices softened back and we thought there was an opportunity to lock it away at less than our budgeted number, we jumped on it.

Clearly, as prices have continued to weaken, we are a little bit out of the market. But we're not in any way perturbed. As I said, as long as it is below our budgeted number we are quite happy to hedge that.

We're in an interesting scenario at the moment on future hedges as oil prices continue to weaken. We are particularly focused on next winter, which is the winter of '07, spring of '08 or our Q3 and Q4 of next year. Clearly, historically oil prices have spiked upward as you go into the winter. It hasn't happened as we went into this winter. But we don't want to take any chances for next year.

We have taken the benefit of the recent fall in forward prices to hedge away 50% of our October through December quarter of '07 [futures into] our oil requirements for that quarter. By doing so, we have locked in a 10% price average option on our oil cost on 50% of our requirements for that quarter.

We are continuing to watch the market closely. I think we are more relaxed about the forward rate for next summer. We hope that a recent trend of falling oil prices will continue into next summer. But where we see opportunities to hedge away next summer's oil requirements and lock in cost reductions of 10% or more, we think it makes sense to do so. I think that will continue to be our strategy for the moment.

So, at this point in time, we are hedge 50% of our requirement for the Q3 of next year at a 10% lower cost than this year. We haven't done anything for next year's Q4 or for Q1 or 2 either.

The three new bases launched this year -- Liverpool, East Midlands, and Shannon -- performed very well over the summer. Fares at Shannon, however, continue to disappoint. Even though the volumes are good, the fares are below our expectations.

We have announced three new bases this winter -- Marseille, which launches on Thursday; Madrid, which launches at the end of November; and Bremen in Northern Germany, which launches at the end of January and early February. Advance bookings on all of these three bases are strong and we believe they will be significant additions to the Ryanair base and route network next year.

A significant milestone was reached in August when Ryanair became the first European low-fares airline to carry 4 million passengers in one month. Clearly, the growth continues to be -- will continue to grow strongly.

Other recent developments. In October we exercised option for -- in other words converted options to firm aircraft for 32 Boeing 737-800s to be delivered between September 2008 and June 2009. This is part of our ongoing plan to build our traffic from 42 to 80, 84 million passengers by 2012.

We also ordered 10 more aircraft simulators, five firm and five options. These again will be delivered between 2008 and 2013. Will enable us to reduce our pilot training costs as well as improving safety and training.

Excuse me, but I'm -- sorry. I got a shot last week, and immediately got the flu. Forgive me.

So we continue to oppose the BAA's airport plan, the monopoly airport plan to waste 4 billion pounds sterling on a second runway and second terminal here at Stansted. Our own figures and those of the other Stansted airport users suggest that these facilities could and should be built for less than 1 billion.

We continue to campaign for the breakup of the BAA airport monopoly. We remain deeply concerned by the continuing understaffing of airport security at Stansted, which has caused numerous passenger delays getting through airport security in recent weeks, and has also disrupted or delayed many of our flights.

The management of the Stansted airport security is particularly inept. We believe it reflects the BAA airport monopoly's own inept management that 10 weeks after the problems associated with the 10th of August they still haven't got the right -- they still haven't recruited the security staffing they need at Stansted to handle the new security regime.

In that they are the only one of the 18 UK airports we fly to that are still experiencing problems with the staffing and security and queues, and it is simply unacceptable that 10 weeks after the incident of the 10th of August -- particularly as the security situation in the UK airports has returned to normal -- that the BAA in Stansted continues to willfully understaff the security points, giving rise to large queues and many passenger delays at Stansted.

We have written both to Department of Transport and to the CAA highlighting this failure of BAA management -- the latest failure of BAA management -- and calling again for them to take some action. Firstly, to force to the BAA to actually provide the security staffing that they are contracted to provide to airline users at Stansted. Secondly, to break up this inefficient, incompetent, and inept airport monopoly and allow competition to deliver what the BAA monopoly has patently failed to.

The tragedy at Dublin Airport continues unabated. The DAA have recently received local authority planning permission for their new, shiny terminal 2. This was previously announced in September 2005 as a terminal with 15 million passenger capacity at a cost of between EUR170 million to EUR200 million. When the plans were finally unveiled in September 2006, the same 15 million passenger capacity terminal had mushroomed in cost from EUR170 million to over EUR$750 million, a 4.5% time -- 4.5-fold cost increase even before they had applied for planning permission.

We think that this ridiculous waste of money typifies what happens when you have government-owned monopolies operating in a market where there is ineffectual regulation, which there is clearly in both the UK and here and in Ireland.

The fact that the DAA are now proposing an outrageous 60% increase in per-passenger charges at Dublin Airport to pay for this unnecessarily expensive and overspecified terminal building vindicates our view that what is necessary at Dublin Airport is a competing terminal -- which is what the government previously promised us -- and not allowing the same incompetent airport monopoly that has so mismanaged the first terminal to build a second terminal as well.

Ryanair will continue to oppose the terminal -- the current planned Terminal 2. We will be appealing the planning decision to An Bord Pleanala, and subsequently we believe to the courts if we don't get satisfaction with An Bord Pleanala.

Some of you may have noticed that on the 5th of October last we announced a cash offer for Aer Lingus -- which is a small Irish airline; many of you won't have heard of them -- at EUR2.80 per share, which valued Air Lingus at approximately R1.48 billion. We have already acquired a 19.2% stake in Aer Lingus at a cost of EUR254 million.

We believe, as set out in our offer document, there are significant opportunities by combining the purchasing power of Ryanair and Aer Lingus to substantially reduce its operating costs; to increase its efficiencies; and to pass these savings on in the form of lower fares to Aer Lingus consumers. We have committed Ryanair, if our offer is successful, to retain the Aer Lingus brand and the Heathrow slots; to upgrading their dated longhaul product; and much more importantly from a consumer point of view, we are committed to reducing their shorthaul fares by 2.5% per year for a minimum of four years.

We believe the combination of Aer Lingus and Ryanair into one strong Irish airline group will be rewarding for consumers and will enable us both to compete vigorously with the megacarriers in Europe. The EU Competition Authorities are currently reviewing the proposed acquisition. We anticipate that the final outcome of that regulatory review will not be known until about late December 2006, probably sometime just before Christmas.

If our offer is not accepted by a majority of the Aer Lingus shareholders we will, however, continue to be a significant minority shareholder. We would exercise whatever influence we can to try to encourage Aer Lingus's Board and management to reduce its high cost and to offer significantly lower fares, which is, we believe, Aer Lingus's best strategy for the future.

Overall, we remain cautious in our outlook for the second half of the year, because we are rolling out substantial capacity expansion and expect to suffer [continuous] significantly higher oil prices than the comparable period last year. However, we do expect to deliver significant traffic growth as we launch 130 new routes and three new bases at Marseille, Bremen, and Madrid -- albeit at slightly lower load factors.

We expect the monthly load factor to be about 2% down month on month compared to last year as we go through the winter period, during which, however, these lower load factors we believe will lead to better yield stability for the remainder of the second half.

The benign yield environment continues to prevail thanks to the multiple fuel surcharges of our competitors. It is noteworthy that very few of those competitors have rolled back their fuel surcharges despite the recent 25% reduction in oil prices.

Based on the reasonable level of visibility we have for Q3, it now appears likely that the yield in Q3 will increase by between 2 and 3% compared to our original forecast, which was for a 5% decline.

As you know, this time of year we little visibility into Q4. Therefore, we continue to believe that the yield performance in Q4 will be slightly lower; but not as much as the minus-5% decline we previously guided. We expect the Q4 yield to be in the 0 to minus-5% range.

Accordingly, over the six months of the half-year, we now expect yields to be flat over the winter period. Our net profit for the second half will still be materially lower than it was last year. Again, we have guided you previously on this trend.

As a result, we now expect that increase in net profit after-tax for the fiscal year will be approximately up 16% to EUR350 million. This is significantly higher than our previous guidance, which was for a profit growth of 11%.

Overall, while intense competition in the market continues, Ryanair's unique combination of the lowest fares in every market, the lowest cost base by a distance, and industry-leading customer service delivery will enable us to continue to lead the low-fares revolution for the benefit of our passengers, our staff, and our shareholders.

Furthermore, we have announced today that the Board of Directors intends to seek shareholder approval for a two-for-one stock split at the EGM which will be held in December on the proposed acquisition of Aer Lingus. The purpose of the stock split, as many of you know, is to improve the marketability and liquidity of the stock. The existing ratio of 5 ordinary shares to 1 ADR will be retained.

That is the end of my introductory remarks. I will now hand you over to Howard Millar, who will take you briefly through the MD&A. Howard?

Okay, thanks very much, Michael. (inaudible) MD&A. Profit for the half-year increased by 36% to EUR329.1 million compared to EUR242.2 million in the previous half-year ended September 30, 2005. These results were achieved by strong growth in passenger volumes and continued tight cost control, excluding fuel and staff costs which, were both significantly higher than in previous periods.

[Gross] operating revenues increased by 33% to EUR1.256 billion, which is greater than the 23% growth in passenger volumes. As average fares rose by [9]% (indiscernible) revenues grew by 27% to EUR154.3 million. Total revenue per passenger as a result increased by 8% while passenger load factor increased by 1% -- or say 1 point to 87% during the period.

Total operating expenses increased by [31]% to [EUR870.6] million due to the increased level of activity and increased costs associated with the growth of the airline. Fuel, which represents 39% of total operating cost compared to 36% last year, increased by 42% to EUR337 million due to substantial increases in the U.S. dollar cost per gallon, partially offset by positive movement in the U.S. dollar exchange rate and the 2% reduction in fuel consumption due to the installation of winglets on a portion of our Boeing 737-800 [fleet]. The remaining retrofit winglets will be installed across the fleet by the year-end.

Unit cost [attributed] to fuel and staff costs decline by 1%. Staff costs rose by 36% reflecting an increase in our crewing ratio, primarily as a result of increases in our sector length.

Despite the significantly higher fuel and staff costs incurred, operating margin increased by 1 point to 31% whilst profit before exceptional items increased by 37% to EUR385.8 million. Gross margin as a result increased by 1 point to 26% for the reasons outlined above. Adjusted [basing] earnings per share has risen by 38% to EUR42.67 for the period.

The balance sheet. The strong growth in profitability continues to positively impact the balance sheet, with total cash increasing by EUR121.1 million to EUR2.09 (technical difficulty) EUR3.1 billion, despite investing EUR185.4 million in a 15% stake in Aer Lingus and funding an additional EUR88.8 million in cap expenditure from internal resources.

The company debt financed just one Boeing 737-800 aircraft and funded additional aircraft deposits during the period. Total debt declined during the period as repayments exceeded cash drawdown by EUR42.8 million.

Shareholders funds at September 30, 2006, have increased by EUR304.8 million to EUR2.296 billion compared to March 31, 2006, reflecting the [EUR329.1] million increase in profitability during the period and the exercise of share options, which increased shareholder funds by EUR6.5 million.

This was offset by a reduction of EUR30.8 million resulting from the adjustments required under IFRS in relation to the accounted treatment for derivative financial instruments, pensions, and stock options. I will hand you to back to Michael then for questions.

Okay, thanks, Howard. Ladies and gentlemen, before we open it up to questions I just want to make a couple of remarks on the Aer Lingus offer. If you go to the website, you will see the investor presentation where we (indiscernible) one slide, slide number 14, in relation to the Aer Lingus offer. We have -- I'm not going to do add anything further to what is on that slide. It essentially says that we've acquired 19.2% of Air Lingus at EUR2.48 per share. We have launched an offer at EUR2.80 per share, which was a very generous 27% premium to the IPO price which was priced about seven days before our original -- before our offer.

The strategy was comprised of (indiscernible) allowing Aer Lingus to team up with Ryanair to form one strong Irish airline group. We believe that on its own, as a small, regional independent airline, it has no long-term future. If the offer continues, we are committed to lowering Air Lingus's costs, lowering Air Lingus's share of shorthaul fares by 2.5% per annum for a minimum period of four years. We would commit ourselves to improving their service delivery, retain their brand, and their Heathrow slots.

Everything is now out in the open. We have published our offer document, I think a week ago. I understand Aer Lingus published their [defense] document on Friday. I haven't seen it. I have no comment on it, nor will we until we [get back of] this week's Roadshow.

So the only updated developments are we have submitted the formal competition application to the EU Competition Authorities; expect their review to be completed before the end of December 2006. We understand that the Esot, which is the Aer Lingus employee trust, is balloting on our offer at the moment. The ballot is due to take about a further two weeks.

Our public position, we submitted (indiscernible) new information we have previously stated. If the Esot rejects our offer, that would mean that about 47% of the shareholders (indiscernible) rejected our offer. I think that [phase] is unlikely, although surely not impossible for our offer to succeed. But clearly, it is going to be very difficult to get to 50.01% or a majority if there is only about 53% of the shareholders left.

So I think the position is if Esot votes against it, the offer is unlikely to succeed. If they accept it, the offer is likely to succeed. I think -- and the reason I don't want -- we are not going to deal with too many -- any questions on Aer Lingus on this call is we really want to refocus investors, the Company -- and I know it's impossible to refocus the media on anything other than short-term issues -- but back on the Ryanair strategy, the Ryanair business plan.

As this morning's results indicate, the underlying business performing very strongly. We are all growing like gangbusters. There is nobody out there in Europe able to compete with us. There is no flag carrier that can match our fares. There is no so-called low-fares airline can match Ryanair service. And there is sure as hell no Irish airline can match Ryanair's fares.

What I want to use today's conference call is to answer questions on the continuing rollout of Ryanair's business plan, the continuing rollout of Ryanair's strategy, and how we intend to successfully double in size over the next five years from 40 to over 80 million passengers. And hopefully, through tight cost management and yield management, double the profits over that period of time.

So normally on the conference call, I would answer any question you have. But [this time], I hope you will forgive me; if anybody asks me any questions on Aer Lingus, the answer is going to be -- I'm not answering that. I am going to refer you back to page 14 of our slide presentation on our website.

So, Kim, if you don't mind, I would now like to open up the conference for questions on Ryanair's results, Ryanair's business plan, Ryanair's growth, and Ryanair's continued expansion in Europe in a marketplace where no one can compete with Ryanair.

(OPERATOR INSTRUCTIONS) Joe Gill from Goodbody in Dublin.

I have got about four things to ask questions on. First off, given that your unit costs in total have been up in Q2, what is your guidance on fiscal year '88, ex-fuel unit costs? What do you think you can shoot for in that particular year?

Secondly, in relation to tax guidance given that it has gone up in the second quarter, should we read anything into that significant for the longer-term? Or is it just specific issues in Q2? In particular on capital [allowance] and so on can we expect a number below 12% going forward?

Third, in relation to yield performance, on July 1, which are Q1 numbers, when you talked about Q2 yield guidance you mentioned 2%, 1 to 2% for the quarter, based on what you saw in the system at that stage. That was pre- the terror alert in London in August.

Can you just maybe talk a little bit about why it has come in much better? Was it late bookings, or was it a September effect, or what exactly was going on there?

Looking forward, are you being particularly conservative again for Q3 and especially Q4, given that we have got baggage, Web Checkin, you're curtailing your load factors and so on to manage yield through the winter? Just maybe just talk a little bit around that.

Next one is just on fuel hedging. You have obviously done some good hedging for Q3 next year. (technical difficulty) Q1 and Q2 thoughts vis-a-vis percent hedge you'd for. Would you be prepared to go for a 50% hedge if it suited you for the summer, one? Secondly, are you looking for another 10% year-on-year [cosh] in the oil price to lock in a hedge for that period.

The last point is on managing Dublin Airport. As Ryanair stands right now, what sort of leverage have you got vis-a-vis costs at Dublin? Are you budgeting for anything material in terms of an increase in charge for fiscal '08? Thanks very much.

Thanks, Joe, that is a bit of a mouthful, but we'll try and hit them as best we can. Unit costs for fiscal '08, it is a bit early yet for any detailed prediction. But I would simply send you back to, if you like, the basic business model year. Which is on an annualized basis, fares will fall by about 5% a year. We expect unit costs excluding fuel to fall by about 5% a year. We see no real reason to diverge from that.

But that is a more -- if you like, that is simply taking the five-year business model and applying it to fiscal '08. We won't be able to give you any more detailed color on that until we get to probably the third quarter results of January of next year.

Clearly, the big driver in that, though, is going to be the lower oil prices. I think you're going to see an awful lot of cost reduction coming from the airlines generally next year, simply on the back of oil prices. We would hope to gain in that. That is why we have a locked away, if you like, 50% of the third quarter's oil once we thought we could get secure 10% cost reduction.

Tax guidance? There is nothing significant in that. It is just a timing issue. By the time you get to the full 12 months, there is not (indiscernible) in the tax area.

Yield guidance? What is driving it is still, frankly, the fuel surcharges of the competition. We have good visibility in there for Q4, -- or Q3, rather, sorry -- as the [baggage] revenues are coming through strongly. I mean, I think we probably expected that there would be more of a (indiscernible) consumer resistance to the baggage charges. In fact, we met it very little over the summer.

We think again much of that is a result of the fact that, [when] passengers have to pay for checking the bag, their alternative is to fly with one of the other airlines. I think when they go on the other airlines' website and see the kind of yield maximization policies being followed by many of our so-called low-fare airline competitors around Europe, not to mention the flag carrier airlines; add that to the fuel surcharges that some of these so-called low-fare airlines are levying, as well as the [flagship] charges, they are coming straight back to us.

But I think the underlying thing is -- the thing we tried to deal with at the investor conference in New York recently -- and that was there is a bit of a change you can see in the European market at the moment. There's been very little capacity additions going into the shorthaul market Europewide. Ryanair and easyJet are probably the only people adding aircraft. But the flag carriers are probably taking out as much shorthaul capacity over all on a pan-European basis as Ryanair and easyJet are adding.

You also look at trends like the London airports are essentially full at the moment. There is a reason why the European flags have been able to make fuel surcharges stick over the last 12 months; and equally importantly, why they have refused to give back those fuel surcharges as oil prices have fallen by 25% recently. That is because I think there is a bit more pricing power in a stable capacity environment in the European shorthaul market.

I think what you're seeing in our yields is us, Ryanair, by being the lowest fare provider, simply benefiting from that. Remember, we are not pricesetters, nor do we manage prices. We manage load factor. We are price passive. What is happening over the summer, despite a 23% traffic increase we have seen our load factors rise and our yields rise, simply because either the higher fares or the fuel charges of the competition is driving that in our direction.

Are we being pessimistic or just conservative on Q4? Yes we are. We are right to be conservative, though. Because, A, we don't have any visibility at the moment on Q4 bookings and yields. Those of you who remember back to the profit wars [of] some four years ago will remember, that we are not going to get ourselves back into that situation again.

I think though, it is safe to say that we if do not see any outside negative influences like a terrorist attack, like some negative industry thing happen in the next three months, I don't see why this benign yield environment may not continue into Q4.

But all we are saying to you today is, look, we have no visibility. There is no reason we would not expect it. But until we have some visibility, which will be the middle to end of January, you are better off to run with our more conservative yield guidance into the fourth quarter. So [with] more positive yield guidance, with visibility in Q3, we are still more conservative in Q4. And overall for the half-year, we think yields will remain flat.

Fuel hedging? Q1 and 2 next year, we have a lower comparable price particularly in Q1 and to a lesser extent in Q2. If you take the current quarters, our quarter three and four, we are paying an average of EUR73 a barrel. We are able to lock away our hedge out at least 10% less than that at the moment for Q3 and Q4 of next year.

Our average price in Q1 and Q2 were a little bit lower than that. Prices rose deeply as we went through the summer. I still think we would go in and hedge if we saw an opportunity to hedge at 10% less than what we paid in Q1 and Q2 of this year. But that, if you like, [barge] would be less than the -- a bit less than the $73 a barrel. So there is a bit more to go there.

Equally I think we would be a bit more relaxed about fuel if it continues to soften at the moment and the supply number continues to be strong. That always through the winter coming into the spring would probably be a little bit weaker anyway. So I think we would be more aggressive in terms of what pricing we would look for before we would hedge Q1 and 2. But we continue to be cautious and conservative at the prices we have hedged next year's Q3 and 4 because those are the two winter quarters.

Finally, touching on Dublin Airport, what leverage do we have over Dublin Airport? Frankly none. One of the more entertaining aspects of the offer for the airline whose name I'm not allowed -- I refuse to mention -- has been to see the Irish government and all the chatter-ati of Ireland harping on -- particularly the Transport Minister, the Prime Minister. Declaring that in transport and the field of aviation and airports specifically, monopolies were a bad thing. It is richly ironic coming from a Minister and a Prime Minister who own and control the Dublin Airport monopoly, which has over recent years continued to ignore the call -- from not just Ryanair but also Aer Lingus and other airlines -- for lower-cost and more-efficient facilities.

(indiscernible) ironic, but one of the planks of the government's opposition to our offer for Aer Lingus is that, combined, Ryanair and Aer Lingus would have about 70% of the seat capacity to and from Dublin Airport, and that would be bad for consumers. While at the same time ignored the fact that the government owns 100% of the airport. Even if we did have 70%, we would still have no negotiating power at Dublin Airport.

The fact that these guys are out there trying to drive through a terminal building that is five stories high, that would cost EUR750 million when only a year ago they were saying it would cost EUR170 billion; the fact that they are looking for a 60% cost increase on a per-passenger basis indicates that this is a monopoly and that the airlines and the (indiscernible) customers have no negotiating power. No leverage at Dublin Airport at all.

Thanks.

Jim Parker from Raymond James.

I want to ask if you could give us an update on the rate or an annual basis for your bag charges, for your online boarding, and online boarding passes, and priority boarding. What is the revenue running at on an annual basis?

Jim, we are not really giving out that. But what we can say is that we would expect the ancillary side of that -- which includes obviously the excess baggage charges -- to continue to run at a faster rate than the growth in passenger volumes. I think what we have seen with the bag charges -- I mean, we have given quite a bit of that back.

Despite all the talk about the additional baggage charges. Our average fare in the second quarter was only up EUR3 per passenger. So clearly we didn't get (indiscernible) from the baggage charge, although it is positive. So I think over the year, it will be on the whole positive. But we have given an awful lot of it [back].

Remember, Jim, it is ultimately self-defeating. I mean, we are going to keep increasing the checked-in baggage charges until we persuade a significant number of our existing passengers to travel with carry-on luggage only and do with less checked-in bags.

So it is not a long-term revenue stream. It is a stream of income which we are determined to forego over time by persuading. (indiscernible) at the moment about 50% of our passengers are traveling with checked-in bags. We think we can increase that to about 75% of our passengers traveling with carry-on luggage; 25% with checked-in bags.

I think at that stage we'd be down to the people who in [fairness] really have to travel with checked-in bags. Even though the checked-in baggage fee will be higher, Ryanair's fares are still so markedly lower than any other airline anywhere in Europe, by flying with Ryanair -- even if they have to check in a bag -- they will still be making enormous savings over the fares being charged by our competitors.

It is also interesting to see in recent months many of our competitors who said they would never [institute] baggage charges have now announced baggage charges. Unlike us, they are not doing it as a way of driving or persuading more people to travel with carry-on luggage. They're just lobbing it in as another means of surcharging their passengers on top of the fuel surcharges they are already charging.

Okay, Michael, a second question. Through over the years you have said you had no interest in Central Europe. But now you're pretty extensively involved in Central Europe. Also suggested that you probably would not be interested in making acquisitions. And at least you have tried one here lately.

You have said perhaps you don't have any interest in doing trans-Atlantic business. I am curious when you might do that, in that currently there is a startup airline in the U.S. flying business class into Stansted. It appears about 34% of their traffic is connecting at Stansted with Ryanair and easyJet. Not on a formal basis.

But that is something that might be attractive to Ryanair at some point. What is your thought on that?

I think you know, in some cases you have just got to remember -- I mean, I also said that I would retire in 1992, I would retire in 1995, and I think again in 1998. Some of my forecasts have turned out not to be terribly accurate.

Generally, we intend to continue to grow organically. As you can see from today's results, our organic growth in the rollout of the business model is going like a -- I was going to say rocket, but maybe like a (indiscernible) 737-800 would be more accurate. That continues to be the business model.

It won't stop us from time to time, where we think there is an opportunity to make money on behalf of our shareholders, acquiring a [Bols], acquiring an Aer Lingus or something, simply because it is there and we can see a way to making a decent return out of such an investment. But without distracting from the continuing rollout of the organic business model, that which continues to succeed so well.

And have no interest in trans-Atlantic flying. I know this question has been asked in the context of Aer Lingus. Is this some back way into trans-Atlantic? It isn't. Aer Lingus is still fundamentally a shorthaul airline. 85% of its passengers travel shorthaul. That is where we think we could bring a lot to the table, if we are able to put the two airlines together in one Irish group.

I am aware there's actually two business-only airlines, a thing called Eos and a thing called MAXjet flying between Stansted and the U.S. We have no interest. They have previously asked us, would we link with them, connect to them? We said no; no interest; not interested in the business.

The fact is, a large proportion of their traffic are connecting on (indiscernible) at Stansted is probably understandable. The only way of getting in and out of Stansted for most people is on Ryanair. In all cases, the passengers do it at their own risk. They come round. They check in their own bags. If they miss our flight, they miss our flight. They then must pay the full one-way to get on the next flight.

Our business model -- and this is what I really want to get investors to focus back on. Our business model is about being the number one, by far and away, the lowest fare shorthaul airline in Europe and doubling the size of our operation in Europe organically from 40 million passengers to 80 million passengers a year over the next five years.

I really want to reemphasize (indiscernible) today is this morning's results demonstrate just how well we are executing that model. Despite the media and some of the others being a little bit distracted by the offer we made for Aer Lingus in recent weeks, the business is going like gangbusters. The business model is going like gangbusters. That is why we believe shareholders will continue to enjoy (indiscernible) returns over the next five years.

Because we won't be distracted by acquisition. We are not going to be getting into the longhaul market. Somebody else can do that. It won't be Ryanair.

Okay, thanks.

(OPERATOR INSTRUCTIONS) Stephen Furlong.

Stephen Furlong from Davy. Just, Michael, on the rollout of the business model, (indiscernible) some more color on how the [bookings] are going for the three new bases, at Marseille, at Bremen, and Madrid.

Also, I think it is interesting that those bases are kind -- what is the word -- promoted immediately to being bases. They were not destinations before. So you might just give us some color on how (inaudible) marketing standards allocated, so that the brand which obviously is known in [these] locations, that is maximized?

I think it is safe to say the advance bookings -- Bremen is still -- we are launching in February; so like we have strong advance bookings, but you know, it is still relatively low in percentage terms.

Marseille and Madrid are booking above the average of what we would normally have experienced in previous base sales for previous base launches. I think we're also getting -- we are at a [virtuous] stage in a kind of pan-European center. Ryanair is (indiscernible). There is almost nowhere that haven't heard us. We don't indeed to go in and spend a lot of money marketing and advertising in Marseille. We certainly don't need to do it in Madrid.

I'll give you a (indiscernible). We went down and I did a kind of a new route launch in Madrid last week. Thanks to the efforts of the local units we created a riot outside the hotel. We were extensively covered in the national television, national media, national newspapers down there. For the sake of one (indiscernible) press conference and one riot outside the hotel, that cost us nothing, we had a surge in bookings in Madrid; and [now] it's safe to say a surge in recognition of Ryanair.

One might argue that maybe all of the recognition wasn't exactly glowing. It may have been just that we were somehow anti-union or anti-employee. But (indiscernible) a bad PR sells as many seats as a good PR; in fact, generally the bad PR tends to sell more seats.

As a result of that (indiscernible) a bit more balance coming into some of the media coverage of Ryanair in Spain. Because we able to make some simple but effective points, such as the average pay in Ryanair is higher than it is in Iberia. None of the people caught in the riot outside the hotel were Ryanair employees. They were actually either Iberia or trade union employees. (inaudible)

So I think the bases, the new bases, are performing well. But more because I think Ryanair is now so big and we are right across Europe, and we have a lot of (indiscernible) marketing model in Ryanair.com in the website. And fundamentally, in the price differential between us and every other airline.

Again, I give you Madrid; easyJet announced they were flying to Madrid. In fact they have been flying to Madrid before Ryanair. Ryanair's prices at the moment, or our lead-in fares on our new Madrid routes, are typically 25% of the prices being charged by easyJet. They would sell themselves to a profit destination like Madrid and Marseille, and I believe in time, Bremen.

(inaudible) The other thing, Stephen, is obviously while we may be developing the Marseille, Madrid, and Bremen markets, all the other points at the other end of the routes are all well-established Ryanair operations [today]. You can take Marseille to Frankfurt, Brussels, London, [Jalco]. So the other end of the route, which is quite different from most of other competitors' model.

Most of our competitors have a big surge of bookings from one end of the route. But we typically have almost a 50-50 balance in terms of where we source our passengers. (inaudible) Marseille to Bremen, the good news is that at the other end of all of those new routes we are already well established and are well known.

Great.

(OPERATOR INSTRUCTIONS) Robert McAdoo.

It's Bob McAdoo from Prudential Equity Group. Just a quick question. In your discussion of operating expenses, you talk about crewing ratios increasing because of the longer-haul flying. I don't understand exactly what you call a crewing ratio. If you could just kind of explain just briefly what -- is this really increasing costs in total? Or is it cost per departure because it is a longer flight? Or what does this mean?

(indiscernible) we run about five crews per aircraft for a pilot. So that -- if you take two pilots (indiscernible) flights, that is the equivalent of 10 pilots for every plane that we operate.

We plan to increase our crewing ratio by 20%. So that would obviously rise from five crews per aircraft, or 10 pilots, up to 12 crews or to 12 pilots or six crews.

What we have seen over the last number of years is that our average sector length has risen each day. So therefore, we are using up more hours per pilot per day. At some point, we have to have a correction; and this is the year we were having the correction.

So we believe this will be a one-off step-up in our crewing ratio. Assuming our (indiscernible) sector length we should pretty much stay at about the same length as it is now, there will be a one-off step-up in our cost per passenger.

You're going to do that in all bases because all bases seem to be having a longer average flight length?

It doesn't quite run across every base. It does apply to some bases and not all bases. But when you spread it out across your total number of aircraft [operate], it equates to about a 20% increase.

Thank you.

[Han Mastes].

This is Han Mastes, [Feyrigerson], formerly known as supply side analysts within ABN AMRO. Just a question on the nasty EU words that was spoken a couple years ago on the airport (indiscernible) presumed subsidiaries. Now we see it again in terms of pollution and environmental control. Could you give a bit granularity why that slide is there?

Yes, I am not quite sure what granularity means. But anyway the reason the slide is there -- because I think it is about time one of the airlines stood up and actually presented some facts into the debate about the contribution of aviation to global warming and all the rest of the (expletive) that is being spread about at the moment by some of these eco nutbags, aided and abetted by lazy journalists who couldn't be asked to actually read something factual.

Aviation accounts for 2% of greenhouse gas emissions; and the European environmental agency in its recent report has confirmed that aviation in total accounts for 2% of CO2 emissions. It is not the fastest-growing contributor to global warming. It is not the biggest contributor to the environmental issue. At 2% it is one of the smallest contributors.

What we want to do is to rebalance, particularly with the media, some of the facts which the European agency has already confirmed. That in actual fact, power generation presently accounts for about 26% of CO2 emissions. Road transport -- much of it undertaken by some of these environmental nutbags driving their SUVs to Sainsbury's on Saturday morning before they go to the environmental demonstration of choice on Saturday afternoon -- accounts for about 18%.

If the government and the inept politicians are really serious about the environment (indiscernible) -- we know they are not. It is just simply a convenient thing for politicians to talk about. It makes them look like they're actually doing something. They would be tackling the real causes of emissions, both greenhouse gas and CO2, which is power generation and road transport.

The fact is that nobody wants to deal with it. Because as someone like Tony Blair, who rightly said, look, the solution to this going to be nuclear power -- the first people that jump up and down and oppose it was all the (indiscernible) environmental nutbags.

So the reason we stuck it in there is, frankly, I'm pissed off listening to all this (expletive), all of it inaccurate, being put about that aviation is the cause of global warming. Or that somehow tackling aviation or low-cost aviation (indiscernible) global warming -- it is neither. It is irrelevant.

If everybody starts flying next year around the world, emissions CO2 in Europe would fall by 2% and the greenhouse gas emissions would fall by 2%. It would be less than the contribution that the new Chinese power stations will make, both their coal and oil burning power stations will make, to greenhouse gas emissions in the next 12 months.

Okay, that's clear. Just wondered whether something was cooking at the EU level. Because there's more transportation companies that certainly add these slides to their presentations. So I'm just wondering where there is smoke maybe there is a bit of fire going on.

I don't think so. I think there is clearly something coming down the tracks. Because as usual, the flag carrier airlines have made a complete dog's [balls] of responding to this kind of environment -- these environmental lies. We see airlines like BAA talking about trading carbon emissions and all the rest of that horse (expletive). Instead of actually coming out and saying, look, aviation is not the cause of this; nor is aviation the solution. Go fix the power stations and go fix road transport if you really want to do something.

Okay, clear. Maybe another very brief question if I may. You're surely changing into a rather large airline. As (indiscernible) would say in a bit of a modest mode. From a control point of view, systems wise, accounting wise, [wostering]. I think about some of the problems a competitor of yours had a couple years ago on wostering systems, how scalable is the current system? How much more can you grow without achieving any growth pains?

I think you know, look, you are growing 20% a year; we have growth pains every year. But they are all manageable growth pains. We don't always get it right, but I think 95% of the time we get it right.

Because we roll it out in a very formulaic manner, we open new bases; we send aircraft down there with pilots, cabin crew, engineers; we don't have a big overhead; we don't have sales staff in all these countries. It is relatively easily managed.

Remember we floated in 1997. We were carrying 4 million passengers a year and people doubted whether we could double in size over a three-year period. Looking back almost 10 years, later we now are at 42.5 million passengers. So our growth aspirations over the next five years are relatively modest.

It is certainly easily scalable. We have the aircraft, we have the bases, we have the destinations, we have the Internet, we have the low-cost base. We have an enormous price advantage over every other airline in Europe from the flag carriers, to easyJet who would call themselves a low-fares airline, to Aer Lingus -- who God help us -- would describe themselves as a low-fares airline yet despite the fact their average shorthaul fare is more than double Ryanair's.

Nobody can compete with Ryanair's prices. I think this morning's results demonstrate not just how scalable our business model is, but how well we continue to execute it in a very disciplined fashion.

Okay, well, thanks, Michael.

We appear to have no further questions at this time. I will hand the call back to you.

Okay, Kim. Thank you very much, ladies and gentlemen. As you know, given the half-year results, we have an extensive Roadshow program going on all week. Howard, Michael, Sean Coyle, all the usual suspects will be coming to a city near you. We hope we get around to everybody before the end of the week, by close of [day] Friday.

If not, please feel free; Jimmy Dempsey is holding the fort back in Dublin this week, subject to his wife not giving berth in the next couple of days. If anybody has any further questions, please route them directly back to Jimmy. We are happy to get back to you sometime in the next week.

We thank you all for your courtesy in not asking me any silly questions about Aer Lingus. Again, if I leave you with one parting message, the business, Ryanair's business model is going like gangbusters. We are executing the growth strategy in a very disciplined, profitable manner. And we see the reason why we can't and won't continue to do that for the next three to five years, and earn you and your clients a significant return on your investment.

Thank you very much, everybody. We will see you during the week. God bless. Bye-bye.

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