Ryanair Holdings PLC (RYAAY) 2007 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Ryanair third-quarter results 2007 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.

Thank you very much.

Good afternoon, ladies and gentlemen.

Sorry for the slight delay in getting started but some people are having difficulty getting through to the conference organizer.

So we thought we'd wait a couple of minutes just to make sure we have everybody on.

A very good set of Q3 results this morning.

They have been on the Ryanair website since 7:00 so we will pretty much assume that they've all been read and everybody has a copy of them.

A couple of themes to highlight.

Schedule revenue are up 28% thanks to continuing strong traffic growth even during the third quarter, traffic growth was up 9%.

Yields have risen by 7% significantly better than we expected for the quarter.

Underlying yields are up slightly but most of that increase is due to that baggage revenues.

Ancillary revenues have grown strongly by 61%.

That does include a oneoff settlement arising from an early contract termination by the hotel partner.

But again the underlying ancillary revenues have risen by more -- at a faster rate than scheduled traffic as has previously been the case.

The good news despite the fact that we are paying our [largely] hedge of $73 a barrel for fuel in the third and fourth quarters of this year, we've taken advantage of the recent weakness to go out and do a lot of fuel hedging for fiscal year ended March 2008.

As we've announced this morning we are 90% hedged for the key winter quarter at $65 a barrel; we're 50% hedged for the first half of the year, that is the two summer quarters at $61 a barrel.

Overall that means we have about 70% of our fuel requirements hedged through fiscal '08 as led at 10% -- at a guaranteed cost reduction of just over 10% of what we paid this year.

That means we've already locked in at those rates a saving of approximately EUR60 million for the coming fiscal year and if we can close out the remainder of the first half at or below our funding close to current rate, obviously that saving will increase.

The new bases are performing well.

Marseille and Madrid are up and running and booking strongly.

Bremen we start on the first of March, a good advance booking, not quite as strong as Marseille and Madrid but a little bit stronger than we had originally expected.

And we expect to announce one new -- a fourth base for this summer sometime in the next probably set in the days before the end of February.

And that will be another base on the continent of Europe.

A couple of issues we did want to touch on briefly.

There's been a hysteria in the UK about the contribution of aviation and airlines, [low fare air] in particular to global warming, much of it based on complete idiotic nonsense.

We counter that continuously with the fact that Stern reports confirm that aviation accounts for 1.6% of greenhouse gas emissions.

Within the EU, the European Environmental Agency confirmed that airlines account for less than 2% of the EU's man-made CO2 admissions.

Marine transport by the way accounts for almost double aviation yet there has been no focus on ships or ferries.

It seems to be a bit misplaced in our view.

We don't think it's going to have any impact on the continuing growth of Ryanair primarily because the fare differential between us and all of our competitors is so great.

We welcome the OFT's recent decision to refer the BAA's airport's monopoly to the Competition Commission.

We hope and trust that the Competition Commission will -- following a review called for the breakup of the BAA monopoly.

We remain as are all the other standard airlines vigorously opposed to the plans of the BAA monopoly at Stansted to waste almost GBP4 billion sterling building a second runway, second terminal and associated railway and motorway connections to Stansted.

This is a scam.

This perpetrated on the traveling public by a regulated monopoly where you've an incompetent (indiscernible) regulator in the Civil Aviation Authority and a monopoly, an overcharge monopoly that the BAA determined to over overspecify -- overbuild the facilities and therefore overcharge passengers for the next 20 years.

Ryanair is fully behind the airport, a Stansted airport airline association which has called for the construction of a lower cost runway and terminal building.

We believe it can and should be built for about GBP1 billion instead of the GBP4 billion the BAA are presently proposing and we are continuing to campaign strongly for that.

A similar situation in Dublin where the airport monopoly following the same broken regulated monopoly as there is in the UK is now proposing to spend EUR750 million building a second terminal where just about a month ago they were proposing spending about EUR108 million.

There's absolutely no requirement for that kind of waste.

We don't need a five-story terminal building; we need a one- or two-story terminal building.

And the fact that we and others have offered to build a terminal of similar size for less than EUR200 million is I believe a plan that should be accepted.

As you will know, in November we increased our stake in Aer Lingus just over 25%.

We are working actively with the European Commission.

We're going through a Phase II review of that proposed offer, and we are hopeful and confident that at the end of that month which should be sometime around the middle of May that Ryanair will receive EU competition approval to proceed with an offer for Aer Lingus.

We have indicated to the takeover panel in Ireland that it would be our intention to make another offer for Aer Lingus at that time, subject of course to receiving or being allowed or receiving the permission of the takeover panel to make another offer within 12 months of the last offer at that time.

In the current fourth quarter, we are continuing to roll out significant capacity expansion.

We expect that passenger volumes will rise by about 25%.

Obviously on the back of our hedges, fuel costs will remain high, but we do expect a slightly better [outcome] in the fourth quarter than previously predicted.

As a result, we're pleased to say today that we have raised significantly our annual guidance.

We now believe that profit after tax will rise 29% to about 390 million for the full year and we do that with a fair degree of visibility into the fourth quarter.

One final shopkeeping issue, we recently received shareholder approval to complete a two-for-one stock split.

We plan to implement this split on the 26th of February, 2007 and we believe that that stock split will improve the marketability and liquidity of our shares.

I should say one point that has been raised before we get to the questions, one point that has been raised by a number of people this morning in our briefings is why were the analyst's forecasts so conservative this time around?

I think it should be stressed in defense of some analysts, many of the analysts who are already like Davys, Goodbodys who are either advisers or stockbrokers to Ryanair or Aer Lingus are prevented under the competition rules from issuing any research in the current or in the present period while there is a possibility of an offer for Aer Lingus, and we continue to be technically in an offer period for Aer Lingus.

That does mean that unfortunately a lot of the research, some of the research, a lot of the research that's out in the market isn't particularly accurate.

There is some spectacularly inaccurate research out there, one or two who shall remain forever nameless who have sell recommendations on the company and ludicrous price targets down around EUR7 and EUR8.

All I can do is apologize for that and say that some of the research should just be ignored but I'm afraid that there won't be a very good flow of balanced research from analysts either close to or associated with Ryanair until the Aer Lingus thing is out of the way.

So apologies if anybody was misled by some of the research out there.

I'm afraid there isn't anything we can do about it.

Having said that, Howard, is there anything you want to add?

I think you pretty much covered it there.

I think we would highlight the continued strength of the business in particular the cash position which (technical difficulty) the Aer Lingus of just about EUR321 million cash.

Okay.

Okay, that is the end of the introductory remarks.

Do you think you could open it up for questions and answers?

(OPERATOR INSTRUCTIONS) Chris Reid from Deutsche Bank.

It's Chris Reid here from Deutsche.

I've got two questions for you.

Can you say a little bit about what you think the EU is looking at in detail particular routes that might be questioned on how you see the outlook going on that?

And then the other one is in terms of special dividend, is that on the back burner for the time being and has a Board actually discussed the possibility of doing it?

Thanks.

Thanks Chris.

The EU discussions, as I'm sure you would appreciate, are confidential.

But I think it's safe to say that the main focus of the EU review is the combined -- the combined size of a kind of a joint Aer Lingus/Ryanair operation at Dublin.

And that is the focus of their concern.

And whether I think the combined operation between Aer Lingus and Ryanair in terms of [slot] would have about between 65% and 70% of the slots where we're pushing strongly that that is quite similar to the position of the Air France at Paris.

It is similar to the Star Alliance for example at Copenhagen and places like Munich.

But I think it's basically the depth of the focus.

And to the extent there be remedies, they are looking at the possibility of a joint operation handing over some of the -- there is no scarcity of slots at Dublin Airport.

But offering up some of the slots that with a joint operation would control at Dublin Airport.

In terms of price of dividends.

No it is very much on the front burner.

As we've guided and discussed with the Board, it has been along the lines, we believe we need to maintain currently for the moment a minimum cash balance of about EUR2 billion.

I expect by the end of this year that that figure would have risen to by the end of calendar 2007 to somewhere EUR2.3 -- just over EUR2.3 billion.

And we're looking at something of the order of between say around EUR300 million for a [once off] distribution.

We've had a discussion at Board level.

We're looking at the pros and cons of either a once off dividend or a share buyback program.

We are still looking at those.

We are I think or I would certainly personally be more in favor of a share buyback program only because I think it has better long-term benefit for the remaining shareholders whereas the dividend program even though I'd be a significant beneficiary, the dividend program strikes me as it's just money wasted.

But we won't finalize our kind of -- I think the Board won't finalize its talks on that until we get to the middle of the year or the full-year results.

Okay, thanks very much.

Cheers.

Joe Gill from Goodbody in Dublin.

Good afternoon.

Four questions here.

First off, I wonder could you comment a little bit on yields given that you've had a sequence of quarters where you've had strong year-on-year positive yields driven by the environment and baggage charges?

And if you extrapolate on a linear basis you can get very punchy numbers out to March '08 based on your hedge in place at this stage.

Could you talk a little bit maybe about the environment and what you think about how yields might evolve over the next year or two and so on?

And maybe related to that, at Dublin you've increased your seat capacity or your seat volume by over 300% in 18 months in terms of the fleet, yet the market share has only grown by about at most 30%.

What sort of implications does that hold in terms of how yields made evolve in and out of Ireland over the next year or so?

And third question, gambling it's very early days I know in terms of the initiative.

Any signs of what's happening there?

And secondly, in terms of the mobile licensing application, how is that going and do you think it will be generating revenues for the business in the second half of the year?

And the last point is just on Marseille and you mentioned the base opening there.

The related labor issue with the French government challenging you, how are you working around that for now and is this posing any obstacles to developing Marseille?

Thanks.

Thanks, Joe.

I think in terms of the yields, we guide you back to the kind of theme we were pushing with people in the half year results and that is there is a degree of capacity and stability in Europe over the last 12 months that seems to be continuing into the next 12 months.

That has given a lot of newer flag carriers a degree of pricing power they haven't had for many years.

You've seen extraordinary fuel surcharges being slapped onto tickets both long haul and short haul.

And what has been remarkable is the -- the pass on for pricing -- is the extent to which in recent months as oil prices have come back from highs of $78 back down to low 50s, very few of them have been offering to give back any of the fuel surcharges.

(indiscernible) at Aer Lingus who first introduced the fuel surcharge of EUR40 on the [ticket] when the cost of fuel was $55 a barrel; now fuel is back below $55 a barrel and yet there is no sign of Aer Lingus either taking away that fuel surcharge or even reducing it.

We think that will continue to be the case although I'd be a little bit more skeptical looking out into FY '08.

Our guidance will be for flat yields over the coming year.

I think there will be some pressure on the European airlines to give back some of the fuel surcharges.

We can't say when that will be or why it will happen but I think we are right to be a bit more pessimistic on the yield outlook going forward.

We've had two years or we would have had two years of yield increases.

So I think generally you should be -- we would be conservative in our budgeting for yield over the next 12 months.

But I think to the extent that there is going to be any surprise on yields, that surprise would more likely to be on the upside.

But I think it is unrealistic to believe that the European airline industry has entered some new paradigm where yields rise continuously.

What I can say to you is that we will grow the capacity strongly again next year.

A lot of the downward pressure on yields comes from our own capacity growth.

I'll give you a flavor of that which is actually the second point you raised on Dublin seat capacity.

One of the areas where we see yields falling at the moment is in the Irish/UK [P] market, UK proof of promises market.

We think a lot of that is due to the rate and speed at which we've opened up new European routes into the UK Provincial Airport.

And to an extent the enormous expansion we've launched this summer of new routes of Dublin into Europe where now instead of paying Aer Lingus' high fares; everybody has the choice of paying Ryanair's low fares.

So we are seeing some yield decline despite no capacity increase, despite no competitive challenge on the UK P market, we are seeing yield declines at present and we think a lot of that is because of our own capacity growth.

The other factor that should be ruled in in the next 12 months as well is remember we don't have any baggage income, our baggage charge income in this year's comparables whereas next year you will have the comparable baggage revenue in this year's numbers.

Gambling and mobile phones, I think both of those -- the mobile phone license we expect a (indiscernible) improvement by the end of June.

The telephone supplier advised us that they think they are still on target to achieve that regulatory deadline.

And therefore, we would expect to see some income coming in from the telephony in the second half of fiscal '08.

Gambling at this stage is going very well on the website.

It's not a huge ancillary revenue stream at this stage but it is a growing one that we think is going to continue to grow let's say compared to the big ancillary items which is car hire, baggage, the travel insurance at hotels; it's relatively small at the moment.

The Marseille labor issue, frankly there isn't an issue down there at the moment.

We've launched the base.

The French have passed a law which only the French could pass saying that now if you are employed in France, everybody should be paying French pensions.

We've written both the French Government and the European Union saying this is contrary to EU law.

We are challenging it as are EasyJet who have already had (indiscernible).

We would expect some kind of visit from the French authority down in Marseille.

But frankly we have a very strong case.

The majority of these that will be transferred into Marseille to operate or to open up the Marseille base are non-French nationals.

They have no intention of spending a long time in France.

They are already paying their pensions, their social insurance, their taxes mainly in Ireland and none of them wish to or are willing to be -- or start paying French social taxes or French pensions when all of them will be transferring back out of the Marseille base in any event.

I suspect it will become an issue for the European Union over the next 12 months.

But it is not -- while we may have some legal dispute or another legal dispute with the French authorities, it shouldn't stop or alter the growth and expansion of the Marseille base.

Thank you.

Howard, anything else you want to add maybe perhaps on the yield issue or --?

No.

I think it is just I suppose we've seen a number of pieces come out where the history of the airline industry has been eight quarters is the most that fares have risen.

And I think with the -- certainly we see fuel prices soften into the summer period, we will obviously maybe unwind some of those fuel surcharges.

But probably they will unwind very, very slowly.

The other thing, Joe, we would see is that given we put an extra seven million passengers and carry an extra seven million passengers this year and try to carry 10 million next year, which is obviously [50]% more, though clearly that is a lot to add in a one-year period.

But generally, I wouldn't disagree with Michael.

I think fuel surcharges may be a key factor this year going forward.

Jim Parker from Raymond James.

Michael and Howard, good afternoon.

I'd like to know just a little bit about your outlook for nonfuel cost per seat and historically we've seen a pretty good pattern of those declining -- the last couple of quarters appear to be up.

What is the outlook for your nonfuel cost per seat?

For the full year is it Jim, or the outlook going forward?

No, just going forward.

Looking out fiscal '08 going forward.

We would expect to see obviously fuel costs continue to fall, given that we've locked in 60 million of cost reduction already.

And obviously what the impacts would be on the remaining [30]% is just we need to factor that in, but I expect once the U.S. (technical difficulty) will probably still be rising at a slightly faster rate than (technical difficulty) of a new regulation (indiscernible) cabin crews, which means they have to operate 500 hours flight limitation that we currently have.

I think that we'll have to step up our cabin crew number.

Obviously, it is not a significant number in that average cabing crew salaries are lower, but it certainly will be a factor going forward into next year.

Apparently, around the line we took some pain particularly this year on our airport charges.

As Joe Gill mentioned earlier on, we had a 300% increase in seat capacity in Dublin.

Dublin is the most expensive airport we operate to, so therefore our airport passenger costs continue to rise.

Next year we have two things happening.

One we have higher charges (technical difficulty) growth out of Dublin, and there are new bases that we've added this year and the ones we plan to launch for next year, largely offset a higher charge that we have coming from (technical difficulty).

I think overall, I don't think you are going to see the declines you would have seen historically, Jim, when we had 7% declines in unit costs.

I think we're into a period of much more modest declines.

I think somewhere in the region of 3% is probably be appropriate level.

So, Howard, you are suggesting that nonfuel unit costs --

Including fuel.

No.

Ex-fuel.

If we could --

Actually on staff costs, we think that we'd probably be down about 3%.

Okay.

Ex fuel -- cost per seat should be down about 3% going forward?

Correct.

Okay.

Thank you.

Fuel and staff, Jim.

Yes.

All right, thanks.

Chris Avery from JPMorgan in London.

Three easy questions.

Where are you on pilot recruitment?

Is the increase in crews per aircraft over yet?

And is there anything different about the Madrid base startup given it is a primary airport?

Thanks.

Pilot recruitment for this summer has all been complete and in actual fact the reason for the jump in the staff costs has been the decision this year to recruit the pilots earlier, train them.

But we have them all online well in advance (technical difficulty) fiscal year.

Where they come from, most of the captains are coming from our own first officers now being promoted across, and continuing to recruit taking in cadets.

And about 30% of our pilots in the last six months are joining Ryanair from other airlines, other competitor airlines -- three of the other so-called low fares airlines where the Ryanair pilot pay scheme and also the (indiscernible) agreement of the officers seem to be much more favored here in Ryanair. (indiscernible) of the fact that we're recruiting experienced or trained pilots are coming from competitors for the pay and the conditions here.

Increased crews per aircraft, we won't have anything today.

The increased ratio on the pilots, Chris, has finished now running at just over five crew per aircraft, where at this time last year it was four crews per aircraft.

And of this new regulation, we have to increase the cabin crew now.

Previously they were four crews per aircraft.

Over the next 12 months we have to get that up above five crews per aircraft, not quite as expensive as the pilot.

And I missed the third part of the question.

The Madrid base start-up.

(multiple speakers) The costs at Madrid are higher; handling costs are higher than the average of our new bases as you take Marseille and Bremen but it significantly cheaper than Madrid.

We haven't yet seen that reflected -- at this time of year, you wouldn't (indiscernible) in the the first month of operation (indiscernible) not being reflected in higher yields at Madrid, but the base is profitable and we think it's one that we'll grow strongly.

I don't think it will be our largest base in Spain.

I think Barcelona will still be larger than Madrid for us.

But we did -- took the position that we really couldn't develop a big base in Spain without having some presence in Madrid and that if we didn't go in and take up some of the spare capacity that it was going to be taken up by competitors and we would have lost out on that marketplace.

So I think it is useful for us to go into somewhere like Madrid.

It also means you're keeping some of the other so-called low fares airlines honest by scaling down their fares and in all cases and in all markets, our fares in Madrid are significantly cheaper than the other so-called low fares airlines over there.

Thank you.

Stephen Furlong from Davy in Dublin.

Question on CapEx.

You might just tell me what the plans are for CapEx going forward in terms of aircraft on balance sheet or operating lease?

And also of course there is aircraft that are planned to be sold.

Just to give some flavor about what is the pricing dynamics of that relative to the new aircraft you have coming in?

Obviously the market is fairly buoyant for secondhand aircraft.

Yes, the market has been very buoyant on the secondhand aircraft.

But again, it's still not something we think will continue over the medium-term.

What is driving us and taking out where you sell the first seven of our 99 deliveries, the first seven of those aircraft will be sold at the back end of this year. (multiple speakers) (technical difficulty) But we are selling those because, A, they've gone out of the the five-year period where they are covered by manufacturers or warranty (indiscernible) engine warranty.

They aren't (indiscernible) wingless, and we are rotating those with aircraft which do have a five-year warranty period which are basically wingless.

And the pricing on the new aircraft is remarkably similar to the pricing which we are selling out some of the older aircraft.

On CapEx for the current year to --.

700 million.

700 million, that's for fiscal '07, [deciding] more next year.

We're taking slightly more aircraft next year.

And the mix between operating lease and mortgage will still be about --

We did a lot of -- did a lot of operating leases in the third quarter.

We will be doing largely debt financing in the fourth quarter.

And so I think our ratio will be below the 80% at the end of the year.

Going forward into the coming year, fiscal '08, [actual] awards about 80% owned and about 20% operating lease.

Operating lease market has been very, very attractive in the last year and a half.

And we felt it was uld be appropriate to get some more value and do some more sale and leasebakcs certainly in the third quarter where pricing was just tremendous.

Great.

Can I just ask a question on yield again?

In terms of competitive dynamics, do you see -- I mean it obviously depends on what happens with fuel charges a little bit.

But do you think that the biggest driver yields is your capacity growth and do you see in general the competition either, A, just pricing for margin or actually getting out of your way in terms of when you add new routes?

Just pulling off or at least surely to the extent that they are adding any capacity, they are not adding it against Ryanair?

I think I'd argue it's not true that the first presumption is accurate.

I said the biggest driver on yield is fundamentally competitor pricing and capacity growth.

I think an interesting dynamic you've got Europe now is how little capacity growth we will be taking on a (indiscernible) European basis.

Nobody outside of Ryanair other an EasyJet has any significant narrow body orders.

And if you look at the kind of big (indiscernible) that continue to take capacity out of the marketplace, particularly out of markets where they compete head-to-head with us, you eventually for example -- I know it is a one-month snapshot so not particularly relevant, but these traffic stats which were announced today, the European market, their traffic declined by almost 6% in the month of December. (indiscernible) less passengers in the UK, less than half of Ryanair's traffic.

So we think now we continue, that will be the primary driver.

If you remember back I think about three years ago, we had (indiscernible) warning where our yields fell by almost I think it was 12% or 14%.

And that was due to all these idiots starting up low fares airlines all over Europe and everybody trying to be the next Ryanair.

Europe seems to have gone through a lot of that.

Almost all of Boeing and Airbuses narrow body orders between now and 2010 or '11 are going into Asia, Latin America, China, the Indian subcontinent.

And therefore, there may well be a combination for the next couple of years in Europe of stable capacity, more sensible management than a lot of the European flag carriers that have now been privatized, you know, and management going around meeting investors on a quarterly or half-yearly basis and having to actually deliver on cost reductions or control capacity growth.

It's hard to see that that won't continue for a year or two.

But the difficulty is whenever it -- as Howard said, the outlook looks this good we usually have the next Armageddon in the business.

And so we are very cautious at the moment.

If it looks this good -- it usually -- if it looks too good to be true it usually is.

Great.

Thanks, guys.

(OPERATOR INSTRUCTIONS) John Sheehan from NCB in Dublin.

Good afternoon.

Just a couple of questions.

Firstly in relation to ancillary revenues, I think in the first six months you're up on a per passenger basis by about 3.5%.

I'm just wondering on an underlying basis ex the hotel compensation, are we looking at kind of similar rates of growth on a per passenger basis in the quarter on the review?

Secondly, just the online check-in could you just give us an indication of what percentage penetration you're achieving there in terms of passengers using that facility?

And then currently just on baggage charges, you mentioned that they've been particularly strong.

Presumably they've exceeded the kind of guided or -- figuratively you've talked in the past maybe around EUR2 per passenger.

Do you see them kind of stabilizing at that level or are they likely to come back a bit?

Thank you.

Thanks John.

You'll have to forgive us on this -- on the ancillary revenue announcement, everybody wants to know how much was the hotel settlement.

We cannot disclose the hotel settlement.

It's subject to a confidentiality agreement with the hotel partner and the amount of the sum is prepayable if it leaks out.

So nobody knows and I'm afraid you are not going to know until they've had a equivalent quarter next year.

We are not going to threaten that payment by disclosing it.

The underlying figure on ancillary revenues continues to be strongly up and it continues to run ahead of the growth of scheduled traffic but that's all I'm afraid we can say at this stage.

Okay.

Online checking at the moment, we have about 20% of passengers using the -- are paying for the online -- remember the online checking and the priority boarding is a joint service.

We have about 20% of people paying for it; about 12% of people using it.

And we expect that that will continue to rise.

We are looking at means later on as or we move toward the summer of maybe forcing passengers who have -- or traveling with carry-on luggage that they must web check in or they must use the web check-in facilities simply because we want to divert them away from airport check-ins, minimize queues at airport check-ins and also minimize our use or our need for airport check-in facilities which are expensive.

And the baggage charges yet are strong.

They are a little bit -- they've been a little bit higher in the current quarter than in our previous guidance which is about EUR2 per passenger.

And I would expect those to rise although not significantly in the next 12 months.

We will at some point in time in the future, I don't know when, increase further the baggage charges not because we want to see the revenue but because we are determined to drive our force -- the 55% of the people who are presently traveling with check-in bags downwards.

We want to migrate if you like ultimately 60% or 70% of our passengers to traveling with hand or carry-on luggage only, bypass check-in.

They can have priority boarding, they can have the web check-in and continue using price to penalize passengers with check-in bags or to encourage those with two check-in bags to travel with one or encourage those who have one check-in bag to travel with none.

That is great.

Just two other questions if I can.

In relation to the winglets, what level of fare penetration to fleet do you have now at this stage with the winglets is it?

Finally just on hedging, while you mentioned to March '08, presumably you've nothing done at this stage beyond then but it's on the agenda?

Yes, winglets at the moments are running at about three-quarters of the three, John.

I think we've got 130 and it's going just on the numbers just under 100 at the moment.

It will be over 100 by the time by April or May.

On hedging, at the moment we are looking out into Q1 and Q2 of FY '09.

But we're not overly sensitive to fuel prices during the summer.

I mean it tends to trend downward during the summer.

Except it hasn't in the last two years -- they've actually spiked upwards.

Our focus all the time though has always been to hedge the winter quarters where spot prices are very sensitive to short-term weather considerations; they jumped from 52, 53 to $58 last week because of the cold snap in New York in London, that kind of stuff.

I think our focus would actually be more near term.

You know an indirect -- there should be a near-term price at which we would start to hedge out Q1 and Q2 of fiscal '08.

We are very happy where we are for Q3 and Q4.

Despite that, even if spot prices stay down at the low mid 50s, we'd be hedged at 60 -- an average of -- the last half-year we've taken frankly.

We have cost certainty, as Howard said.

We've already banked savings of about EUR60 million for next year, with hopefully more to come when we close out the remainder of Q1 and Q2.

That is great, thanks.

I should also say at the moment we have looked into getting into the (indiscernible) following year.

The market is very nervous and it tends to arbitrage it away, any kind of cost saving away when you get beyond 12 months at the moment.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Jonathan Wober from HSBC in London.

Thanks very much.

Just a few quick ones.

First of all, just coming back on your unit cost guidance.

You were talking earlier on about going forward a roughly 3% forward would be what you would expect ex fuel and ex labor costs on a per passenger basis.

I think to remember I think at the half-year you were expecting that sort of rate for this fiscal year but currently I believe you are actually up on a unit cost basis ex fuel and ex staff costs.

Can you sort of say what is different, what went wrong?

And then secondly on interest costs, net interest seems to be substantially lower than you might expect just from looking at the difference between your net debt levels from previously.

Are you getting much better rates now that you are doing that?

And then thirdly if you could just clarify again at the beginning you did talk in detail about the hedge prices that you have on fuel.

I didn't quite much get it all.

Could you just repeat that for me please?

Jonathan, in terms of unit costs, I suppose at the earlier part of the year we hadn't factored in the fact that we had very significant expansion as we said earlier on out of Dublin in particular where it is the highest per passenger cost base that we have.

We also have done Madrid as well.

They certainly weren't in our original plan.

Dublin too, I think you will see there's a lot of front loading costs particularly into the winter period as we stepped up as Michael said starting numbers to offset particularly pilots who offset lease-ins that we incurred at the back end of last year.

So unit costs in terms of staff have been front loaded.

And also we had a very heavy delivery program into -- we started in September and ran right through to the end of December with some of the aircraft just coming in in the last week and a half before Christmas.

I think what you would see in the fourth quarter you will see unit costs will fall into the fourth quarter.

We won't quite make up that gap that we had in terms of the 3% but we will certainly be well over 1 to 1.5 and maybe on the outside at 1.8.

So overall no the 3 is not deliverable for those reasons we just said.

In terms of the -- the only think I would highlight as well is really not a factor -- the structure of our route network particular has been slightly longer.

Average sector length is up this year by 5.5% which is a little bit more than we might have expected.

But again that reflects the base developments particularly Marseille, Madrid and also some of the longer routes which we've launched from Dublin into Italy and over into Eastern Europe.

In terms of our deposit rate, some time ago when we saw that deposit rates were starting to move upward, we went into a more shorter position in terms of deposit rate, the result being what you see in this particular quarter where deposit to interest rates have risen and so our net interest charge has significantly declined from just under 9 million in the previous quarter down to 6 million.

So whilst you have seen some rise in our cash balance as well.

But we are shorter in terms of our position and we have obviously much more cash to deposit.

In terms of fuel hedging, I think what we said is for the first H1, our cost per gallon will be -- or cost per barrel will be $61 but at 50% hedged and for H2 that $65 and 90% that we've hedged.

Great, thank you very much.

John Mattimoe from Merrion Capital.

Good afternoon.

A lot of my issues were covered in previous answers but just on the follow-up on the capacity side, Michael.

Just in relation to the capacity outlook you outlined for Europe, are you picking up any intelligence on any possible changes to pass on as to regards any possible other big orders out of European carriers; any possibilities of European startups?

Or is there any other issues that may queer the (indiscernible) so to speak over the medium-term?

Would you need something maybe like if a start up wants to come in that they'd just have to pay top dollar for leasing companies or would it be a case that you might have to see some type of shakeout in the (indiscernible) Lands, Latin America or Asia to cause a flow back of aircraft into Europe?

I think that is one of the issues that we raised this morning in some discussions in terms of what could go wrong to alter that dynamic.

And it is some shock to the system.

I don't think it is possible, I think the aircraft even if somebody was to place a large order now with Boeing or Airbus, their earliest delivery date would be 2011.

They don't have anything before that.

The leasing companies at the moment are pretty much signed up through '08, '09 even into '10.

But frankly, if somebody starts up a so-called low fares airline in Europe with taking aircraft from leasing companies at the top of the (indiscernible) cycle.

And they won't be long for this -- or it was interesting we looked at one of the more interesting -- a recent so-called low fare airline flotation in Europe where their lease rate on an Airbus was, an A320, which is a smaller seat capacity than our aircraft was more than double Ryanair's equivalent cost.

So even if you can get aircraft now they are very expensive.

And if are a very expensive aircraft you are not going to survive in competition with Ryanair in Europe over the next couple of years.

The concern would be -- I am not sure that a lot of the orders for aircraft into Indian subcontinent, into China, into the rash of low fare startups in Asia or Latin America are all that firm.

There are firm orders but I think that some of those guys will fall over before we get to 2011.

Some of those aircraft might find their way back into Europe.

It might put some downward pressure on aircraft costs in Europe.

But frankly at that stage we will be so big and our cost base so low, I don't see us going back to a scenario that happened three or four years ago at the time of the profit warning where there was about five low-fare airlines out in Germany;

Charter Airlines were getting into the low-fare business.

They've all had their fingers burned, and thankfully a lot of investors have had their fingers burned, particularly those who invested in some of the more recent European so-called low fare flotations.

And some of them that couldn't be described as a he low fare airline ever.

I think the danger that some aircraft might filter back into Europe if there is a big Armageddon event or a big kind of stroke through impact on the market base but if that happens, I think we'd be back out looking to buy or order more aircraft for our deliveries in 2012 onward.

So I would see both as a (indiscernible) as an opportunity, John.

Okay, thanks for that, Michael.

Mr. O'Leary, there are no further questions at this time.

I will hand the call back to you for any closing comments.

Okay, folks, again if we could leave you a message today I think the underlying -- Ryanair's underlying growth model is continuing to perform strongly.

We will see significant capacity growth in the fourth quarter and we will maintain our 20% plus capacity growth into FY '08.

There will be significant upside for us and for I think a lot of other airlines in terms of lower fuel costs in the next twelve months.

Obviously we'll do a little bit better because our comparable fuel costs currently in this year has been so high, say at $73 in the second half of the year.

I would be though a little bit cautionary on the yield outlook for the next twelve months.

I think we have had a couple of very buoyant year's quarters.

I think that has been driven by price gouging by a lot of Euro flag carriers with frankly unsustainable and unjustified fuel surcharges around the edges -- APD may have a little impact over the UK on a downward -- a downward impression on yield.

So I think if you are working on models on Ryanair for the next twelve months the cost outlook is very good, the traffic growth outlook is very good, the ancillary revenues should continue to be strong but you have a comparable in there on the baggage charges.

But I think it is a little bit pessimistic on yield for the moment or be conservative on the yield and then I think there's every chance there might be a pleasant surprise on the upside rather than downside.

On that I have nothing further to add other than thank everybody for joining in today.

For those who have invested in us in the less twelve months, I hope you are enjoying the today's news and for the few of you who still have fell notes out on Ryanair -- I would urge you to go and change them on the back of our continuing rollout of what is Europe's best and only low fares airline.

Thanks everybody.

Ladies and gentlemen, thank you for your participation.

That concludes today's conference and you may now disconnect your line.

Thank you.