Ryanair Holdings PLC (RYAAY) 2008 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 a question-and-answer session, and instructions will follow at that time.

(OPERATOR INSTRUCTIONS).

Just to remind you, this conference is being recorded.

I would now like to hand over to your Chairperson, Michael O'Leary.

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

Okay, thanks.

Good afternoon, ladies and gentlemen.

You're all very welcome to the half-year results conference call.

I presume most of you will have seen the webcast, the results webcast this morning, and have seen the statement and the results that have been on Ryanair.com from 7:00 this morning.

We just did the usual [format around] here, with Howard in London.

Michael Cawley is joining us from Dublin.

We'll go through the press release, the MD&A, and then we'll open up to questions and answers.

I'll take most of this as read, but as you will have seen this morning, we announced record half-year profits of EUR408 million, 24% up on last year.

Traffic grew strongly, 20% to 26.6 million passengers.

Yields fell by 1% as revenues rose by 24% to just over EUR1.5 billion.

Unit costs increased by 5%, mainly due to higher fuel, staff and airport costs.

But despite those higher costs, we maintained our industry-leading after-tax margin of 26%.

These record profits reflect 20% growth in passenger volumes, as I said, a 1% decline in yields and strong ancillary growth.

Ancillary revenues grew by 54% to EUR252 million, mainly due to improved performance in all areas -- car hire, hotels, travel insurance, strong onboard sales and excess baggage revenues.

We are well on target to achieve our objective of ancillaries comprising 20% of total revenues over the next five years.

The next initiative on ancillaries is the launch of the in-flight mobile phone telephony.

We're trying that on 25 aircraft in the first quarter of 2008, where we expect probably the planes based in Stansted.

Passengers traveling on those aircraft will be able to use their own mobile phones and Blackberrys for making and receiving calls and text.

Unit costs rose by 5%, slightly lower than the 7% we originally expected, despite the fact that the sector [linked] is up 7%, combination of higher oil prices, the doubling of airport charges at Stansted as well as significantly higher charges for very basic facilities at the Dublin airport monopoly.

Staff costs rose by 29%, although EUR9 million of that was an employee share option charge, without which staff costs would have risen at 21%, not far off the rate of traffic growth.

Most of that was due to the increased cabin crew ratio.

We're continuing to aggressively tackle costs, and we believe that our unit costs for the remainder of the year will grow by 5% -- again, slightly less than previously anticipated.

We're continuing to lobby strongly with the UK Competition Commission to break up the BA monopoly.

We think there is no justification for the CAA's proposal to dedesignate Stansted on the ludicrous basis that Stansted has no pricing power, when clearly this year Stansted doubled airport charges on the Stansted airlines in May, not alone have pricing power or monopoly power, but are abusing that monopoly power by doubling charges and then providing an abysmal service all summer long.

We strongly have the view that the only way to improve the London airports is to break up the BA monopoly, separate out Heathrow, Stansted and Gatwick and encourage them to compete against each other, rather than work with each other to deliver facilities late and to charge extortionate prices.

We continue to grew strongly.

The news routes and bases performed well over the summer.

We have launched four new bases for the winter -- Alicante and Valencia in Spain; Belfast City, George Best Belfast City Airport in Belfast; and Bristol in the UK.

We'll also start over 130 new routes across Europe during the winter period.

Advance bookings on the new routes and bases are in line with the winter targets, and we are in ongoing discussions with nine potentially new bases around Europe and hope to be in a position to announce one or two more this winter, which will start next summer.

We've had a major initiative recently.

We concluded a new four-year paid deal with the Dublin pilots.

This is significant, because it was the Dublin pilots and the Aer Lingus trade union that, about three or four years ago, started aggressively campaigning for union recognition, trying to use new legislation in Ireland.

That campaign has failed miserably, as they suffered defeat in the Supreme Courts of Ireland.

I think the Dublin pilots have now realize that in actual fact they were misled by the Aer Lingus pilots' union.

Sadly, this cost -- your average Dublin captain has lost about EUR80,000 over the last four years because of that failed campaign, but we're pleased they have now come back to the negotiating table.

We've put that four-year deal in place, and that has brought a lot of follow-on requests from the other 12 bases who have not yet done long-term paid deals to initiate discussions, and we expect to be reaching paid deals with the other standout bases over the coming weeks and months.

We've, in September, launched free web check-in and priority boarding facility for all passengers.

This is part of our ongoing campaign to encourage passengers to travel with hand luggage only and avoid airport check-in, and using the website to do it.

Those passengers are very cheap for us to process at airports, and we're passing on lower fares to those while, at the same time, charging baggage fees and airport check-in fees for the passengers who insist on carrier bringing bags.

However, despite those airport check-in and baggage costs, the total -- the average fare over the six months, which includes airport check-in and baggage charges, has still fallen by 1%, as Ryanair continues to guarantee the lowest fares in Europe, together with a guaranteed that there will be no fuel surcharges in Ryanair.

Unfortunately, we still continue -- our business continues to suffer, politicians stealing money from passengers under the guise of environmental measures.

The UK Chancellor of the Exchequer, Alistair Darling, doubled -- sorry, well, George -- Gordon Brown doubled APD last year from GBP5 to GBP10 per ticket.

That has been passed on to passengers, but not a penny of it has been spent on environmental measures.

Chancellor Alistair Darling, his replacement, has recently announced that they changed the basis of that taxation from one based on passengers to one based on flights, which should notionally be good for Ryanair, because our load factors are high.

But fundamentally, we still think it's an unfair travel tax scam.

It's just another excuse for politicians to steal money from the traveling public, particularly airline passengers, at a time when airlines account for just 2% of the EU C02 emissions, which, interestingly, is half the rate of C02 emissions accounted for marine transport, and yet we see no demand for taxing ferries and no demand for taxing power stations here in Europe, who continue to account for 24% of C02 emissions.

Ultimately, I think higher oil prices or a good deep recession and a spike-up in unemployment will deal with a lot of this environmental nonsense that has been going on here for the last number of years and frankly, the sooner, the better.

Taxing air travel is not going to fact the growth of air travel.

It's not going to affect the environment, and the sooner the public rears up and [facts] a few politicians stealing money off them just for traveling on their holidays, the better.

We have, however, and are going to continue to campaign against the Stansted airport monopoly.

There's no justification for the doubling of passenger charges at Stansted this year.

We believe that will become self-evident when Stansted produces regulatory accounts in the first half of 2008, which show them making monopoly-level profits at Stansted, and will put further pressure on that incompetent regulator, the CAA, to do something about this abusive monopoly.

In the meantime, we're reducing our capacity at Stansted this winter by 20%, seven aircraft sitting on the ground.

We have redistributed those aircraft to the other European bases, where we don't pay for the right to park aircraft, whereas at Stansted we have to pay parking bloody charges as well.

That will reduce Stansted's traffic this winter and proper order.

It's the result they deserve for doubling their passenger charges.

But it also indicates the contempt that the Stansted airport monopoly has for its airport customers and its passengers.

Nevertheless, we anticipate that full-year passenger volumes will grow by approximately 19% to 50.5 million, 0.5 million ahead of our original forecast of 50 million passengers.

We hope that the capacity reductions at Stansted will bring more stability to the winter yields, reduce operating costs and eliminate losses on nonprofitable seasonal routes at Stansted.

Our outlook for the remainder of the fiscal year is cautious, as we have good visibility in Q3, but very little visibility into Q4.

I do want to highlight to all the shareholders and also analysts the anticipated declines, we believe, in Q3 will result in net profit in Q3 being significantly lower than last year's Q3 comparable, which, as you remember, also included a one-off settlement arising from an early contract termination by our hotel partner.

However, based on our current Q3 forward bookings and the impact of Easter in Q4, we now anticipate that winter yields will be somewhat better than previously forecast, with the expected yield declines being towards the lower end or towards the minus 5% range, rather than the minus 10% range we were originally predicting.

As a result of these better winter yields and forecasts, the cost savings which we continue to realize, we now believe that full-year guidance, our full-year net profit will rise by 17.5% to approximately EUR470 million after tax, rather than the 10% growth to EUR440 million previously guided.

You should also be aware [that in] the last two months we undertook a series of share buybacks amounting to a total of 53.5 million shares at a cost of EUR270 million.

The shares have been canceled and represent approximately 3.5% of the Company's pre-existing issued share capital.

During the remainder of this year, however, that will add about 2% to our earnings per share, whereas over a full year it will be an annualized 3.5%.

To celebrate these record half-year results today, we have launched a 4 million seat sale with fares at [EUR10 -- GBP10] including taxes, fees and charges.

I will now hand over to Howard to take us through the summary of the MD&A.

Howard?

Thanks, Michael.

In terms of the summary, we have built a detailed review of the half-year and the quarter end.

I'll just deal with the half-year and summary here.

Profit after tax increased by 24% to EUR407.6 million, compared to EUR329.1 million in the previous half-year, reflecting a 20% increase in passenger numbers, a 1% decrease in fares including checked-in baggage revenues, and strong growth in ancillary revenues.

The growth in revenues is offset by a combination of higher fuel, airport and staff costs.

Total operating revenues increased by 24% to EUR1.554 billion, which was faster than the 20% growth in passenger volumes, as average fares decreased by 1% and ancillary revenues grew by 54% to EUR252.3 million.

Total revenue per passenger, as a result, increased by 3%, while the passenger load factor decreased by 1 point to 86% during the period.

On costs, total operating expenses increased by 26% to EUR1.092 billion, due to the increased level of activity and decreased costs associated with the growth of the airline.

Fuel, which now represents 36% of total operating costs compared to 39% last year, increased by 17% to EUR392.7 million, due to an increase in the number of hours flown, offset by a decrease in the US dollar cost per gallon, and the positive move in the US dollar exchange ratio and a reduction in fuel consumption arising from the installation of winglets.

Staff costs rose by 29%, reflecting the growth in the airline and the share option charge of EUR9.1 million and an increase in cabin crew ratios.

Excluding the charge of EUR9.1 million for the share option grant, staff costs would have increased by 21%.

Airport and handling charges increased by 50% to EUR208.9 million, arising from the doubling of airport charges at Stansted and higher charges at Dublin airport.

As a result, unit costs increased by 5% and operating margins [decreased] by 1 point to 30%, whilst operating profit increased by 20% to EUR461.4 million.

Net margins remained flush at 26%, for the reasons we have just discussed above.

Earnings per share increased by 25%, obviously faster than the growth in net profit due to share buybacks, to [EUR0.2661] for the period.

On the balance sheet, total cash decreased by EUR124.5 million to EUR2.073 billion, as the growth and profitability was offset by the funding of the share buyback amounting to EUR253.1 million, EUR57 million increased investment in Aer Lingus and EUR329.9 million in capital expenditure, largely from internal resources.

Total debt net of repayments increased a during the period by EUR36.2 million.

[Shareholders'] equity at September 30, 2007 increased by EUR78.1 million to EUR2.617 billion compared to March 2007, which is the increase in profitability amounting to EUR407.6 million, EUR6.6 million from the exercise of share options, which was offset by EUR83 million due to the impact of IFRS accounting treatment for derivative financial assets, available-for-sale financial assets, stock options and the share buyback buyback of EUR253.1 million.

That's the end.

Michael, I'll hand it back to you.

If you could open it up to questions, please?

(OPERATOR INSTRUCTIONS).

Jim Parker, Raymond James.

With oil at $94 and even oil above $80 has to have substantial repercussions throughout the industry.

I want to know your thinking on how this might evolve for the industry, and then how it filters down to impact Ryanair.

Surely surcharges go up, capacity comes out.

Can you give us your views on how, if oil is above $80 and at $90, how does this all evolve and how does it end up impacting Ryanair?

Let's start with the simple ones.

We are hedged this year -- we're 90% hedged this year at $65 a barrel.

In dollar terms, or translated by allowing for the weaker dollar, every $1 increase above $65 for next year is the equivalent of EUR14 million added to our cost base.

I think we take a somewhat -- not [much] relaxed, but we take a view on oil that we're going to have a rerun of what happened two years ago, as oil prices spiked upwards.

We're seeing a lot of the competition out there.

What's noteworthy, with the flag carriers in Europe, a lot of them are already hedged, and they all have their dollar exposures hedged, and yet they are out there whacking up the fuel surcharges.

I think we may see a more benign yield environment next year than we have already predicted.

We expected -- our [regional business plan] is minus 5.

This is for FY 2009.

It might be somewhat better than that if the competition are out there increasing fuel surcharges, which they inevitably must if they are trading presently at 3% and 4% margins with oil at $65 a barrel, oil at $88 or $90 a barrel, those surcharges are going to rise.

There may well be upward pressure on prices and yields, particularly in Europe, where there tends to be -- looks like there is going to continue to be capacity stability.

I think you'll see a couple of more casualties over this winter, those airline's losing copious amounts of money.

Without mentioning any, you can take any sample of the Vueling's, the SkyEurope's, the Whiz Air's and all of those who are losing money when oil is at $65 a barrel are in deep [expletive] when oil is at $88 or $90 a barrel.

So we think there will be slow capacity growth next year.

You may see some capacity actually being taken out of the system, but overall I think the range of our competitors, flag carriers down to the lossmaking so-called low-fares airlines will be under significant pressure to increase fares and yields.

A more benign yield environment may help us to pay for higher oil prices next year, [allied] to some continuing cost reductions.

It may not pay for all of it, in which case we will be under some earnings pressure next year.

But to the extent we are, frankly, I would welcome it over a 12-month period.

I think it would help our growth to the extent this is a combination of higher oil prices and higher fares.

Ryanair's price advantage over every other airline in Europe would make people a little bit more price sensitive, particularly if there is an economic downturn, and that will underpin stronger growth without having to disount yields at the minus 5% rate that we would normally expect in order to achieve 20% growth.

But the honest answer is I don't know where fuel is going to be next year, and I don't know where yields are going to be next year.

But I believe there will be a fair degree of natural hedging there, as long as we can maintain large price differentials between Ryanair's pricing and everybody else's.

Michael, a second question -- you have indicated that you are going to begin the mobile phone service availability beginning in, I guess, the first calendar quarter of next year.

Can you share with us a bit about the charging, what kind of revenue per passenger this might generate or revenue per call or revenue per text message?

What is your thinking there?

The thinking -- well, we're trying it on 25 aircraft to start in the first quarter.

Subject to that trial being successful, we would than expect to roll it out onto the entire fleet within 15 months from the end of March 2008.

I think the trial will be successful.

I think this is a product that's going to have a large degree of passenger take-up.

However, we don't want to make any forecasts here.

It's not in any of our ancillary revenue projections, because it's simply too hard to call.

The telephone company itself has been out in the markets trying to raise some money, and they have come up with a prediction of a spend of -- gross revenues per aircraft of EUR111,000 per aircraft per annum.

We don't know what that figure is based on.

We're simply unwilling to give anybody any prediction on what the revenues will be, other than we'll wait and see what it's like during the trial period, and then we'll tell you.

But it's not in any forecast.

So anything that arises as we go will be incremental straight through to the bottom line.

The cost of the insulation is pretty low, in this case.

We've done a very good deal.

We have lead operator status, and I think we'll have a much lower-cost deal than any other airline following in behind us.

But don't ask me for a prediction, because I can't give you one.

The pricing module is pretty transparent.

You pay roaming charges.

Roaming charges are coming down under pressure of the European Commission, which I think will be good for take-up, generally.

Roaming charges were a little bit discredited in Europe here for the last year or two.

As they come down, I think it will make more attractive for people to use it, both to make and receive mobile calls and text, which I think will be a large area for us, with people on board aircraft for one hour or 10, one hour and 20 minutes are bored.

I think there will be a high propensity for people to be making and receiving text.

But we have no revenue figure in the projections, because we have no idea what the revenues will be.

(OPERATOR INSTRUCTIONS).

Stephen Furlong, Davy in Dublin.

I was going to ask Jim's question, but you touched on it this morning.

(inaudible) in discussions with Boeing.

Obviously, there's a number of options there out to 2012.

In fact, I believe that is longer than that.

When do you get into serious discussions with Boeing, do you think, Michael, about a new replacement or additional aircraft beyond that period?

When do you think we're talking about real direct reductions in operating costs of aircraft through new technology aircraft on Boeing?

In other words, there has to be some sort of interim deal first, I guess, before we get to the next generation of Boeing aircraft.

Let me try and reverse the order of that.

At the moment, we're kind of, I think, atheistic about the next generation -- our new technology aircraft.

Our view of life is that the aircraft is fine, the tube is grand, stop playing around with it.

I think Boeing looked like they've come around to that view, certainly for the period 2012 to 2015.

They are really looking at 787 composites and all that.

Apparently -- and I'm not (inaudible) they don't work on planes of the size of the 737.

Where we are looking, and where Boeing are continuing to look, and that is on the engine technology.

How do we reduce fuel consumption?

For obvious reasons -- one, cost savings and; and, two, environmental.

We all want to be good environmental soldiers.

So we'd be very keen to see improvements in engine technology.

But leave the airframes alone.

The airframes are fine.

Boing, up until recently, were looking at a different kind of technology from 2012 onwards.

We started discussions -- in fact, Boeing has started discussions with us about -- I think we should explain.

We have 70 options left to take in 2010 and 2011.

Then we have purchase rights beyond [2000] -- for 2012 onwards.

Boeing now are trying to lay down some solid orders for the narrow-body fleet, I think, from beyond 2012 to 2015.

So we're having a general discussion with them at the moment about confirming those options, the 2010-2011 options, early and laying down some options, firm borders and options for the period 2012 to 2015.

Those discussions have only just started.

They are pretty tentative, but I think the good thing about them is that Boeing have recognized that the existing -- to our minds, that the existing aircraft will be the existing aircraft out until at least 2015, and I think that's very much in our interests as well.

So I think those discussions will continue through the winter.

What speeds them up is the speed at which Boeing wants to kind of create certainty beyond 2012.

We're working with them on it.

We're in discussions with them, but we don't have to confirm those 2010 options until 2008, anyway.

So I wouldn't expect to see any kind of news here until maybe the end of the first quarter of 2008 or our annual results next year.

But, as I say, it depends on what Boeing's objectives are.

We will be relatively positively disposed towards taking more -- ordering more aircraft over a longer period of time, but we would like to see that kind of aggressive commitment, particularly at a time of such uncertainty, reflected in better pricing.

(OPERATOR INSTRUCTIONS).

Arnaud Brossard, Oddo Securities.

I have two questions.

The first one is related to the aircraft disposals at the moment.

I understood that about five aircraft had been delivered to the acquirers already, and that another 15 were supposed to be sold over the next two years.

I was wondering if you could tell us at what moment exactly you expect to take the depreciations you mentioned on those aircraft you are selling.

The second question is related to your oil hedging policy.

I was wondering if you could explain us how you intend to hedge over the next few months.

Is there a target level at which you will buy?

Do you look at fuel prices in dollars or in euros only?

In terms of the aircraft that we have sold, five have just been recently delivered.

So we will show the gain on those five aircraft deliveries in the third-quarter results, which will be released in early February.

In terms of the remaining 15 aircraft that are being delivered between 2008 and 2010, the difference between the current charge and the [new] depreciation charge we will spread as a balancing charge over the remaining years.

What I was saying this morning is that there is no significant change, because there is a small difference or a small currency loss arising on the disposal, we would just simply spread that in over the remaining period where we will use that aircraft.

So there will be little or no impacts on our depreciation charges, not only in this year but over to the point of delivery.

In terms of oil, well, we would love oil to be down to $65 a barrel.

But unfortunately, we don't have that luxury.

We had started to hedge out there a number of weeks ago, when oil prices on a euro-adjusted basis were almost at the same level as this year.

Unfortunately, as soon as we started, the market went the other way.

We certainly were -- we felt a flat year-on-year cost was very attractive, looks even more attractive now.

But obviously, with fuel on a forward pricing basis at $82 per barrel for December 2008, clearly, that's a bit of a hill for us to climb at the moment.

So I think we will have to look over the next couple of months at what we're going to do.

We would be, I suppose, more concerned about the winter period, given that we have a relatively high fixed cost base, and if the exposure to spikes and prices is generally more across the winter period.

So we would look to cover that at first.

In terms of how we look at it, well, yes, you are right.

We do talk generally about a cost per barrel in dollar terms, whereas in reality we have to account for it in euro terms.

So we're obviously factoring in the benefit that we've got in terms of a stronger euro to the dollar.

We are hedged on the dollar side at about 1.35 for next year, obviously not as good as the current spot price, but obviously that's a rolling hedge.

We run a book of about 18 months, but obviously we'll continue to get the benefit as we go forward.

So I think I suppose, in essence, then, in terms of fuel, we are not going to do anything for the moment.

We'll wait and see what happens over the remaining of the winter.

Clearly, there is a considerable -- the market expects that the spot price is going to change, because the spot price is currently just over $90 and the forward price is $82.

So there's obviously some expectation that that price is probably slightly inflated at the moment, given the recent media events we have.

But who knows?

It's anybody's guess, at this stage.

We appear to have no further questions at this time.

I'll hand the conference back to you, Mr.

O'Leary.

Thanks, everybody, for joining in today.

As I said, we're pleased with today's results.

I think it shows good traffic growth; it shows good profit growth.

The best message for investors is we're raising full-year guidance for earnings per share up about -- our earnings up 17.5% for the full year, and the share buyback will kick in about another 2%, 2.5% of that.

So you should be looking at EPS growth of about 20% year on year, which for an airline with 40 million passengers growing at 20% is still a terrific performance.

Our focus for the next 12 months will be continuing to grow safely, continuing to grow profitably and continuing to take out costs or certainly controllable costs.

I think the view on fuel is wherever we see an opportunity to hedge out, particularly the winter of 2008-2009, at a sensible price, we will do so.

We may well be unhedged next summer, and I think we would be less concerned by that.

But if there's an opportunity offers itself in the next couple of months to hedge out next year, we will try and take it, but not at present rates.

Other than that, we have the full roadshow team on the road in a country close to you.

We expect to see everybody, or one member of the team will see somebody over the next week.

Again, if anybody has any individual questions or any follow-up questions, please feel free to send them in to David in Dublin, and we'll get back to you either this week or early part of next week, when we are all back in town.

Ladies and gentlemen, thank you very much.

Appreciate the time and look forward to seeing you all sometime later this week in wherever you are.

God bless.

Bye-bye.

Ladies and gentlemen, thank you for your participation.

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

Thank you.