Ryanair Holdings PLC (RYAAY) 2024 Q2 法說會逐字稿

Okay, can we start? Great. Good morning, ladies and gentlemen. You're all very welcome this morning to the half year results analyst briefing. We're just going to kick on straight away.

I'm Michael here, obviously. This is Howard Miller, well-known to all of you. We'll take you through the presentation, open it up for questions and answers, and then, if anybody's got any other questions, please feel free to log them in.

Oh, boy, we love this. You've seen it before, we're the world's favorite airline; lowest fares, lower seat costs in Europe, no fuel surcharges guaranteed, growing strongly, EUR58 million this year, more than 800 routes from 31 bases across Europe, no airline has that kind of coverage, number one customer service delivery continues, better punctuality, fewest lost bags, fewest cancellations, we're the greenest, cleanest airline in Europe, and this is our 24th year of strong growth.

In the last half year, good news for passengers, our fares continued to fall while most of our competitors, Aer Lingus, easyJet, Lufthansa, BA, Air France, are increasing their fares and raising fuel surcharges. And I think it's one of the key dynamics in the marketplace at the moment. There's an enormous traffic switch away from high fares airlines in favor of Ryanair's low fares.

Customer service continues to be the best in Europe.

Our financial highlights. Traffic for the half year, up 19%, the load factor down 1%. It's statistically insignificant. Average fares, includes the bag revenue, was down 4 percentage points, revenue per passenger, up 2%, the profit after tax down almost 50% to EU215 million, still a creditable performance given the oil price had doubled during the half year, and the net margin for the half year down 14 points at 12%.

Very strong balance sheet position continues, and I think that's fundamental in the current markets. You do really not want to be exposed to a lot of debt. We have, basically, a tiny net debt position, EUR138 million. That's after spending over EUR750 million in the last two years buying the 29% share in Aer Lingus, and having spent almost EUR350 million on a share buyback.

Recent developments. We've launched or announced nine new bases; Alghero, Birmingham, Bologna, Bournemouth, Cagliari in Sardinia, Edinburgh, Kerry, Reus, and Trapani in Sicily. We have announced the closure of Valencia and Forli where the local governments have broken the agreements of which they entered into in order to allow us to launch those bases. And in total, in the last six months, we've either launched or opened 250 new routes.

Spot oil prices have fallen back to below $70 a barrel which, obviously, would make us a bit more optimistic for next year, but it'll have very little impact this year given that we're already hedged at $124 a barrel into the third quarter.

We've begun to roll out kiosks. We have 53 of them installed, free of charge, in Stansted. At the moment, they can do check-in but by between now and Christmas we expect to be increasing their serviceabilities to allow us to take cash transactions, we'll be doing the excess baggage fees, all that kind of -- they'll become effective ticket desks for us at Stansted as well.

In-flight phones have been a little bit delayed. Still waiting for regulatory approval. OnAir, who are the supplier, haven't performed particularly well, but they have promised us again that they expect to have regulatory approval before the end of November. We'll wait and see. Once we get it we have 14 aircraft fitted in Dublin to launch the trial. And as it will -- and we then expect to roll it out across the fleet over the coming 12 months.

We've exercised our options on another 14 aircraft for 2010. That'll take our firm fleet, which is fleet -- aircraft currently flying plus firm orders up to 279. It'll allow us to almost double in size over the coming five years. And the key feature, competitor consolidation, continues. Bankruptcies have accelerated, particularly here in Europe, which we believe underlines that combination of competitor consolidation and bankruptcies, allied to our policy of continuing to reduce air fares, is driving very strong traffic growth.

I point you this morning; we're announcing our October traffic figures where we've grown. Traffic is up 18% to 5.35 million in the month of October. The load factor, at 85%, is exactly the same as it was this time year. And contrast that, for example, with British Airways's September traffic figures, which were down 6%, with most of that decline in the short-haul European marketplace. However, oil is no longer the big issue, I think, for European airlines. The recession, very clearly, is.

We're now much more bearish on average fares for this winter. We expect fares to fall by between 15% to 20%; previously, the guidance was between 5% and 10%. Much of that is driven by Ryanair's aggressive price promotion policy. We've had a series of price promotions. In fact, almost continuous price promotions over the last three months, which is keeping load factors high. This morning we released a million seats for travel in November, December, January at EUR10, GBP10 out of the UK, which includes Gordon Brown's GBP10 tax. So, effectively, people are flying for free. All they're paying is the UK GBP10 UK APD.

Touching on fuel, we had always predicted that oil prices would fall although, clearly, we didn't expect them to fall as quickly as this. But, in many respects, that's welcome. The position, we were unhedged in the first half of this year, and I think that's one of the strengths of the Ryanair model. We've been paying these record-high oil prices and yet we've still been profitable through the half year.

Quarter one, we paid an average of $117 per barrel. In quarter two, which, as you know, is the quarter ended September, $132 a barrel. We hedged the third quarter up to December at $124 a barrel when oil prices had fallen back from $146. We thought that was the sensible thing to do at the time and, lo and behold, it's not. It was a stupid thing to do, although, thankfully, we're totally unhedged for Q4 and remain unhedged for Q4.

We continue to believe that, in the short-term, oil prices will fall further. I think probably $50 a barrel may well be achievable this winter, the more the recessionary noises -- the recessionary drum beats around the world. We remain, however, concerned over the medium-term that whatever the short-term price falls won't be maintained, and we're out there looking for opportunities to hedge into next year, simply to lock-in and offer some significant cost reduction over this year's comparables.

When oil hit $60 a barrel two weeks ago, we started hedging first half of next year. Two things; one, there's very little liquidity in the market and there's not a lot of counterparty business out there. We found it very difficult to hedge even the 25% for the first half of next year, and the hedging we were able to put in place we were paying a premium of about $17 a barrel. So, whereas spot was about $60 a barrel, the forward rates into Q1 and Q2, as you can see, were an average of $77 a barrel. Nevertheless, we've hedged 25% of our oil requirement for the first half of next year, and by doing so, we're locking in a cost saving of about 40% compared to this year's Q1 and Q2.

We would hope that oil price will continue to fall further. We'd be unlikely to continue to put hedges in place at these kind of premiums or at these kind of premia. But we think until the financial market's settled down and more and more banks come back into the market, it's going to be difficult to put a lot more hedging in place. In the short-term, however, I think we'll stay unhedged into Q4. Spot, I think, will be $60 and may continue to fall. OPEC will try and keep oil prices high, but I think they will be unsuccessful in the coming months given the amount of bad news and recession that's out there.

The key thing for us is, moving into next year, we have a much easier comparable because we so screwed up this year on oil. So, every dollar movement below our average price this year will be about $110 a barrel, assuming we can buy in the fourth quarter at $70 a barrel. And every one dollar movement below that next year will reduce costs by about $14 million. So, at an average of $80 a barrel next year, we would make about a EUR420 million saving over this year.

As I said, hedging is difficult. It's a very illiquid market. There's a big disconnect between the spot and the forward. At the moment, the premium's about $16, $17 a barrel. However, moving out into next year, which is fiscal '09-'10, we, unlike most other airlines, have easier comps because we were the ones who were unhedged this year, whereas most of our competitors were hedged this year.

Moving into next year, we're, essentially, unhedged, whereas most of our -- a lot of our competitors have significant hedging in place of over $100 a barrel. That will include the likes of easyJet, BA and even Aer Lingus.

Our response to these marketplaces, again, is characterized and the recession, I think, is now a much bigger issue for us than oil prices. We're going to continue to guarantee the lowest fares, we're going to continue to guarantee no fuel surcharges. We believe we're seeing much strong traffic growth in a recession as everybody, consumers, become much more price sensitive and, fundamentally, trade down from high fare fuel surcharge airlines, say BA, Aer Lingus, Air France, and Lufthansa, directly in favor of Ryanair. That process is helped by the number of flaky loss-making airlines around Europe going bust, and we think we'll expect to see more between now and Christmas.

As you know, we've extended our dollar hedging program. We're now hedged at about $1.50 to the euro. For capital expenditure up to the end of 2011, we're locking away enormous cost reductions here in our aircraft acquisition program. And for current expenditure, we've about 18 months, the next 18 months, largely hedged at the dollar at $1.50.

So, in a bizarre way, we hope the recession continues this winter, and the deeper the better it is, partly because it'll get rid of more loss-making, flaky airlines. The finance markets are drying up, but it's going to allow us to continue to benefit from enormous cost reductions on aircraft, dollar purchases, weaker oil, and will gear up for better profitability the next year too.

We have continued, nevertheless, to take out costs. And if there's one figure I'd draw your attention to in this morning's numbers it is that our operating cost per passenger, excluding fuel in the six months, has fallen by 6%. A very significant cost reduction. We're way ahead of the curve in terms of taking out cost, and with the exception of regulated costs, which is airport costs at Stansted and Dublin, euro control, and, obviously, oil, all of the other cost lines have risen at a smaller rate than the growth of scheduled traffic in the half year.

We have a pay freeze. We've implemented redundancies. We have pilots and cabin crew on a minimum of one week's unpaid leave this winter. All of that has been done. We've revised and reducing our airport maintenance and handling costs. That includes we're using the increased baggage and airport fees to migrate passengers onto kiosk check-in, away from airport check-in, use web check-in, kiosk check-in, don't travel with bags because it's cheaper for us to carry it in that way.

And we're going ahead with grounding up to 20 aircraft starting in November, primarily, Stansted and Dublin. Those two regulated airports, who are still increasing charges despite the fact that traffic is falling, and I think we're going to see this winter significant further declines in monthly traffic at Stansted. And for the first time in some 20 years, traffic declines at Dublin, a trend we think will continue now that the Irish government have decided to introduce a lunatic tourist tax as we enter a recession.

Aircraft financing. Clearly, a big issue across the industry at the moment. Fundamentally, we are fully financed out for the next 12 months. The entire delivery program is fully financed until September '09. We're taking delivery of 58 aircraft. 32 of them using EXIM bank guarantees. We have 20 operating leases already agreed and signed, and six Japanese operating leases.

The long, we continue to benefit from very long-term low cost funding. The EXIM bank guarantees continue to mean that Ryanair is borrowing at AAA rates and on the back of a very weak dollar. We're financing in euro-denominated debt. So, we're benefiting from lower interest rates but, fundamentally, buying much cheaper aircraft because of the weakness of the dollar to the euro.

We've locked in the dollar, which locks in very low aircraft costs which, if you like, will continue over the next 20 years in terms of amortization and depreciation. So, we're still locking in enormous cost savings.

From September '09 to September '10, we have 48 aircraft to finance. We think we'll do that with a mix of EXIM mortgage finance, some debt. We're not that exposed. We have no requirement for operating leases or JOLCO although we would continue to try to do maybe about a third of those deliveries using that. But, if the market continues to dry up, we'll simply do it out of cash, and we have more than sufficient cash to do it.

We -- and, again, go back to the fundamentals. If you take away the short-term fuel problem and, I think, the more short to medium-term recession, which is, clearly, going to be very deep and very significant, our plan remains to double in size, double our traffic and our profits.

Starting with the base of 2007, in which we carried 43 million passengers and made a profit of EUR400 million, we expect that to double to some 90 million passengers and EUR800 million profit by 2012, and we think that's achievable. In fact, if we have a combination next year of a significant reduction in oil prices, you'll see our profits rebound very strongly although profits will, ultimately, be determined by yields for the next 12 months.

The outlook this winter, much more bearish on yields, fares are going to fall very significantly. We expect to see them fall by between 15% to 20%. Our previous guidance this winter was a fall of between 5% and 10%. What's driving this is recession, a collapse in consumer confidence and, also, Ryanair being aggressively on the front foot.

We are really opening -- we're selling an awful lot of very cheap tickets. Our advance bookings this winter are a couple of percentage points ahead of where they would normally be, fares are lower, and we think much of that is due to the fact that we're simply taking traffic off most of our competitors, maintaining very high load factors but taking market share off the competition, as well as continuing to grow new routes and new bases.

Our lower fuel cost this winter, which is the 20% of Q3 that isn't hedged and the entirety of Q4 that isn't hedged, we think will be largely offset by very significant yield declines this winter. But, despite that, we think for the full year we're now confident that we will breakeven, maybe make even a very small amount of profit, at a time when almost the entire rest of the industry will lose money for this -- in the current year.

Traffic growth continues to be very strong. We have grown approximately 20% month-on-month in the first half. We'll grow by about 9% month-on-month in the second half, primarily, because we've cut back the amount of aircraft flying at Stansted and Dublin. But, for the year in total, we'll grow 14% to 58 million passengers.

The key trend at the moment for the next three or four months is going to be competitor consolidation is continuing, bankruptcies will accelerate, particularly here in Europe. We have so many flaky, loss-making so-called low-fare airlines. Well, in fact, they're high-fare airlines with high costs and making massive losses. There will be fewer competitors at the end of the cycle.

I think we're seeing the emergence of four large airlines in Europe; BA, Lufthansa, Air France and Ryanair. Ryanair will still be the only airline committed to low fares and no fuel surcharges and, coming through a recession, the lowest costs will win.

And if you look at that kind of switch, the underlying transformation in the marketplace, just -- we could put up Lufthansa, BA, any of the others here. This is BA's worldwide traffic for the last six months and, as you can see, month-on-month, large decreases in passenger numbers starting from a relatively small base of 2.5 million in April, each month traffic falling. BA contracting, and most of that contraction has taken place on the UK and European marketplace. Meanwhile, Ryanair, albeit on the back of lower air fares but still trading profitably this year, we're seeing 20% traffic growth as we open up that capacity as we continue to lower fares.

We're now seeing very significant traffic growth, and a significant proportion of that growth is coming -- is people switching down to low fare -- to our low fares from BA's high fares and fuel surcharges. And an interesting statistic now is we're almost carrying twice BA's worldwide traffic on a monthly basis. And five years ago, BA were proclaiming themselves the world's favorite; now they're not even the UK's favorite airline.

And one of the interesting trends, and it'll be no stranger to people in this room, is the big guys; Air France, BA, Lufthansa, none of them are giving back the fuel surcharges despite the collapse in oil prices recently. Last time oil was down around these kind of levels, $86 a barrel last November, the BA short-haul fuel surcharge was GBP10 and GBP58 on the long haul. They have made a big song and dance about some minor fuel surcharge reductions in the last two weeks, but, despite the fact that oil prices have fallen by 50%, they've barely reduced the fuel surcharges by 10% on the long haul and no reduction on the short haul.

And it's interesting; BA's fuel surcharge of GBP16 will be larger than, I'd say, 40% or 50% of Ryanair's actual ticket prices this winter. And that's why people are trading down, and why we think our traffic growth will continue to be strong this winter.

As I said, the overall trend, massive at the rate of EU airline consolidation has increased and the rate of EU airline bankruptcies has increased.

Just to give you a flavor of, and these are just highlights over the last 12 months, Air Berlin closed the Belfast City base. Immediately, Belfast City turned to us, gave us a phenomenal deal, we've opened a base there. Aer Lingus closed the Shannon base. Same thing; we moved in and opened up the Shannon base. easyJet have closed the Dortmund base. Very good for our neighboring base in Duesseldorf-Weeze. Futura went bust in August, opened up a lot of slots in Dublin and in Spain, and we're growing very rapidly in Spain at the moment. It's been augmented. Spanair closed six of their eight Spanish bases. XL Airways went bust in September, opened up more slots in Manchester, Gatwick and Spain. Alitalia went into administration cutting back significantly its short-haul capacity in big markets like Milan, Rome, and generally across Italy. And it's one of the reasons you've seen us expand quite rapidly in Italy in recent months. And LTE, which was the LTU subsidiary, went bankrupt in October. Sterling, last week went bankrupt, opened up opportunities in Spain, Copenhagen and Gatwick and in Scandinavia. And we expect to see probably another five or six bankruptcies here in Europe between now and Christmas; some in the UK and some in Europe.

Consolidation continues. In March, easyJet merged with GB Airways, waved through by the UK regulators. In July, Clickair and Vueling merged under Iberia, waved through in Spain. Lufthansa has acquired 49% of SN Brussels with an option take. A majority, again, will be waved through by Brussels. Alitalia and AirOne has merged to form a much bigger and more dominant operator in Italy than ever was envisaged by the Ryanair- Aer Lingus merger, for example, in Ireland, and yet rubber stamped and waved through by the Italian authorities. The European Commission isn't even going to look at that transaction because, clearly, they are far more preoccupied rocking Ryanair's bid for Aer Lingus, which would change the face of European air travel as we know it.

In October, Air France-KLM acquired VLM. Lufthansa has now announced it's taking a majority stake in BMI. And the big ones; the proposed mergers, BA-Iberia, Lufthansa-Austrian and Air France-KLM possibly with Alitalia, are clearly, I think, going to take place this autumn. All of which brings back into focus the extraordinary, remarkable prohibition of -- the EU's prohibition of our previous offer for Aer Lingus. Still and to this day, it's the only EU airline merger that was prohibited by the European Union in the last 20 years while they rubber stamped just about every other European airline merger possible.

Our appeal of that is going through the European courts. We'd hoped to have a decision some time in mid to late 2009 to overturn that, a clearly unique and politically motivated prohibition.

In summary, Ryanair remains Europe's only lowest-cost, lowest-fare operator. We continue to demonstrate very long term strength. The model fundamentally works at a time when every other European airline model is broken.

Yes, we're suffering a short-term oil cost pressure, but, as you can see now going forward, oil has broken, it's in retreat and I think we will see our profits rebound strongly next year. However, the recession, consumer confidence and falling fares is going to be a much bigger issue for us not this winter but next year.

That's not helped by stupid initiatives like the Irish Government's copying of Gordon Brown's failed tourist GBP10, EUR10 tourist tax, which will undoubtedly I think significantly damage our investment in Aer Lingus over the next 12 months. Aer Lingus, whereas almost all of their traffic originates on and off or on the island of Ireland will see their trafficking yields collapse next year on the back of this travel tax, and I think it'll sadly further damage our investment in Aer Lingus.

It will damage our business on and off the island of Ireland, but thankfully we've only about 15% of our traffic originating in Ireland, but nevertheless, the Irish Government has reverted back to the failed policies of the '60s and '70s when we couldn't tax our way out of a recession in the '60s and '70s, and we're not going to do it in 2007, 2008 either, but then you've a lot of idiot civil servants who don't have an idea in their brains apart from copying the failed policies here in the UK.

We do nevertheless believe that Ryanair's profits will be down next year as oil prices fall. We've locked away 25% of the first half next year at $77 a barrel, almost a 40% cost reduction over this year. Nevertheless, we think we'll give away some of that next year because fares and yields will fall and we don't yet know by how much, but they're clearly going to continue to fall.

We do think that's good for the medium term, Ryanair's medium term growth, and bad for our competition because more of them are going to go bust or lose money this winter.

Our industry leading customer service delivery will continue. We have many new airports and many new bases ready for growth to 80 million plus passengers over the next couple of years. And, as you see collapses like Futura, Sterling, like XL, we're now being quoted by airports like Birmingham, Manchester, Copenhagen, Alitalia in Italy. We now have offers on the table from Rome, from Fiumicino, from Milan Linate. Airports who previously wouldn't even talk to us are now coming to us desperately to see our -- trying to encourage us to fly there.

Now, they all have a bit to go yet because the first conversation starts off when we're at Gatwick and therefore, surely you'd want to pay the outrageous charges we offer, and the answer is sorry, no we won't, but if you keep reducing your costs, we'll happily look at it.

We do plan to double traffic and profits over the period 2007 to 2012, which means hitting EUR800 million in profit sometime in the next three or four years and lowest costs will continue to win.

Just to touch briefly on current issues in the UK. BA's fuel surcharge rip-off continues, and long may it, because frankly, it's driving traffic in our direction. And you see the collapse of BA's short-haul traffic while Ryanair continues to grow very strongly.

BA's September traffic was down 6%. Ryanair's was up 20% and as we've confirmed this morning, our October traffic is up 18% maintaining an 85% load factor at a time when most other airlines are ceding traffic to us.

Interesting that BA on Friday announced that in response to the Irish Government travel tax next year, they're going to pull off the Dublin-Gatwick route; a route on which last month they had a load factor of 38%. They're simply not able to compete with Ryanair in the short-haul market anymore.

Nevertheless, we have our own problems in the short-haul market, particularly at regulated airports like Stansted and Dublin; airports who are still increasing costs at a time when their traffic is in decline and the world is entering a recession. So we've a 14% Stansted capacity reduction this winter. Our Dublin capacity is going to fall by about 15%.

The CAA continues to be -- if you want a demonstration of regulatory failure, it's the CAA. That the Head of the CAA airport regulatory division, Harry Bush, must go, should go, should be sacked, although, of course, as a civil servant, he'd probably be protected by the other civil servants over here. He's been useless for many years and the sooner he's gone, frankly the better.

We would prefer to have no regulation of the UK airports. We'd far rather see them being broken up as the Competition Commission has recommended. We're very concerned by the BA's latest conversion to, well, we'll sell Gatwick, and therefore can we please hang on to the monopoly at Heathrow and Stansted as well as the Glasgow airports?

We think the Competition Commission will see that for what it is; a belated attempt by Ferrovial to desperately hang on to most of the monopoly while getting rid of the one airport where they don't plan to spend any -- had they of any CapEx.

We're pushing strongly for the UK Government and the CAA and the Competition Commission to force the early sale of Stansted and the early sale of one of the Glasgow airports because clearly, we've tried regulation in this country. It didn't work. You just get an idiot regulator like Harry Bush and put him in charge and all you get then is rising costs and traffic declines. Let's have competition replace the mess that the regulator has created.

Regulation isn't working in NATS, where again, a bunch of idiots that couldn't run a piss-up in a brewery. We continued this summer to have massive staff shortages on Fridays, bank holiday Mondays, when obviously none of them could bother their (expletive) to get out of bed and go to work. Now we're fed up paying for a service that we don't receive, but that will continue until we have single European skies, where we get rid of all these protected civil servants who can't run air traffic control.

Nevertheless, the good news, you're going to see more airline collapses in Europe. The collapses of XL, Futura and Sterling has opened up significant capacity of many of Europe's most expensive airports. Those airports are beginning to understand that the only way to grow is going to be reduced cost, and I think that's going to continue to be the trend.

Consolidations accelerating last week, we saw the Lufthansa take out of BMI. Ryanair continues to ban, and we continue to campaign against illegal screen scrapers, and we had another major significant victory here in the UK in recent weeks, Tui, who are taking us to the high court, have now withdrawn their claim and have offered to settle our legal costs, and it looks like we've now confirmed the illegality of screen scraping here in the UK market and we'll be continuing to demonstrate that to celebrate.

The collapse in our profits, we're going to keep going, therefore we're releasing another one million, EUR10, GBP10 a seat, travel one way on 250 routes, travel Monday, Thursdays and Saturday during November, December and January and we are determined to keep, if you like, being on permanent seat promotion this winter. We're going to keep driving out low fares.

We're creating a lot of headroom for ourselves with these kind of bearish forecasts on yields, but I think that's what's going to happen and the only way for us to trade through this recession is to keep lowering fares, keep taking traffic off the competition and we'll emerge in the next 12 to 18 months much stronger, with a much bigger share of the European marketplace, with very few European competitors left essentially just Lufthansa, Air France and BA.

That's the end of the formal presentation. Anybody got any questions?

Maybe just before we start Michael--

Sorry, Howard.

I would just like to talk about the fuel slide we have here. Michael was talking earlier on about a disconnect between the spot prices. Traditionally, the unit -- the amounts we've used in our presentations are all our cost per ton. So if you multiplied any of the numbers here by 10, so if we took, for example, Q1 fiscal 2010 at $76 a barrel, that is equivalent to $760 per ton.

Now we've used this simple formula over the last period of time. In recent months, there has been a disconnect. So, for example, even when we were trading at, say -- we were buying forward at $76 per ton, spot for Brent was about $60, but spot for jet fuel was about $720 per ton. So that simple ratio has disconnected over the last couple of months.

Now it may reconnect at some future, so when you do see people saying, it's $60 a barrel, jet at the moment for, say, Q3, Q4 is hedging at about $72. So you should know that and just take our numbers here as the -- just multiply them by 10 if you're putting it into your models as the cost per ton.

Yes, sorry, for press purposes clearly we want to talk in price per barrel, because nobody else understands that jet fuel's actually bought per ton and it's quite different from Brent or whatever else it is, but just to keep it all very simple and make sure everybody's singing off the same hymn sheet. Okay.

Okay.

Okay. If you just -- anybody wants to ask a question, if you just identify yourself first for the same of the podcast with just your name and your firm. Jo.

Jo (inaudible). Just three questions. First off, in terms of absolute demand in the market, it seems to me one of the concerns out there that travel demand full stop is going to weaken significantly, or is weakening significantly. How is that manifesting itself across the business and is there a variation between different markets across Europe?

Secondly, on aircraft disposals, you've obviously completed quite a few of those. Given that aircraft markets seem to be weakening a lot right now, what implications does that have for any future aircraft disposals and could you talk us through what implications that might have in terms of replacement and new aircraft deliveries and so on?

And third, finally, in certain media this morning, you're quoted as talking a bit more in detail about long-haul, low-cost, but it's not in the release itself. Could you give us a bit more insights on that? Thank you.

Yes, thanks, Jo. I mean the overall market's difficult to predict, although I think IATA and the Association of High Fare European Airlines have predicted that there the traffic will fall between 1% and 2% this winter.

I think the overall European travel will fall by more than that. I think it will probably fall 4% to 5% this winter. I don't really think it'll have that much effect on Ryanair. We continue to grow. We're going to maintain last year's load factors. We expect to grow this winter by about 9%, something of the order of 8% to 9%, but a lot of that will come by simply taking traffic off the high fare airlines.

One of the reasons why I think they are seeing much weaker traffic is because they're desperately trying to maintain high fares at these ridiculous fuel surcharges, despite the fact that most of them were hedged this year for not paying these high oil prices, and yet their fuel hedges haven't reflected the 50% reduction in oil prices.

So frankly, the more they continue to charge high fares, cut back capacity and consolidate, the better. The more I think it will send the traffic in our direction. Will the markets be difficult this winter? Yes, they will. Which markets will be the most difficult? I suspect it will be the UK and Ireland.

I am very bearish on traffic in the UK where you have a collapse of consumer confidence, you have this ridiculous travel tax, which I think was probably all right during an upswing, but in a downturn, in a deep recession, even when we're selling these GBP10 one way fares across Europe in December, all of that goes to Gordon Brown for some nutty environmental measure.

The Irish Government are about to, I think, follow the same way. Only two countries have introduced these environmental travel taxes. The UK, which has now seen very steep traffic declines at most of the mainland UK airports, the Dutch Government introduced the same thing. They have already, in the space of three months, seen a big decline in traffic at most of the Dutch airports, and I think Ireland will go the same way, not just this winter but into next summer.

So I think the big traffic declines will be in the UK and Ireland. I think our business across Europe though, particularly in Spain, Italy, will continue to grow strongly where you're seeing major capacity contractions in the Italian market, as Alitalia and Air One come together, put up airfares and maintain high fuel surcharges, and in Spain, where there's been a seismic reduction in capacity with the Spanair restructuring, the Clickair-Vueling collapse, Iberia cutting back capacity as well. I think those markets will continue to grow strongly for us.

In terms of aircraft disposals, we are -- we believe that there won't be any more aircraft disposals in the next 12 months. We think the market has collapsed as we thought it would, although all of the deals we've signed up for are already kind of done. We have irrevocable with our signed up deposits paid and we think those transactions will go ahead. Frankly, we would be quite happy to see the aircraft disposals dry up because I think it brings into focus the opportunity for aircraft acquisition.

I'm one of the few people at the moment calling for no reduction in interest rates this week. We want to see a good deep recession this winter. I'd like to see the entire Western economy on its knees, and that Boeing and Airbus would be the two people most on their knees, and I think we'd be in a position to help them up off their knees.

Frankly, a good deep recession for the next six or eight months would see lower oil prices, lower aircraft prices, a weaker dollar, and I think would set us up very nicely for very profitable growth and a return to very strong profitability over the next year or two.

So all of this bleating, looking for interest rate reductions and zero interest rates, we think is misplaced. We need a good short, sharp recession which will help us to reduce costs, maintain very low labor rates, and hopefully put or see off a lot of the flaky, loss-making airline models that there are across Europe, where many of the existing loss making airlines will go bust between now and Christmas.

In terms of long-haul, low-cost airlines, you should not believe everything you read in the News of the World. Those of you who read things in the News of the World, they certainly didn't speak of Ryanair. I can think in the long history of Ryanair, we have never spoken to the News of the World.

We do have a plan, but I keep thinking it is not Ryanair, we will not go long haul in Ryanair. There is a plan that if there's a collapse in long-haul aircraft prices, something that hasn't yet emerged, and may not even in a deep recession because of the backlog production problems with the 78, or the 787 and the A380. If we can secure a fleet of long-haul aircraft, we do believe there's money to be made with a transatlantic low fares airline operator taking advantage of the European, US open skies.

Nothing can happen until we secure a fleet of long-haul aircraft. I don't think that's going to happen for maybe six or 12 months, and therefore, it can't, if you like, launch for maybe another 18 or 24 months after that, but we'll keep you posted. But it won't be Ryanair.

Ryanair's plans will revolve around continuing to grow organically. We expect to double in size of the next five years. Market conditions for that kind of growth have never been more favorable, as long as we have a good deep dark recession for the next six or eight months this winter.

Who else? Yes, sir. Just go ahead.

Edward Stanford from Cazenove. Two questions following on the fleet disposal program. Could you just remind me how many planes you plan and have secured to sell?

And also the depreciation charge, the accelerated deprecation charge, is that just on the number of planes you have left to sell, and what's the -- have you done all the depreciation you need on that?

Okay, Ed, we said that about a year and a half ago that we would sell or retire 46 aircraft. 25 have already been sold, of which we've delivered six, the remaining 19 would be delivered across the winter period.

In terms of future, we've also got some operating leases that are due to expire. There's about 11 of those. So the 25 we've sold, plus the 11 leases expiring, we're just returning to the leasing company, will leave us at 36, which would leave 10 aircraft from our original program.

Original program's set to run to the end of 2011, so we've a number of years yet to look at those 10 aircraft. In the context of the fleet, in excess of 200 aircraft, obviously things will change, maybe our growth rate might speed up, maybe we'll use them for something else, maybe it'll become part of an Aer Lingus fleet, who knows, but 10 aircraft is not really significant in terms of that.

In terms of the depreciation, you will see accelerated deprecation going right through to the fourth quarter. Some of these aircraft were bought when the exchange rate was at 0.82 from the euro to the dollar. Now it's trading at 1.28 today. We've locked in most of the sales for these aircraft at about 1.35. So we will continue to take that accelerated depreciation over the coming weeks, but the good news is, they're very, very cash positive and we're getting a very attractive price.

We've got to [name] them off as we could and as Michael said, that market has just collapsed.

And I think the important thing is, we've sold those aircraft at very high prices over the last 12 months and we'll be replacing those aircraft sales with very cheap aircraft because we've taken advantage of the dollar.

We've locked in the dollar at $1.50 to the euro. So we'll replace those older seven year old aircraft with brand new aircraft at much cheaper dollar prices, with five year warranties on airframe and engine parts. It's still -- it was the sensible thing to do when the second hand values were high in the last two years, but we wouldn't expect any more aircraft disposals for the next year or two and we wouldn't be unhappy about that because we'd very much like to look at an aircraft to order our sales now for the period post 2012.

Somebody else over there. Yes.

Hi. Chris Reid from Deutsche. Yes, there was three please. So what was the currency influence on yield in Q2?

And then two, on costs. What were the main things that you cut back in Q2, because obviously that's a very strong performance?

And looking ahead then to the second half, less flying, lower aircraft utilization presumably, how does that impact your cost base, or is it more that you're going to gain from the staff reductions you've put into place?

Okay, in terms of the currency impact on yields, pretty much the same as Q1. On a constant currency basis, average fare would have rose by 4% and that was similar to the first quarter where yield was impacted by 5% on currency.

In terms of cost then, I think a very good performance right across the line. I mean even though through most of the lines, with the exception of fuel, pretty much most of them grew at -- all of them, barring fuel, grew at a slower rate than the growth -- sorry, depreciation was slightly above because of the accelerated depreciation, but in terms of all the other lines, that's staff, maintenance, marketing, recharges, and obviously the big one, airport and handling costs, they all grew at a slower rate [throughout] in faster volumes.

In terms of looking across--

So in actual fact, if you take out Stansted and Dublin, there's been a real decline in airport charges in the half year, and some of that will continue forward, but you just don't see it because it's distorted by these regulated price increases at Stansted and at Dublin and I think one of the things you're going to see going forward in the next year or two, as we roll out kiosks, as we roll out web check-in, we're increasingly now going to take a stick to airport costs. We're not going to be renting check-in desks, we're not going to need handling staff at airports, because we're going to migrate more and more people to hand luggage only, and checking in on the web site.

The other one then is staff -- is the other big one where we had the pay freeze this year. This is -- we've come off two years of, if you like, regulated staff increases, where we were required to increase the staffing ratios for cabin crew, two years ago, pilots last year. Now, we think we're into a number of years where you're going to see staff costs rise at a slower rate. We're going to get back to that kind of staff efficiency figure, 10,000 passengers per employee, that we had two years ago.

In terms of the winter then, we would expect the trend to slightly reverse as we go through the winter period, with lower load factors, and therefore less passengers to spread our cost base across. So expect that for the full year, unit cost per passenger, excluding fuel, will be somewhere in the range of down 2% to 3%. Obviously it depends how the winter pans out, and there are a couple of issues in terms of the timing of the Boeing deliveries, when they will arrive, following the cessation of the strike.

So, 6%, first half, probably give about half that back, and a bit more in the second half, so for the year, probably minus 2% to 3%.

And that's all in the context of sector -- the average sector length that's gone up by two or three percentage points. So it's a very strong underlying cost performance. We're taking out a lot of costs at the moment. It's been disguised by the fact that oil prices doubled in the half year numbers, but as oil price comes back down, we're still going to benefit from these very low costs, although clearly, next year, we're going to give away some of that in much lower fares and yields.

Somebody else this side, Andrew?

It's [Andrew Light] from Citi. Do I -- given that FX variance in the second quarter, of about 8% --

[5%].

Oh, sorry. What do you -- in your 15% to 20% minus yield decline for the winter, what portion of that is for FX?

Well, the trend is only -- looking at the rates for the equivalent period last year, it's about half that, I think 2.5%, so 2.5% of the 15% to 20% is -- would be the impact to start with. So with 5% in the first two quarters, and then dropping down to about half that, 2.5% Q3 and Q4.

And do I take it you'll be expecting to do more flying out of London Gatwick, assuming you can get a deal there?

I think we're -- given the discussions we're having with Gatwick at the moment, I think you'll see us probably this winter, announce more flights in and out of Gatwick. We're still only able as you know, in Gatwick, to get morning time or morning slots, so I don't think it's a likely candidate for a base yet, unless Monarch or somebody like that goes bust, or BA does something much more structured at Gatwick. But I think you'll see us add some more flights back into Gatwick, particularly from some of the Spanish and Italian bases.

We're clearly -- if you look at the average fares being charged by easyJet and Monarch on routes from Gatwick, to -- down to Spain, they're among the highest fares, being ridiculously highly priced routes. We would break into that market, but using aircraft based in Spain and in Italy, to go back in and significantly undercut and force down air fares from Gatwick. Which on some Spanish destinations, are running on average, at probably double the prices they are from Stanstead.

So I think we'll be very keen to attack those kind of high-yielding, high-fare routes, particularly where they're operated by easyJet and Monarch, because they have a quasi-monopoly at Gatwick.

But Gatwick won't be a big -- if you look at the overall growth next year, it's still going to come wherever we're opening up the bases, and that's going to be based like Bologna. Italy next year, we have two bases in Sardinia, Cagliari and Alghero, Trapani in Sicily.

But I would expect to see us continue to grow strongly in Spain, the Madrid base, the Barcelona base, the Alicante base. We would like to return to Valencia, but only if the local politicians actually decide they're going to honor the agreements they entered into with us.

We had that run in previously, with the Italian politicians in southern Italy, when we first started flying into southern Italy, they had a fairly unique approach to contract, where we sign it and then they just ignore it. Sorry, mate, but Ryanair, you'll sign it and we'll bloody stick you to it. But I think they'll come back.

easyJet were down last week, sniffing around Valencia. If they want to open up a base in Valencia and pay two or three times what we had to agreed to, they're more than welcome.

Anybody else? Yes, sir.

Ian Thomas, from (inaudible). The ancillary revenue that you generate, how do you see that tracking at the moment? How do you see it performing during the recession you're predicting over the next six, eight months, and how do you see it impacting on revenue and profits, up to 2012?

I think we're in a year three of a five year program, to take ancillary revenues up from 15% to about 20% of total revenues. This year, we're up at around 18% of total revenues. We think that'll grow to 19% next year, maybe 20% the following year.

Once it gets to about 20% of revenues, unless some other new income stream arrives along that we can't currently predict, I think it'll then begin to level out at that. So we think ancillary revenues will grow at a stronger rate than scheduled revenues for about the next two years. Then we think it'll stabilize at about 20%.

The next new initiatives are obviously going to be the mobile phone, mobile telephony. We'll have some dips maybe in the next six months. We've given the Expedia, the hotel provider, notice. We're throwing them out at the end of November, expect to replace them sometime in the first quarter of next year. Mainly because they're not paying us the agreed payments under the contract.

Now, they claim to be losing money under the contract. Frankly, that's their problem, but they were tied in, there's minimum payment guarantees to us, and if they're not going to honor the minimum payment guarantees to us, frankly, there's four or five other hotel providers who are more than willing to quote for our business.

We're still the largest -- Rynair.com is still the largest travel web site in Europe. It's double the size of Expedia, double the size of Travelocity in terms of transactions, and it's a very attractive product for a hotel provider. But if they're not going to make the payments to us, then they're not -- we're not going to work with them.

So there'll be -- particularly during recession, I think the recession will affect our ancillaries, because they'll be occasional blips in the earning stream. But the underlying trend to 20% of revenues, I think will be maintained, and we expect to be at about 20% of revenues in two years time.

How will that affect profitability? Frankly, we don't know, unless -- because the profitability, fundamentally, and people shouldn't get too distracted by ancillaries. Fundamentally, the lion's proportion of revenues and profitability still comes from scheduled, flying passengers on scheduled flights. It's just, there's going to be very little profitability this year, because oil prices have doubled, and we're still lowering air fares.

But as oil prices settle down, even in a recession, we think next year, underlying profit will rebound quite strongly, particularly if oil prices stay below $70 a barrel. Sorry, Howard, do you want to add in?

Yes, I think we factored in the -- obviously the Expedia case, and a lag in terms of a replacement for the hotel provider, and we will still be expecting very strong growth across the winter period, so they're factored into the numbers.

Thanks, Ian. Anybody else? Yes, sir?

Thanks, this is James Dixon from (inaudible) Castle Management. These are two questions. Firstly, what's the proportion of passengers who fly with only hand baggage?

And the second question, sorry, I've forgotten it for the time being, maybe you could go onto that one first, and I'll try --

Yes, interesting, when we started charging for the checked in bags, over a year ago, 80% of passengers were travelling with checked in bags, 20% hand luggage only. Now, at the moment, we expect this winter, that the checked in bags will be down to about 40%.

It was running 55%, 60% through July, August and September, I think just because that's the peak of the summer travel. We think the underlying trend this winter, we expect to see checked in bags down to about 40%. In other words, baggage hand luggage only up at around 60%. And we will be trying -- there will probably be another increase in baggage charges some time this winter, to try to drive the hand luggage only up to 75%, and the checked in bags down to 25%.

We think that's ultimately about as low as we'll ever get the checked in bags down to. You will have periods of time when mid term breaks, Christmas, summer and school holidays, when simply you have families travelling with bags. They don't mind paying the baggage charge, partly because the air fares are so cheap anyway. But if we get the 75% of passengers travelling with hand luggage, using web check-in, there's an enormous opportunity for us to very significantly reduce airport costs, handling costs, all of that area. And that's one of the reasons we have such downward pressure on our airport and handling costs at the moment.

It's also one of the reasons why we are so critical of idiots like Harry Bush, and [Carl] (inaudible) the Irish regulator, they're still allowing the airports to build these. Dublin Airport, terminal two, which by the way, will probably be available for rental as a sex shop or something like that, because it's going to be entirely empty of passengers, when it opens in 2010. They've wasted EUR1.2 billion building a second terminal. They have a special building, a second building there, which is specially for de-queuing check in areas, of course, none of which will -- there will be no de-queuing for check in, partly because I doubt if Air Lingus will be able to afford to move second to the second terminal, given the state of their business. We've already said we won't move there.

But yet, you have idiot regulators like Harry Bush in the UK, still allowing Stanstead to contemplate wasting GBP4 billion building a second terminal, when in reality, the second terminal we need now is a very small Aldi type building. You could build it for about GBP100 million, and it'll handle about 30 million passengers.

We no longer need complicated baggage halls, complicated check in systems or computer screening baggage handling systems that don't work, in places like terminal five. We need cheap, simple, efficient, affordable terminals, frankly, which we'd like to build.

And I got lost on my anti-regulator rant there, and forgot what --

I think the [general trend], we did say two years ago, when we introduced bag charges, look, there were ultimately going to be some [confusion]. We have a bigger objective, and that's to change the way -- as Michael said, airports operate -- but also will feed into things like the launch of smart kiosks. We looked at kiosks seven, eight years ago, but they're very, very expensive, and pretty dull.

Now, every terminal, every kiosk can take money, you can take bag charges, you can sell them other things, you can sell them flights, you can sell them ancillary revenues as well. So they'll become a sales point in every airport that we operate. So we're changing the way we'll handle aircraft, less bags, less staff, less desks to have to rent, less baggage handlers. So it'll improve the whole -- you've got less bags, you can lose less bags, so it's going to radically change how we operate through airports right across Europe. And that was part of why we said ultimately, we were going to drive to get bags down to a very, very low level.

Do you think for the average fare, the change in average fare, the last, let's say two years, for a passenger with one bag, sorry checked in bag?

Oh yes, checked in bag and the average fare is there, the average fare --

That's the average fare for the entire airline, isn't it?

But it includes checked in bags, the checked in bag revenue is in there.

So if you strip out the people who are paying less now, due to the fact that they only hand luggage, (inaudible) with only one bag, how much has their air fare gone up?

On balance, the average fare's gone down by 4% in the half year, that's at the time when about 50% of passengers are travelling with hand luggage. So on balance, people travelling with checked in, with their carry on bag, air fares have probably fallen by probably about 6%, 8%, and the people travelling with checked in bags have seen fares something between stable and down 2%.

The overall -- the average fare including bag charges, is down 4%. So even the people with a checked in bag, one checked in bag, have seen a fare reduction. The people with two or more checked in bags, they're paying higher fares.

Okay, thanks. The other question was, these airlines that are going bust, or -- what's happening to the physical capacity there? Is it leaving the short haul, European market?

Some of it is, clearly some of it's actually sitting around parked up, because of the leasing companies are having difficulty, I'd say, paying off the airports. Most of what we see at the moment, or certainly in the last six months, any of the capacity that's been taken out of the Spanish market. The Italian market, most of their really old Alitalia fleet have simply been grounded. Some of the Spanish fleet, the UK fleet, has disappeared into China and into Latin America. And we think that will continue. We don't think it will resurface in Europe. We don't think there's any appetite, either in the financial community, or certainly not in the venture capital markets, to be refunding airlines. And you see airlines like -- any of them the big loss making airlines at the moment, Jet Two in the UK, Flight Globe Span, Sky Europe, Whizz Air, even Air Berlin, all of them are candidates for potential bankruptcy this winter.

I see Sky Europe announced on -- remarkably last week, that the short term loan they'd been given by York Capital, to get them through the winter, apparently is due for repayment in the middle of November. Which is a very strange myth, they thought winter was going to end in the middle of November, I'm not sure, maybe York Capital don't know much about either the airline industry, or Europe, but winter continues in Europe, until about next April.

I suspect York Capital won't get their loan repaid come mid-November, but I'm not sure if Sky Europe is long for this world anyway. The problem with them is they're too small to make much difference anyway, whether they go bust or not, nobody -- frankly, nobody cares, maybe apart from a few citizens of Vienna.

Air Berlin is a much more interesting issue. I don't know whether they'll go bust or not this winter, but clearly they're going to lose an awful lot of money. But they would have a significant impact on the marketplace, certainly in Germany and in Spain, if they went bust.

I think the latest (inaudible) of OAG, are talking about fourth quarter capacity being down something like 6%. We think that's a bit light. We think it's going to be far deeper and far quicker, than most people expect.

So that's what the general statistics are, but we think it's actually going to be much more than that. And despite the kind of -- our own growth across the winter period, overall the low fare side of that total capacity will also be significantly down.

Thanks very much.

Thanks very much, James. Penny?

It's [Penny Witcher] from Morgan Stanley. I guess, just a bit of a worst case scenario answer. What if you did see bigger than the 20% moves on yield, or a collapse in loads? What kind of flexibility do you have on your near term, say, CapEx spend, and use of cash, to give us some comfort that there's not going to be a big hole in the balance sheet at the end of the year?

Well, let me give you the -- the downside scenario here, loads in Ryanair will hold up, yields won't. People are not going to stop flying, even as consumer confidence in the UK collapses. It just means we're going to have to sell more seats at GBP1, GBP5, GBP10, to keep them all flying.

And I think you've see that at the moment, very strong -- our October numbers are up 18%. BA's going to announce their -- well, they're going to hide their numbers on Friday, the October numbers. Because they're going to be so awful, but they're going to kind of wash them out in lots of half year results -- or their interim results, and some (expletive) announcement about [dead] somewhere or discussions about Iberia.

I think that BA's -- if you watch BAs short haul traffic in October, on Friday, I'd say they'll be down five, six percentage points again. So I think what's going to happen this winter, is our loads will hold up, I think we're very confident we'll maintain high load factors, similar to last year. But our yields could fall. We don't think they're going to fall by more than 20%, but it's not beyond the bounds of possibility.

If they do fall by more than 20%, there'll be no hole in our balance sheet, because we keep the load factors high, we keep the planes full, we might lose a little more money than we expect to, but I think we'll still be very close to break even for the full year.

And then we move into next year, and I think the real difference for Ryanair next year is, we're the only airline that will have much easier comparables. We're the airline next year, that will have -- be comparing ourself with oil at $120 a barrel this year, whereas most of the others, Air France, Lufthansa, BA, easyJet and others, had a better fuel hedging program this year. That gives them a much more difficult comparable next year. And so in many ways we have a much easier comparable next year. We'll be able to lower fares next year, but still on the back of much lower oil prices, be significantly profitable. Whereas the lot of our competitors this year, who are losing money, despite having a half decent hedge program, next year, will be real trouble.

So one way or another, there won't be a hole in our balance sheet, because one way or another, it just is a question of how low our yields will fall, but we'll still fill the flights, we still have the lowest costs. The costs are still falling.

Yes, we have a problem at Stanstead, at Dublin, but we're addressing that by reducing significant capacity there this winter. But we have a big medium term upside with the collapse in oil prices. Something that will benefit us immediately next year, whereas most of our competition -- you see easyJet are already hedged at about $120, or $1,000, $1,200 a ton. For the first half of next year, we're hedging at $77, or $770 a ton.

Just to clarify there, of the deliveries expected on the 58 next year, and --

We'll take them all.

There's no -- is there flexibility there?

There isn't flexibility, and even if there was, we wouldn't want it. We'll take them all, in fact, we have more opportunities next year.

We have deferred announcements of about three bases we were going to announce in November, in October, November this year, for next spring, simply because there's opportunities open up now, in places like Copenhagen, in Milan, even in Madrid. We've been -- now we've announced that we've got slots for about four more aircraft in Madrid next summer, that have opened up in just the last 10 days, because of the LTE bankruptcy, Spanair cutbacks and those.

We've got slots in (inaudible) if we want them, we don't actually think we want them. We've suddenly, miraculously -- Champino, which was full, being cut back, being reduced, all of a sudden, Champino's fallen over itself, to give us more early morning slots. And so there's real opportunities opening up next year, at a time when there's a seismic kind of collapse, certainly in the high-fare segment, and in the flaky, loss-making low-fare segment.

So if anything, I would take the 58 aircraft next year. And we'll probably take a few more if we could get them, and who knows, I'd say with Boeing and Airbus's order book collapsing this winter, they might even be in a position to get us some more aircraft next year.

I would take them. The plan in Ryanair is always grow very aggressively in a downturn, because we're set up to grow aggressively in the downturn. We have much lower operating costs. We have a fleet of pilots applying to us at the moment, and we've stopped recruiting pilots for next year, because we already have more on the waiting list than we can handle.

And yet we -- don't ask me why, but we've got a surge of pilot applications from Central Wing pilots last week. Maybe they know something we don't, but clearly Central Wing pilots for some strange reason all of a sudden are very keen to come and work for Ryanair. We haven't yet seen that surge from the BA pilots but we suspect it's probably only a week or two away.

I think looking into the two quarters, clearly we're in the early part if you remember, we've got a pretty good idea how the third quarter is shaping up. The real unknown is the fourth quarter because obviously we had Easter in the fourth quarter in the last fiscal year and we don't have it now. And all the signs are this recession is getting worse and far quicker than anybody expected. So I think obviously third quarter is pretty much as we expect but fourth quarter could be very, very difficult.

In fact we hope it to be very difficult. We intend to make it very difficult. We're going to take loads of traffic off BA, easyJet, Aer Lingus. Aer Lingus' load factors are in freefall. Their long-haul load factors have declined eight months in a row and their short-haul load factors have declined for seven of the last eight months.

This -- it was pretty dumb investment at the time in Aer Lingus, but our fears that without our assistance on the management front, these guys were going nowhere, have proven to have been conservative. They're going somewhere but it's just not somewhere very positive. And then the Irish government decides to lob on a travel tax on top of it next year. I think Aer Lingus is in very steep decline and we'll probably have to take another write-down of the investment before the end of the year.

Yes, James, go again.

Thanks. Just two questions again. Firstly, following on from the question about if things look really bad, the last quarter I remember you saying that the best thing would be if oil went through the winter at $120, and now I suppose it's lower oil price mean worse recession. So I'm wondering, are you more or less bullish on that combination?

Yes, is the answer. I'd prefer if oil prices remained higher because you'd see the bankruptcy of a couple of more airlines there a little bit sooner but clearly it's happening now anyway.

Ultimately, probably better, this year's earnings are written-off anyway. We're probably better off. I think a lot of the competitors won't survive the winter and then we emerge next year with a much stronger position on oil, still much lower air fares but also lower operating costs next year. So on balance, yes, I think we'd prefer if oil prices stayed high, $120 up to Christmas and then collapse down to $50 a barrel, just to make sure the walking dead were actually dead by Christmas. We suspect they will probably all dead by Christmas anyway.

But I think the oil is less the issue now. Recession and deep recession really is the issue and you see the market is still in a case -- in a state of denial, we think. Are we in recession, are we not? Yes we're in a (expletive) deep recession and I don't see any way out of it. Even if they cut interest rates by 1% this week, it's not going to fundamentally alter consumer sentiment or economic activity this winter. But clearly over the next year or two, you're going to see a combination of lower oil prices, lower labor costs, much lower airport costs.

Frankly the best thing that could happen is to see airport costs getting hammered. The airports have been ripping off the airlines for the last 10, 20 years. That scam has finally been exposed in the UK by the Competition Authority over here. It still hasn't been exposed in Dublin where the idiot regulator has -- we've had this big issue with kiosks in Dublin. We lost a High Court action where the Dublin Airport Authority are now charging three times for the same terminal space.

We pay in full for the terminal through passenger charges, we pay a second time for the check-in space through check-in desk charge and now these rapacious, overcharging monopolies are levying a third charge. They want us to rent the terminal space on which we place the kiosk. So what's going to happen in Dublin as a result of that, is we're simply going to move beyond kiosk. We won't install the kiosk at Dublin, we're simply going to move check-in to website, web check-in out of Ireland and some way we're going to find a way to blow up the Dublin airport monopoly, simply because it deserves to be blown up.

But thankfully the good Irish government is going to help us in that process by imposing this GBP10 departure tax on tourists next year, of which there'll be very few in Ireland anyway. And it will -- I think you're going to see a significant fall in traffic at Dublin and at the other Irish airports next year, just as they're about to open their bright, shiny new Terminal 2.

So as I said, anybody who's looking for some rental space in Dublin, there's going to be some very cheap space available for rent in a five storey second terminal because there won't be any airline passengers in it.

Okay, thanks. And you spoke a bit about BA and their response -- could you tell us about your thoughts on what Air France and Lufthansa are doing? How they're -- to be positioning themselves for this coming period?

I think they're positioned very badly. The model of Air France, BA and Lufthansa for the last two years has been, let's consolidate, let's merge and then we'll do what Air France-KLM has done, we'll increase the airfares and the fuel surcharges by 14% per annum over a two-year period and see yields rise by 30%.

The consolidation will clearly happen. I think BA-Iberia is only a matter of time. Lufthansa, bmi, Austrian, SAS is only a matter of time. And then one of them will take out Alitalia, presumably Air France because I think Lufthansa will have enough on its plate with Austrian, SAS and bmi.

And that leaves a much more stable, although smaller capacity, Europe with Lufthansa, Air France, BA and Ryanair. And I think we, it will have a much wider price gap between those airlines reducing capacity, increasing short-haul airfares and Ryanair increasing capacity and lowering short-haul airfares.

I think easyJet will probably get taken out in the next year or two by either British Airways or Air France, simply because they're increasingly becoming nothing other than a me-too high fares airline operating from the expensive slot-restricted airports.

But ultimately it's good for our business model. I think we're clearly emerging as the South West airlines of Europe. I think there's very little competition to us in Europe now because nobody can match our costs, nobody can match our prices. And then as you come out of this downturn or this recession, I think maybe we'll have a bit more pricing power for a couple of years, and you may see our very low fares and yields rise, but that's probably a year or two away.

(inaudible), go ahead.

In terms of Central Eastern Europe, (inaudible) what to do in terms of planning?

I think we're seeing a lot of opportunities in Central and Eastern Europe. The problem is they're not as interesting as the opportunities we're now seeing in Western Europe, in Spain, in Italy and in the UK, regional UK. We do have a number of opportunities on the table to open bases in Poland, in the Czech Republic, Slovakia, Hungary and places like that. But frankly they'll have to wait because there's much more interesting opportunities in places like Madrid, Rome, Milan, Gatwick and as recently as last week in Copenhagen.

I've seen lots of noise over the weekend. Norwegian -- famously loss-making airline up in Scandinavia is going ride in and rescue or provide low-fare air travel in Copenhagen. But you're just replacing one loss-making sterling airline with another loss-making Norwegian airline and we don't think they're long for this world either.

But there's clearly going to be opportunities for us to expand in ways that didn't exist for us a couple of years ago at bigger airports but at much lower costs than previously would have been the case. Copenhagen wouldn't even talk to us two years ago, now they're actively trying to persuade us to open up a base there. I'm not sure whether they'll get there this time round but we're quite happy to wait through this recession and see those opportunities emerge.

So I think again, as in the last 12 months -- the last 12 months we were expecting to grow rapidly in Central Europe, now we expect it will be slow. But we'll be quite happy to see either some of those Central European carriers, the Sky Europes, the Whizz Air, some of those fall over this winter, and who knows, that might open up opportunities but I'm not sure they'll be as good as the opportunities we have currently in Spain, the UK or Germany, to develop rapidly in Germany.

If, and God only knows, but if something was to happen to Air Berlin this winter, then we could begin to expand very rapidly in Germany. We're certainly been in discussions with a number of very large -- the regional German airports who again, a year ago, wouldn't even talk to us, now seem to be very concerned that Air Berlin might not survive this winter.

And just (inaudible) and you've been (inaudible) for the last (inaudible) --?

That's one description of it.

Are you -- you mentioned before (inaudible)?

Frankly no, I think we're moving in the opposite direction. It's important to put it in some context, our policy historically for 15, 20 years has always been to hedge, and to hedge, if you like, on a rolling 12 month basis. We stopped hedging 18 months ago, as oil prices took off from $70 a barrel to $120 a barrel. And call that almost entirely wrong but the strength of our business is it looks like we'll still break even in a year when oil prices have doubled.

The half-year, if you look at the strength of our half-year numbers, by taking out costs, 6% of operating costs, we're still making a 12% margin. Okay, it is during the profitable half of the year, but it's in a half-year when most of our competitors are going to lose money, despite the fact they are actually hedged into this period at much lower prices than us.

We continue at the moment to be opportunistic. Oil prices are very volatile. As Howard said, there's disconnect between the spot and the forward. I -- we continue to have this debate internally. I'm inclined to begin to think, over the medium-term we'll probably move to a new policy and that is simply being un-hedged completely. Because we're not able to call the market and I'm not sure whether being hedged for 25% is going to give us much protection.

Although, I think, looking forward into next year, our general concern is we think short-term oil prices will continue to fall this winter but moving out into medium-term, next summer into or -- next summer or the following year we think OPEC capacity production and a recovery, oil recovery out into 2009, 2010, we'll see oil prices stabilizes somewhere between $70 and $80 a barrel.

So we think we'd like to be hedged about 50% next year. If we could hedge it somewhere down around $70 a barrel, but at the moment we can't, so I don't think we'll extend the hedging program any more than that. I think for the moment we'll simply have to be opportunistic. We will probably continue to call the market wrong, as we have done for the last 12 months because frankly, nobody (expletive) knows anyway.

But I think we take confidence from the fact that we're continuing, because our cost base is so much lower than every other European airline, it almost doesn't matter if we screw up the hedging program as we almost inevitably will. Our competitors will suffer much more deeply from higher oil prices than we will, so that's a convoluted way of saying the plan for next year is to hedge about 50% if we can hedge it below $70 a barrel. If it takes off again, we won't hedge. We'll probably leave where we are at 25% and simply take our chances.

But I think there is an argument certainly in the European industry for everybody to be un-hedged as they generally tend to be in the US, because I'm not sure hedging is getting us anything other than medium term cost certainty. But certainly with the collapse in the financial market it's getting very difficult to hedge now, even if you want to, and we want to at something below $70 a barrel. As Howard said, when oil was at $60 a barrel we could only hedge next year at $77.

Anybody else?

No, folks. Okay thank you very much for coming this morning. Howard will be here; I've got to go off to the press conference but Howard will be here for another 15, 30 minutes and be -- we have the conference call at 2 pm today, so I'm sure we'll be dealing with many of the same questions again at 2 o' clock. Thanks everybody, appreciate your time and attention. Bye.