Ryanair Holdings PLC (RYAAY) 2009 Q3 法說會逐字稿

Good morning, and good afternoon, ladies and gentlemen.

Welcome to the Ryanair third-quarter conference call.

At this time all participants are in a listen-only mode until we conduct the question-and-answer session and instructions will follow at that time (Operator Instructions).

And just to remind you, this conference is being recorded.

I'd now like to hand over to your chairperson, Michael O'Leary, CEO of Ryanair.

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

Okay, good afternoon, everybody; welcome to Ryanair's Q3 results conference call.

I'm Michael O'Leary and I'm joined by Howard Millar and most of the rest of the finance team in Dublin.

Michael Cawley is in London where he's doing a day of press and TV interviews and things.

I will do the really quick run through.

As you've seen -- Q3 we reported a loss of EUR102 million compared to a profit of EUR35 million in last year's Q3, average fares fell by 9% in the quarter to EUR34, while fuel costs rose 71% to EUR328 million.

Revenues were up 6% in the quarter to EUR604 million as traffic grew by 13% to 14 million passengers.

This Q3 loss of EUR102 million was disappointing but in line with expectations and at the moment entirely due to the EUR136 million increase in fuel costs.

Average fares fell 9% to EUR34 but this was largely funded by a 3% reduction in nonfuel unit operating costs.

The general economic environment remains extremely difficult, but this is proving to be good for Ryanair's traffic growth as many more passengers are switching -- actively switching to Ryanair's lowest fare, lowest cost model away from our higher fare competitors.

We plan to continue to lower our fares, both for the remainder of this spring and into next summer to maintain our aggressive traffic growth and our high load factors.

We will report the January traffic figures probably tomorrow and they'll be in line with our previous guidance.

Ancillary revenues grew by 19% to EUR132 million and now account for 22% of revenues, 19% last year.

We expect the on-board mobile telephony service to be rolled out on a trial 20 Dublin-based aircraft sometime around the end of February.

In terms of costs, the Q3 fuel cost rose by 71% to a total of EUR328 million and accounted for 47% of our operating cost compared to 37% in Q3 of '08.

We have taken advantage of the recent falls in jet fuel prices to put in place a significant quantity of hedging for the next fiscal year, and this morning we announced we're 75% hedged in quarters one and two and 50% in quarter three at an average prices of $650 per ton for jet fuel, which is 38% lower than the average we paid in the current year.

If we can complete the total -- our total fiscal year ended March 2010 at that figure of $650 per ton it would reduce our fuel bill by approximately EUR500 million in the next fiscal year.

Excluding fuel other operating costs in Q3 fell by 3% on a per passenger basis.

In terms of competition, the environment continues to be full of opportunity.

The rate of airline closures and consolidation across Europe continues to accelerate.

We've seen recent examples in January alone where Air France-KLM has announced a 25% stake in Alitalia; the EU has approved the Clickair/Vueling merger; we've seen the bankruptcy of the Lithuanian carrier FlyLAL.

That consolidation is hasting the emergence of four large European airlines comprising three large high fare fuel surcharges led by Air France, BA and Lufthansa of what we believe will be one very large very low fares airline, Ryanair.

These dramatic cuts in flight and capacity, largely by the [flag] carriers and the bankruptcy of second-tier providers is creating frankly traffic collapses at many of Europe's larger and secondary airports.

This in turn is creating enormous opportunities for Ryanair where we are being met with fantastic proposals by many of these airports who are competing against each other to lower the charges in order to attract, not just new roots of traffic from Ryanair, but to build or to reverse traffic declines at their airports by tapping into Ryanair's growth.

In terms of regulatory developments in the recent couple of months, we've seen a number of very positive developments.

In the UK we support the CAA's recent recommendation that the high cost BAA Airport monopoly will be forced to sell Gatwick and Stansted airports in London as well as Edinburgh and Scotland to finally introduce much-needed competition.

However, the CAA -- the regulator in the UK, the Civil Aviation Authority, remains hopelessly inadequate and has again recently approved another round of admittedly small cost increases at Stansted, but nevertheless cost increases which are bizarre at a time when inflation is negative and when airports, competitive airports all over Europe are lowering prices.

In Ireland we welcome the Government appeal panel's report, which was published on the 23rd of December, which supported Ryanair's view that the DAA terminal two is considerably over sized.

We are also pleased that the government report highlighted the fact that the Irish aviation regulator is incompetent, having criticized him for passive regulation.

And we welcome -- further welcome the fact that Dublin's airport traffic is now in free fall having declined by 9% in December, we believe it was these similar falls in traffic in the first quarter of this year, even before the insane Irish tourism tax of EUR10 per ticket begins to impact on the 1st of April next.

We again call on the Irish government to allow a competing terminal to be developed at Dublin Airport, which is frankly the only way we're going to see efficient facilities, lower costs at Dublin airport and an end to the idiot regulatory regulator we have -- or the incompetence of the idiot regulator we have in Ireland.

On the European front we had a stunning victory with the European Court of [first instance] in December which dismissed the European Commission's flawed 2004 Charleroi decision.

The Court's ruling confirmed that Ryanair did not receive either unlawful state aid or subsidies from Charleroi airport or the Walloon region.

We also believe the ruling renders the Commission's 2005 airport guidelines, which were based on their Charleroi decision, to be redundant.

We are calling on the European Commission to abandon their eight other follow-on state aid cases against small regional airports in Europe and we hope they will.

We warmly welcome the recent development by the European Commission last week which ruled that over EUR1 billion over the past five years of discounted domestic airport charges received largely by Air France at French airports was unlawful state aid.

We think this will now lead to a level playing field on airport charges within France whereby international charges -- charges on international routes will fall or there will be a corresponding increase on domestic charges but all of it will be good for the growth and development of new roots and flights to and from France.

Just to update you on the Aer Lingus offer.

On the 22nd of January last the Irish government announced that it would not accept Ryanair's cash offer of EUR1.40 per share for their 25% stake.

We last week announced therefore that we were withdrawing the offer of EUR1.40 per share.

We did predict that we thought Aer Lingus' share price would go into freefall and I hate to say "we told them so", but we did.

This morning it fell below EUR1 back to about EUR0.98 along -- which is back where it was prior to the Ryanair offer.

The withdrawal of our offer sadly condemns Aer Lingus to a bleak future as a loss making, subscale regional airline which has a high cost-base, declining traffic numbers and frankly no vision whatsoever for the future other than to report substantial losses in 2008 and again in 2009.

However, the government's decision does have a positive in that it clears the way for Ryanair now to continue to focus on our own growth and expansion, on reducing our costs and on returning to very substantial profitability over the coming year thanks to a decline in oil prices and a further fall in average fares and yields.

In terms of balance sheet, we have a critical issue given the current financial tsunami that seems to be washing around the world; we retain one of the strongest balance sheets in the industry with over EUR1.8 billion in cash at the end of the third quarter.

The strong rebound in profitability next year will lead to a further growth in these cash balances.

Our long-term dollar hedging strategy also means that in 2008, -- 2009-2010 we would benefit by paying for aircraft at dollar exchange rate of -- a dollar euro exchange rate of 1.50 to the euro, significantly better than our current market rate.

And we've also recently exercised options over a further 13 Boeing aircraft for delivery in 2011 which will enable us to add cheaper more efficient aircraft to our business while at the same time continuing to grow strongly in a market where almost all of our competitors either have ceased growing or are cutting back capacity.

Just in terms of outlook, our decision not to hedge our Q4 oil prices has been vindicated by the continuing decline in spot prices.

And accordingly we benefit from much lower oil costs in Q4 of approximately $500 per ton for jet fuel.

Some of this cost advantage will be deluded by weaker yields; we now expect the Q4 average fares to fall by about 20% which is at the upper end of our previously guided range and reflects obviously the absence of Easter in Q4 and the significant weakness in sterling in recent months.

However, we expect the Q4 loss will now be smaller than previously anticipated and so we're upgrading our full-year guidance for fiscal year end ended the 31st of March, '09 from previously breakeven to a current net profit after tax in a range of between EUR50 million to EUR80 million all of which would be pre-exceptional.

Looking forward into next year we will enjoy significantly lower oil costs thanks to our recent hedging program when most of our competitors are already hedged at far higher prices.

We intend to use this significant cost advantage to again lower fares, to grow our capacity and grow traffic and drive down prices at a time when across Europe I think consumers are looking for lower fares and also when our competitors are in some financial distress.

At this time up we expect fares next year to fall by over 10%, although it's very hard to be accurate given we have very little visibility at this stage.

If the recession deepens, however, it could be worse -- the fare fall or the yield decline could be worse than that.

However, that would be better again for our traffic growth.

However, the 38% reduction in oil prices which the fuel hedging has secured should ensure that Ryanair returns to substantial profitability next year when many of our competitors will be reporting losses.

Overall, we believe the longer and deeper this recession the better it will be for the lowest cost producers in every sector and clearly Ryanair in the airline sector.

Like Lidl and Aldi in the supermarkets or McDonald's in the restaurant business, our top-line growth will remain strong and we believe our profitability will rebound strongly because Ryanair is the lowest cost provider by a distance and we're poised for substantial traffic and profit growth as passengers switch actively from our higher fair competitors to Ryanair's lower fare much better services.

Howard, will you take us through the MD&A, please?

I'll take you through the summary.

There was one exceptional item during the quarter that amounted to EUR17.3 million and this is the accelerated depreciation charge in aircraft [exposed] in this fiscal year to the end of March '09 and the balance into the fiscal year ended March 2010.

So, excluding the exceptional item, the Company suffered an adjusted loss after tax of EUR101.5 million in the quarter compared to adjusted profit after tax of EUR35 million in the comparative quarter ended December 31, 2007, primarily due to a 71% increase in fuel costs and a 9% decrease in average fares.

Operating revenues grew at 6%, slower than the 13% increase in passenger numbers due to a 9% decrease in average fares arising from lower baggage penetration rates, the adverse impact of the movement in sterling to the euro and aggressive fare promotions during the period, partially offset by a rise in ancillary revenues.

The growth in revenues was more than offset by a 71% increase in fuel costs to EUR328 million as a result of the above operating margins or a negative 15%, and the Group reported an operating loss of EUR91.9 million.

On to the balance sheet, and this covers the nine-month period through the 31st of December, gross cash decreased by EUR355 million primarily due to adoption of profitability and also delayed deliveries rising from the Boeing strike and the increase in fuel costs.

The Group generated cash from operating activities of EUR46.6 million and a further EUR169.6 million proceeds on the sale of eight Boeing 737 800 aircraft which part funded a 46 million share buyback program and capital expenditure incurred during the period.

Capital expenditure of EUR401.8 million largely consisted of advanced aircraft payments for future deliveries and delivery of 12 new Boeing 737 800 aircraft.

Long-term debt net of repayment decreased by EUR119.7 million during the period and shareholders equity at the 31st of December, 2008 increased by EUR104.8 million to EUR2.6 billion compared to 31st of March, 2008 due to the impact of IFRS accounting treatment for derivative financial assets, pensions and stock options granted offset by a 46 million share buyback and to post exceptional loss of EUR23.4 million in the nine-month period.

And that's a summary of the MD&A and balance sheet.

Okay, thanks, Howard.

Okay, Kim, could you go ahead and we'll open up for questions and answers, please.

(Operator Instructions).

Stephen Furlong, Davy in Dublin.

Hello.

Yes, Michael, you might just remind me how the breakdown of -- the passenger breakdown by country is?

Presumably with all the expansion in Italy that UK and Ireland is less of a percentage going forward.

And secondly, just might just talk about how the forward booking curve is -- particularly in terms of volume?

Thanks.

Okay, Steve.

It depends on what you're talking about.

If you were looking at that our forecast into next year --

Yes.

The -- certainly the percentage of Irish traffic will be declining.

We'll be announcing in the next week or two some cutbacks in our Shannon and Dublin bases in response to the government travel tax which is coming in on the 1st of April and it appears to be hitting certainly Irish bookings from the 1st of April onwards.

The UK still has some growth and we still have some new bases there -- or new bases last year which are still developing.

The overwhelming majority of the growth in the coming year will be on the continent of Europe.

And the second part of that question was what?

Just on how you see forward bookings in terms of volumes (multiple speakers)?

(multiple speakers) at the moment we're worried about (multiple speakers) percentage points ahead of where we would normally be for this time of the year, which is slightly stronger.

We're ahead of where we were at this time last year for February.

We're also ahead of where we were this time last year for March despite (inaudible) that last year Easter was in March, we don't have Easter in it this year.

So I think you see the benefit of our more aggressive pricing and our more aggressive pricing policy.

Our advance bookings are slightly higher, but we would still only expect to achieve similar load factors to last year.

What we're doing in essence is making sure that we're very aggressive far out and then kind of closing off as we get closer to the day of flight so that we maintain our -- we hit our targeted load factors.

We think the effect of that is being seen largely on competitor bookings -- Aer Lingus, British Airways, many of our other competitors including EasyJet if you strip out the GB comparables -- are all seeing -- are all reporting short-haul traffic declines.

And frankly that's because people are simply switching away from EasyJet, Aer Lingus, BA and others on to Ryanair.

Very good, thank you.

John Mattimoe, Merrion Stockbrokers.

Good afternoon.

Michael, just in relation to the yield outlook, just a follow-up there.

In relation to the summer I presume you've got very little visibility at this stage?

Yes.

And going into next year would you see maybe any seasonal factors in maybe the summer, particularly with Easter falling back into April might be a little bit more resilient and then the winter being very tough to get to kind of the minus 10 give or take that you're guiding?

It really is impossible to know.

We have almost no visibility beyond Easter which is in the second week of April.

Frankly at this stage we think a good guideline on yield next year will be something between minus 10% and minus 15%.

I think that if the downturn and the recession across Europe remains where it is I think that will be accurate.

If it gets much more the figures could be worse.

And if there's a sudden rebound it could be better than that.

But we're just guessing at this stage.

I think we're better off to focus on what we know and what we know is there will be very solid traffic growth from Ryanair next year; there will be a much improved cost performance, not only because oil prices will -- our hedging position will be significantly better next year; and also we expect to continue to see modest gains coming from modest declines in other operating costs largely associated with our ability to continue to grow volumes.

And I think one of the key strengths we're seeing at the moment is how aggressive many airports are being recognizing that Ryanair is one of the few airlines certainly in Europe that's going to grow in the next 12 months.

Whereas many of our competitors are either cutting back capacity all together or some of our competitors are hanging around barbecues in (inaudible) talking about no growth at all next year.

Well frankly we prefer to be at work instead of bull (expletive) at barbecues and delivering growth and that's going to reduce our costs next year while most of our competitors will see their costs rise.

And on that airport point, Michael -- could we see maybe one or two base announcements in the next year or two that could be based in airports thus a couple of years ago it might have been a very long shot for Ryanair to have gotten deals out of?

Look -- I mean, really people need to wake up a little bit to this kind of bull (expletive) analysis.

You've seen in recent years Ryanair open up bases at Madrid -- Ryanair opened up bases like Madrid; we've added flights at Gatwick.

This nonsense put about by EasyJet that Ryanair somehow flies to all the secondary airports and they fly to the primary airports -- I think it's only about five airports across Europe that EasyJet flies into that we don't.

And in fact in many cases we fly to the better airport.

In Belfast we're at Belfast City and at Rome we're in Ciampino, we're at the closer airport.

So I think -- look -- are there likely to be more bigger airport deals done the next 12 months?

It's impossible to say, John.

But certainly I think for the first time in a number of years we at this stage have a number of very large -- the bigger European airports are on our radar because they're being very aggressive on pricing.

And the airports -- the next base will be selected about the night before it gets announced.

We don't plan another base announcement for a couple of weeks yet.

So yes to the real chance that you could see one of the, what we would have traditionally characterized as the high cost old type of an inefficient airport like a [Zavintin] or something like that.

I think it's unlikely to be Zavintin which is why I used the name.

But that's very much a possibility.

But ultimately our discipline will continue with -- the next base will be the base that offers us the best deal in terms -- package in terms of lowest cost and most efficient facility.

Okay.

And just one other question is just in relation to the sterling issue.

Just on sterling, in terms of the yield impact, is it mostly a translation?

Are you seeing any stickiness on the yield side as a result maybe of having to promote more to get the UK originating traffic to travel in the numbers you used to before?

And on the cost side, are you getting close to a level where the unit cost exposure from sterling is matching a good proportion of the sterling revenue?

I think it's fair to say that a large proportion of the unit costs are largely matched by a lot of the sterling unit revenues.

Are we seeing a lot of weakness on sterling before bookings?

I might ask Michael to add to this.

On the European route, no at this stage, but we think it's still developing and that weakness could yet emerge I think once you get past Easter.

We're seeing a marked weakness on the sterling on the UK back into Ireland routes.

We think Ireland is heading for a very dark year on the tourism front through a combination of the high costs at Dublin Airport and this frankly insane suggestion by the government to lob a EUR10 visitor tax on our already declining visitor numbers to this country; it starts on the 1st of April.

But insanity and the Irish government seems to go hand in hand at the moment.

Michael, what's your view on the sterling bookings?

I think -- can you hear me, Michael?

Yes.

I think you're right to highlight the Irish phenomenon.

The combination of some weak demand there -- I think they're wedded to going to places like France and Spain maybe where they have property and more recently Italy as well is reasonably holding up.

I would have thought Ireland is the primary weak area and a little bit from provincial UK to Eastern Europe.

But London to Eastern Europe remains strong, but definitely Ireland is the key area of weakness there out of UK.

Yes.

Okay.

And Mike, just one last final question seeing as you brought up the Irish government.

Just in relation to their decision on Aer Lingus, have you any thoughts as it regard to the future for your own stake in the Company at this stage, particularly given the thoughts that you've articulated on the outlook for that company?

Well, we think the outlook for that company is remarkably bleak and I think it will now be a matter for the Board to manage that company, to explain again to shareholders how they've managed to turn down or reject an offer of EUR1.40 when prior to the offer the shares were less than a euro and after the offer the shares are back at less than a euro.

They'll be operating in a country this year that's going to see a significant -- they're already in traffic decline and operating in a country where there's going to be a massive tourism and traffic decline where they're unable to compete against Ryanair.

But that's a matter for them.

I think we came a lot closer this time on the Aer Lingus offer than we did the last time.

I don't think it was helped by the Irish government.

I think it wasn't helped by the fact that they're back trying to talk to the social partners who are largely responsible for much of the (expletive) up in the public finances in this country at the moment.

And one of the easy sacrifices was going to be to reject an Aer Lingus offer.

It's sadly condemned Aer Lingus I think to the next few years as a sub size, loss making peripheral airline going nowhere.

From our point of view I think we will continue to be a significant minority shareholder in Aer Lingus, although sadly with very little influence over it.

And we don't have any plan for our stake other than to remain a significant minority shareholder.

Were somebody to come along and make us an offer we would, as in all cases, consider each offer on its merits.

But I would caution, I think there's been far too much of an assumption that Ryanair would naturally come back again and make a bid for Aer Lingus.

I think that's a very optimistic assumption.

I think there's no guarantee that we will come back and revisit Aer Lingus again because I think in two years time they will have significantly run down the cash pile, their business will be substantially loss making, and the fact that the Board and management have no vision and no ability to run a profitable low-cost airline will have sadly become all too apparent.

I suspect that the future for Aer Lingus lies more going down the Waterford Wedgwood road than it does going down the Ryanair road.

Okay, thanks.

Very much for that.

And I would suggest, by the way, with not mentioning anybody -- those analysts who come up with crazy valuations suggesting that Aer Lingus is worth EUR2.80 should seriously go out and get a life.

It isn't worth the color of it.

Anyway, next question, please.

Jim Parker, Raymond James.

Michael, good afternoon.

You mentioned in your comments in the earnings release about how you expect strong revenue in ancillary in the future from in-flight communications.

Would you elaborate on that -- more than just the telephone, what are the sources and why do you think that's --?

I would want to tone this down, Jim.

All the time, as I said in the press release, we expect to be very small to start with.

We start with a trial on just 20 Dublin-based aircraft, within six months we expect to extend that trial to 40 aircraft and then have to confirm that we go fleet wide.

In essence I think it will take us about a year to 18 months to have all of the fleet mobile enabled, in which case we believe we'll be making significant revenues but not a -- significant annualized revenues from phone -- from a share of the revenues coming from calls, text messaging, but ultimately being able to get into areas like -- it may be this is the way in which we can access payment mechanisms for things like onboard entertainment and onboard gambling.

That mobile telephony may be the way we can actually take payment for those kinds of services.

And it's only when we get to that stage, but it's a couple of years away, that it could become a very significant and substantial earner for us.

So for the moment I think the best we can do is look -- it will be very small for the next 12 months, but it's not insignificant.

And we think it may be the key that opens up in-flight entertainment and gambling for us.

Okay.

Duane has a question as well.

Thanks.

Just on your aircraft delivery schedule, it looks like it's down net about 14 this year.

I wonder if you could comment on the drivers of that, if any, beyond the Boeing strike.

And then just in terms of your capacity growth, can you talk about the March quarter specifically and any quarterly guidance you can give us for fiscal '10?

Thanks.

Howard, do you want to take that one?

Yes, Duane, the delivery schedule is just behind because of the Boeing strike.

So you're obviously looking at our schedule there and comparing to the previous one.

Basically Boeing are catching up, but they're telling us that they won't be really caught up until some time in mid-2010.

So until that happens we'll probably run behind.

I expect that it will probably be better than that, other than I think the kind of -- the general downturn of the aviation industry will probably mean that some of the orders will be canceled and we may catch it up.

But we have to go on the schedule that Boeing has given us and that's what we plan to run with.

In terms of quarterly, we really can't give any guidance on next year numbers; it's just too early to say.

Fair enough, thanks.

Thanks, Duane.

Andrew Light, Citigroup in London.

Good afternoon.

On the average yield being down 9%, (technical difficulty) guidance.

Can you explain what you think the drivers of that are or where pricing is better than expected?

Your line was slightly drifting in and out.

But if it's -- why has it gone from minus 9 up to minus 20 in the fourth quarter?

No, I'm sorry.

It's your previous guidance was minus 15 to minus 20 --.

Yes.

And the [upturn] was minus 9.

I'm just trying to understand why you think it was better than expected?

(multiple speakers) minus 15 to minus 20 for the half-year.

For the half year.

We will be somewhere around minus 20 for the second half of the year.

The key drivers of that are the absence of Easter, the significant weakness of sterling from the back end of December -- yes, it was a little bit better than that in between -- in October through to December.

But I think if you take it over the half where our guidance was between minus 15 and minus 20 we'll be pretty much within that range for that half-year.

Michael, I think you were -- I think the absence of Easter issue, obviously we always highlight it as having a much more -- it meant that the last quarter was going to be significantly down as compared with the third-quarter's comparison.

And also we cut capacity in Stansted to reflect, maybe after we'd given the guidance, maybe a little bit more and that's helped boost -- that had less of a reduction on yield, I guess.

But I think largely it's the absence -- in Q4 it's absence of Easter and the weakness -- the weakness of sterling.

Yes.

Remember we have a significant amount of sterling traffic but report in euros.

So it impacts our numbers whereas, for example, EasyJet are partially boosted by having significant euro revenues but report it in sterling.

I've got a question for Howard.

Can you give me an idea of the proportion of your cash that's floating rate and the proportion of debt and leases at a floating-rate (technical difficulty) understand to what extent you're mismatched or not?

At the moment we have no fixed-rate debt, it's all floating.

And cash?

On the cash, cash is all generally short-term deposits.

And leases?

We've changed our deposit profile, generally it's three month type deposits.

And the leases, are they all fixed as well?

The vast majority of the leases are fixed.

I would say 80% of the leases are fixed and 20% are floating.

A question on --.

The rates obviously are very attractive given that we managed to set them -- most of them over the last three or four years.

We really only started into saying these packs in from 2004 on.

And we managed to get some very, very attractive lease rates.

If you remember, that's the reason we went into the off sale and lease back market because we got some very attractive rates.

Final question on your dollar hedging, how far out does that dollar essentially (technical difficulty) euro?

CapEx is virtually out to the end of the Boeing order which ends in March 2012; it actually runs out in December 2011.

The operating expenses, we've got about 18 months hedged forward.

(technical difficulty)?

It's slightly below that, it's almost 150, I think it's 148.5.

Thanks very much indeed.

Jonathan Wober, Societe Generale in London.

Thanks.

A couple of questions.

Firstly, on your guidance for this year, March '09, if I'm working the numbers out right, it seems to imply that in Q4 unit costs excluding fuel will go up after having been down in the first three quarters.

Is that right?

And if so, what's the reason for that?

And then a second question, for the 181 aircraft in the fleet at the end of the year, what will be the split between leased and owned?

And the same question for 2010 year end as well?

Let me work our way back.

Q4 unit costs, no, we will expect those to fall slightly.

We're still -- remember, we still have some unhedged fuel out there so we can't be definitive yet on what the fuel position will be for the end of the year.

And so at the moment in the guidance there's still a little bit to go in terms of yields and fuel, but we would expect unit costs in Q4 will be marginally -- no, sorry, I was wrong.

Unit costs in Q4 will be marginally up, that's right.

Some of that which will be the recruitment of pilots and cabin -- and pilot's cabin crew, we take delivery of aircraft which won't start flying until April and May.

So you'll have some of those lines like the staff, the aircraft will be slightly -- will be out slightly into Q4 which is normal in Q4.

I think, Michael, what we said, and we're pretty much on target, was that unit costs were down 6% in the half-year, and we think by the year end we probably end up being about 3% down, nonfuel operating cost.

In terms of then on the fleet, we have about 25% of our fleet on operating leave, and we expect that by the end of March 2010 we probably will be somewhere in that number.

So at the number it's 45 aircraft out of 181 and, depending on how our Boeing deliveries pan out in March 2010, I would expect the same ratio [for] fly about 25% on operating leases.

Thanks very much.

Joe Gill, Bloxham in Dublin.

Thanks, good afternoon.

Just in relation to capacity and passenger growth you're targeting 67 million passengers, up 16%, out to March 2010.

Do you have flexibility in terms of your delivery program in the winter months around that?

Or at this stage should we take it that you're fairly targeted on growing by 15%, 16% despite the way the economy is starting to develop?

And secondly, in relation to the larger subject of the aircraft market and the potential large aircraft order, would you just give us a view in terms of what you're thinking in that at the moment.

Is the development of the economy making you less or more inclined to look at that?

And what way do you think the manufactures are behaving in the marketplace?

Thanks.

Thanks, Joe.

As you know, our capacity growth is largely fixed within 24 months.

So, we don't have much if we can move deliveries by a month or two but not by a lot.

Nor would we have any great desire to move those deliveries.

We do -- part of our agreement with Boeing is that we do take a significant number of deliveries during the winter period; there is a cost penalty to that, but that's reflected in the exceptional pricing we agreed with Boeing.

It does, however, give us the opportunity to gear up the pilots, the cabin crew will be ready to launch our new routes and bases come March, April, May.

Our guidance for next year at this stage, and we're still finalizing traffic budgets, will be for about 67 million passengers next year.

And I think that is deliverable during summer and winter.

Much of it, though, will be driven in the next 12 months by the extent to which the flags and the second tier or the bankrupt carries either cut back capacity or go out of business.

We expect, given that many of our competitors have already hedged their fuel next year at significantly higher prices than us, the downturn in the economic environment and the demonstrable switching of consumers away from higher fare airline towards Ryanair, we think there's a fair chance that we're fairly confident that we would hit our traffic guidance for the next 12 months.

Clearly what we can't -- we can only guesstimate at the moment is at what prices.

And I think if you take the figure of something slightly bigger -- a yield decline of over 10% in what are already Europe's large or Europe's largest fares by a distance, I think it would be -- very surprisingly it would be an extraordinary set of economic factors that would create a lower -- that will create a bigger yield decline than that.

I think that would tend to be at this point in time our most conservative view.

But then clearly, like everybody else, we've been surprised by the speed in the decline of the financial data -- the financial crisis the last three or for months ourselves.

In terms of a net aircraft order -- it's not really driven by the Irish or European economy.

We are very much -- we have initiated talks with both Airbus and Boeing pre-Christmas, they didn't really go anywhere, although we're still in dialogue with both Airbus and Boeing.

Both of them prior to Christmas saying, well, they have good orders for last year; the order book out for the next two or three years is strong, it's robust; yes, they may take some bankruptcies and some cancellations; but they think that their order books will hold up.

We hold a different view.

I think we're simply at a stage now where we want to be in continuing dialogue with both Airbus and Boeing.

We hope those dialogs will continue through I would say to the middle of this year.

And I would think maybe if by the middle of this year Boeing and Airbus haven't announced significant new orders, then the opportunity for a significant Ryanair order might present itself maybe towards the middle or back end of this year.

We don't need to order any more aircraft at the moment, as I said, we already have all the fleet we need out to 2012.

But if the opportunity arose clearly we have the cash to be able to put down a very large order.

I was struck last week by Boeing's announcement that they delivered about 500 aircraft in 2008 and they expect their orders for this year to be slightly somewhat lower than that.

We would -- certainly I think we're in the market for another very significant aircraft order.

It's just a question -- there's not much point in us -- we can't do anything until one or other or both of the manufacturers decide that they want to win a large order from us.

I think the market and the general economic environment in the market is moving in our direction.

It may not always be like that through this year, but we're very comfortable where we are.

And we hope that the dialogue with both Airbus and Boeing will continue.

Thanks.

Samantha Gleave, Bank of America.

Thank you, good afternoon.

Just a follow up on nonfuel operating cost, I'm just thinking a bit further out.

Can you give us a feel for the extent of potential unit cost savings that could be achieved next year and in what particular areas?

And secondly, just clarifying the foreign exchange dollar hedging position for 2010.

What portion of your dollar costs are hedged?

Is it all of it at 150?

Howard, you will take the last bit first, the dollar hedging.

We've hedged about 90% of our dollar of cost.

Obviously, because we have hedge accounting we had to be very careful in terms of managing the level and extent of cover that we have.

We would say that we have about 90% of our operating cost hedged for the dollar.

(inaudible), do you want to talk about unit costs then?

At this stage, Howard, we would plan the unit cost -- ex nonfuel unit costs are targeted for 2010, we haven't finalized budget yet because a lot of the airport discussion is still ongoing, Samantha -- would be to target again back to our normal 5% reduction in nonfuel unit costs.

The big areas in that will be obviously airport and handling costs, some of the handling depends on our ability to roll out more of the kiosk and Web check-in, but you'll see development from us on that later this year.

A lot of it will depend on the extent to which we cut back flights and capacity at expensive airports like Dublin and Stansted.

We're giving serious consideration to not just a pay freeze this year but there may be some pay reduction -- pay cuts and maybe some staff cuts within the organization, although we're looking at that at the moment we haven't yet taken any decisions on that.

So I think in almost all areas, with the possible exception of the route charges where, as you know, euro controlled operate in a different universe altogether from the real world.

I would be fairly hopeful that in all cases aircraft -- airport handling, staff, and certainly sales marketing you'll see reductions in unit operating costs over the next 12 months.

Okay, thank you.

Tim Marshall, UBS London.

Thank you.

Just a couple of questions on the average fare.

I wonder, Howard, maybe you could give us the Q3 average fare at constant currency.

And then just a second question on the Q4 guidance.

If we take it at constant currency and if you would exclude what you expect the impact of Easter to be, how would that compare to the minus 20% that you're suggesting today?

Well, it's almost impossible to (multiple speakers).

Maybe, Howard, if you'd give us the average fare at the constant currency but (multiple speakers) analysis.

(multiple speakers) I think the question is really what was the impact of sterling given that we have a huge amount of euro-based business?

Yes.

I would attribute it to between 4% to 5% of the fall in average fare is due to the impact of sterling.

And I would think that of the 20% decline that we're looking at in the fourth quarter I think will be something similar.

And is it right that the sector link was actually down 3% in the third quarter?

So that would again have had an impact on the average fare?

Yes, sector link was down as well in the third quarter.

Yes.

Okay, great.

Thanks a lot.

Okay.

Thanks, Tim.

Neil Glynn, NCB Stockbrokers.

Good afternoon, guys.

Just four quick wins, if I may.

The first one in relation to your expectations for your competitors' capacity development over the next 12 months or so, what kind of decline year-on-year are you currently factoring into your thinking, particularly obviously in relation to the yield guidance?

Then in relation to baggage penetration rates.

You've obviously highlighted that they continue to fall.

Can you advise where we are at with that now and how your progress is in line with expectations, in terms of benefiting the bottom line on that?

And also if you would confirm the CapEx figure for the end of 2009 and March 2010, if possible?

Then finally, in relation to the volume growth next year, you have highlighted growth of 16%.

Does that include your current thinking in relation to potential cuts at Dublin and Shannon in reaction to the air travel tax that you have mentioned?

Okay, I will do the three.

Howard, will you get the CapEx figures ready?

Neil, we never factor in competitors' capacity development into our plans.

We are pretty much indifferent to competitors' capacity, whether they add or they subtract.

Our plans are always based on our capacity growth.

Next year it will be something on the order between 16% and 18%.

We will lower our fares by whatever it takes to fill that capacity and maintain our load factors pretty constant.

And frankly, whereas capacity -- competitor capacity reductions may help, they may make the yield environment somewhat better than our fairly conservative assumptions, if you.

That's an added bonus that will emerge during the year.

It's not something we would ever base a budget on.

If you look around, I think it is fair to say most the flags, the BAs, the Air France, Lufthansa, if you're looking at capacity; certainly in the case of BA, capacity costs us something between zero and minus 5%.

EasyJet, although it's hard to know whether Stelois is running the place or the management are running the place, but it looks like that their capacity growth next year would be pretty flat; although a lot of their numbers are distorted by the fact the GB acquisition is included in this year's numbers, but not from the prior-year comparable.

I think from February onwards, that reverses itself.

And Aer Lingus, I would guess there would be a small capacity reduction out of Ireland so that they can flip-flop some of that capacity back into Shannon.

And then I understand -- we understand they are now going to envision a new strategy of leasing slots and leasing aircraft to run a base or a base in Gatwick, which should be another loss making operation in addition to the Belfast base.

Baggage penetration rates continue to decline.

At various stages they are hovering at the moment between 25% and 40%, so I'd take a -- I've checked in bags.

We intend to again increase the baggage check-in fees -- the checked in bag fees sometime in the next number of weeks to try to drive it down even further below 25%.

One thing we are seeing though is an attempt by a number of -- quite a high proportion of passengers now to show up with about two or three carry-on bags.

And I think you'll see us get very aggressive with that in the next month or two as well.

I think by the time we move out of spring into summer we will be getting much tougher on passengers, only allowing them to get on board with one carry-on bag.

And if they have two or three they'd better all put it into one otherwise it's not going on board.

And again, that's not for any kind of cost reduction rate, it's just to make sure we can maintain quick turnaround.

We are suffering some flight delays with some passengers adopting the American model of waddling on with three and four bloody carry on bags and taking all day to get them into the overhead bins.

We will tackle that again in the next couple of weeks.

Volume growth next year 16%.

I think we would be very confident that we'll hit that figure, but obviously a lot less confident as to at what average fare and yield.

But I think it is key to our model that we're going to grow strongly the next 12 months.

That's one of the areas why I think we're going to see such -- we're seeing such aggressive pricing being offered to us by airports and handling companies across Europe at the moment.

I mean particularly a place like Spain where [Iena] are looking at maybe a double-digit traffic decline over last year and into next year, all of a sudden even the likes of Iena are getting very price competitive.

So, the way for us to continue to reduce operating costs or unit costs is to continue to grow at a time when everybody else is either reducing capacity or freezing capacity.

The way for us to get the best deal on aircraft is for us to continue to grow and order more aircraft at a time when everybody else is either losing money or cutting capacity.

So I think volume growth next year we're confident of, but obviously no visibility yet on yields.

Howard, do you want to give him the CapEx figures '09 and '10.

Yes, in March '09 we'd expect the number will pan out at EUR600 billion and next year, because we've had our deliveries delayed from Boeing, we expect to take delivery of a 54 aircraft and the gross CapEx, including (inaudible) deposits, of just shy of EUR1.2 billion.

And that's euro, is it?

That's euro, yes.

Great.

If I could just follow up now, maybe you won't answer this -- is it possible to give some kind of an indication as to what these lower bag charges are actually doing to the bottom line?

You mean higher bag charges?

Sorry, lower bag penetration rates.

It's difficult to know at the moment, like where you see that -- we're seeing no impact of it on yield at the moment, although obviously yields are declining, how much of that is down to the recession, lack in consumer confidence, how much of it is due to passenger kick back on bags?

We think very little.

There's certainly a kickback on bags which is what we want to achieve, we want to force more and more -- if we can get our check-in bags down below 25% you're going to see us be much more aggressive on airport costs of handling costs.

For example, you take Dublin airport who are presently building not just a second terminal, but a second terminal -- a separate building in front of the second terminal which is for check-in area for deep queuing check-in spaces.

Now that's the kind of waste that these guys are engaged in at a time when the whole world is moving towards Web check-in, kiosk check-in and there's no need for queuing spaces at all.

But we're having a debate at the moment, for example, with Frankfurt-Hahn, one of the areas where we can share major cost savings.

Maybe we'll have no physical check-in in Frankfurt-Hahn, we could just put in kiosks there and migrate our people where checking in on the Web are using kiosks.

One of the developments we'll be announcing very shortly will be permitting passengers with check-in bags to use Web check-in, the Web check-in facility.

So these are developments we'll be targeting over the next couple of months.

But there's absolutely no doubt where as we can't determine whether they have any impact on yield, it will have a very significant impact on our cost reduction in the airport and the handling cost lines.

Great, thank you.

And over the medium term then we'll have a different debate, I mean for example with airports.

We don't know who the new owner of Stansted Airport will be, but, as you know, the BAA are planning, proposing to build a second terminal for something in the order of about 4 billion pounds sterling.

We now, if we can get down to 25% of our passengers with check-in bags, believe we can build a similar 35 million to 40 million passenger capacity terminal for less than 200 million pounds sterling.

So we're talking about a major revolution in the way airports are designed.

Passengers certainly prefer if they can show up a lot closer to their departure time, they don't have to hang around the check-in desk, they just go straight through security, go down and get on the flight.

And I think it will be -- the other attraction of that is it would significantly reduce passenger dwell time at airports and put significant downward pressure on things like airport retailing and airport duty-free spending.

Something that would make a lot of inefficient monopoly airports or force them to get a lot more efficient and begin to work with airlines like Ryanair.

Great, thanks.

[Andrew Summerfield], [AON] in London.

That question has been withdrawn.

(Operator Instructions).

Travis Anderson.

Travis Anderson, Gilder, Gagnon, Howe in New York.

Given the lousy prospects that you are enumerating for Aer Lingus why don't you sell the stock?

The honest answer to that is I don't think there's a buyer for it out there.

Aer Lingus has been in place since the 1st of December; we made what we consider to be a very generous offer, although some analysts in this town and then followed in by some politicians believed it didn't fully value Aer Lingus, but didn't see anybody else coming out of the woodwork to offer EUR75 billion for a loss making airline.

As I said, if somebody else was to come up with an offer, Travis, we would give it serious consideration.

I wouldn't say -- it would be wrong for us to say that we would never sell our stake in Aer Lingus -- anytime somebody was to make an offer we'd give it serious consideration.

But in the absence of any other offer and in the light of an airline that's clearly losing money and going nowhere in a hurry, I'm afraid we'll have to continue to write down our stake in Aer Lingus as will the government and all the other shareholders who didn't -- decided not to accept our recent offer.

I'd just much rather you had the cash.

I would rather in retrospect I had the cash as well, Travis, but we don't.

And I think we are where we are.

I think all I would really want people to focus on Aer Lingus is we didn't spend a lot of time on the Aer Lingus offer this time around.

As you'll see from our December traffic figures and the January traffic figures which we get announced tomorrow, we certainly haven't allowed it to distract us from continuing to deliver rapid traffic growth.

And we're going to get on with -- having been rejected this time -- maybe for the last time, who knows -- I think we're going to focus now on very aggressively competing with Aer Lingus for the next year or two.

Clearly they can't compete with us.

I think we will try to build out some of the Irish operation.

But I think most of the focus in Ireland for the next year, certainly within Ryanair and I imagine with Aer Lingus as well, will be cutting back marginal routes or marginal flights where if you take, for example, the Shannon base -- for large portions of the year the average fare paid by passengers at Shannon is less than EUR10 and then the government comes along and decides from the 1st of April next year, in three months time, they're going to slap a EUR10 tax on us.

These people simply won't come to Ireland if their fare is about to be increased by more than 100% by an idiot measure launched by the Irish government.

And the travel taxes have already failed in the UK, they've created the first decline in UK traffic in something like 30 years.

They've already failed in Holland, which has now lurched into traffic decline following the introduction of a travel tax dressed up as an environmental measure.

Thankfully the Belgians, who don't get much right, the Belgian government saw the err of the ways and, having proposed a travel tax, have now taken it away.

And we're still campaigning aggressively here in Ireland for the Irish government to take away this stupid travel tax which is nothing more than tourism suicide.

But as for Aer Lingus stake, Travis, I'm afraid we have written it down, I suspect we'll have to write it down again at the full year when I believe the value of an Aer Lingus share will be significantly less than EUR1.

But it will be what it will be.

But other than that we remain a large minority shareholder, but we wouldn't rule out somebody else making an offer.

And if it was an offer that was a fair value I wouldn't rule out excepting it.

Okay, thanks.

Wyn Ellis, Numis Securities in London.

Thanks, hi, good afternoon, chaps.

First of all an apology.

I missed the number Howard gave for the impact of sterling on yields?

And secondly, I just wonder if you can break down the traffic.

How much of your traffic is now Irish originating, how much is originating UK?

And within that how much is UK to Ireland, and then how much is originating on mainland Europe?

Careful, we don't give that level of analysis.

The Irish originating traffic is less than 15%.

I think, although Michael might correct me, I think Ireland and UK combined originating traffic is less than 40%.

But we don't split it out any lower than that.

Okay, that's a help.

Michael, are you happy with that figure, the 40% on Ireland/UK?

Yes, it's just about 40%.

I mean significant it's the one figure we have said there, Michael, is that we expect the Italian traffic to be more than 15% originating in the -- given our capacity we put in there now, another marketplace -- Spain coming up towards 10% as well.

That's originating out of Spain now, you know?

Those are significant movements as far as emphasizing the point made earlier on, Wyn, about the concentration of our growth in Euro land, in particular on the continental Europe, you know?

Quite.

And that number on yield I just missed from Howard?

In terms of the third quarter a 9% decline in yields, we said about 4% to 5% of that was due to the impact of the sterling movement against the euro.

Okay, thanks very much.

Kim, any more questions?

We have no further questions at this time.

Okay, everybody, we'd like to thank you again for joining us on the conference call today.

As you know, we're not doing a road show, we don't on the first and third quarters.

But if anybody has any follow-up questions or would like to come visit us in Dublin, please feel free to do so.

I think if I can leave you with a couple of thoughts, more than clearly the Aer Lingus offer is out of the way and off the table so we're now focused and we can now return to focusing well in advance of the year on running the business and growing it strongly.

True, traffic growth has been very strong, will continue to be very strong, partly because we're continuing to lower airfares and partly because most of the rest of the competition is either consolidating, cutting capacity or going bust and that will continue.

And thirdly, I think if you strip out oil you're seeing us continue to be very disciplined in the -- by delivering unit cost reductions, and we expect that trend to continue out into next year as well when although it will clearly be significantly enhanced by a large decline or large comparable decline in our oil prices.

So overall I think we're looking forward to the next 12 months.

It's quite clearly going to be a very difficult economic environment.

That difficult economic environment though is very good for Ryanair's growth because we are by far and away and by some distance the lowest cost operator.

It will be very good for our profitability next year, but the extent to which we can capture some or all of that EUR500 million saving in oil will largely depend on the outturn on yields.

And much of that will depend on a combination of the economic environment, how much capacity will switch away from high cost airports such as the Irish -- Ireland and Stansted and how much capacity will be taken out by competitors.

And then obviously what kind of opportunities will unfold for us at other European airports both large and small, although clearly the -- I wouldn't rule out continuing growth at secondary airports where a lot of the regulatory uncertainty has now been removed by the victory at the European Court (inaudible) in December over the European Commission of the Charleroi case.

Ladies and gentlemen, thank you very much again.

Anybody who wants to come to Dublin to talk to us in the next couple of days please feel free to do so.

Or if you just want to talk to us or route questions into us please feel free to either call myself, Howard, Michael or David, in the investor -- head of the Investor Relations team.

Okay, folks, thank you very much.

Thank you, Kim, for your help.

Bye-bye, everybody.

Ladies and gentlemen, thank you for your participation.

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

Goodbye.