Ryanair Holdings PLC (RYAAY) 2010 Q4 法說會逐字稿

Good day and welcome to the Ryanair full-year results conference call.

For your information, today's conference is being recorded.

At this time I would like to turn the conference over to Mr.

Michael O'Leary.

Please go ahead sir.

Good afternoon, ladies and gentlemen.

I am here in London with Howard Millar.

Michael Crawley sends his apologies but he is on a flight to the US at the moment as is most of the rest of the team are either in the States or on their way there -- David Broderick, Neil Sorahan, Jimmy Dempsey.

So you will have to make due with Howard and myself on the call today.

We have published this morning the full-year results together with the investors slide show and the MD&A.

It's all up on the website at www.Ryanair.com.

And I will do a couple summary remarks then hand it over to Howard.

As you can see, today we announced full-year profits rose 204% to EUR319 million.

Fares in the full year fell 13% as traffic grew to 14% to 67 million passengers and we have proposed to pay a dividend of EUR500 million to shareholders in October subject to it receiving approval at the AGM in September next.

Headlines for the last year were obviously profits, traveling traffic growth to 67 million, 51 net new aircraft, eight new bases, 284 new routes.

Our passenger service statistics -- our on-times, our cancellations, and our lost bag-- all improved further making us or widening the gap between us and all other airlines on passenger service.

A couple of current issues.

As traffic -- we predicted last year, our tourism industry has collapsed.

Last year and again this year in the face of the insanely stupid government EUR10 tourist tax, which we continue to call for the repeal of.

The government has decided to worsen that situation further by ordering the allegedly independent aviation regulator to award the DAA monopoly of -- and price increases of up to 40% over 2010, which has had the result that our Dublin Airport and the Irish airports continue to show substantial double-digit capacity and traffic declines at a time when most other European airports have returned to growth.

We believe the Irish government is fundamentally wrong in its policy of taxing tourists and increasing airport charges, particularly when many other European governments, most notably the Spanish, the Greeks, the Dutch, and the Belgians, are all -- have scrapped their tourist taxes and are reducing airport fees.

We hold up the example of Spain, which in the last 12 months has introduced a 100% rebate on airport fees in return for growth.

Most of their airports have now returned to growth while Dublin and Ireland continues to decline.

Terminal two, that great EUR1.2 billion white elephant designed by the DAA, is due to open in November at a time when capacity in terminal one at Dublin Airport is now 30 million passengers per annum.

Traffic at Dublin is less than -- will be less than 18 million passengers this year and we clearly don't need and should have to pay for T2.

We believe it should probably be sold to NAMA, the government's bailout of all the property developers where all the useless and unoccupied property buildings have been sold to a government agency in recent months.

We think the terminal two should also be sold to NAMA and the DAA monopoly broken up.

Touching on the recent unnecessary airspace closures as the result of the mismonitoring of Icelandic volcanic ash, these closures, which applied for a period of 18 days from the April 15 to the May 18, caused the cancellation of 9,400 Ryanair flights and the loss of 1.5 million passengers up to the May 18.

In total, we expect that the combination of our loss of an operating profit on the flights that were canceled together with the reinforcement of the reasonable expenses of passengers, we will come to something of the order of about EUR50 million.

As I said, we think the airspace closures were entirely unnecessary and the recent revisions of the VAAC charts produced by the London UK Met Office have vindicated our view that at no stage should European airspace have been closed.

We should all have been following the American system, which is about a 50-mile radius no-fly zone around an erupting volcano and thereafter if you see a volcanic ash cloud you fly around it.

But if you don't see it and it isn't visible, then it isn't there.

It does bring into sharp relief how unfair and penal the EU261 regulations are.

These are the regulations under which the airlines now carry an unlimited liability for passenger compensation and reimbursement claims, even in cases where the cancellations are not the fault of the airlines.

Similar regulations as they apply to coach, ferry, and rail operators in Europe and indeed as they apply to travel insurance companies means that none of those companies have to provide right to care in a force majeure cases, i.e.

where it's beyond their control or the event is beyond their control.

We should have a similar force majeure clause in the airline EU261 regulations and we continue to campaign for such a clause.

Secondly, the regulations as they apply to coach, train, and bus operators in Europe also limit the amount of compensation that passengers can receive to something, either a percentage of or multiple of the airfare or the ticket price paid.

We believe there should be a similar linkage in the airline regulations because it's fundamentally unfair that passengers who exercise the right -- exercise their choice to buy a low-fare ticket on Ryanair for EUR32 and the knowledge that we don't provide free meals and we don't provide free drinks can suddenly turn round in a disruption situation and expect us to provide them with free meals and free drinks.

We think they should use the savings they made and go and buy their own free meals and free drinks.

We are proposing a EUR500 million dividend in October.

The cash for this derived immediately from the fact that our aircraft discussions with Boeing were terminated last December.

We don't expect to be ordering any new aircraft, be it from Boeing or Airbus, in 2010 or 2011.

Therefore, the amount of money that we spend on capital expenditure is going to fall precipitously over the next two years leading to a significant surge in cash generated from ordinary activities and leading to the small net debt position rising to a significant net cash position over the next two years.

Rather than waiting as we originally envisaged until 2013 and making a dividend payment of EUR1 billion, we decided that we should bring that forward now and pay a significant one-off dividend of EUR500 million in October subject to the AGM approval in September.

This will -- this EUR500 million, when added to the EUR350 million we have already spent in the past three years on share buybacks, will bring to EUR850 million, the amount of tax returned cash return to shareholders by Ryanair over the past three years.

In terms of outlook, I think we are cautiously optimistic.

We expect traffic to grow in FY 2011 by 11% to 73.5 million gross and from that you would have to take the traffic cancel as a result of volcanic interruptions, which were currently 1.5 million.

So the net traffic would be about 72 million passengers.

Fuel costs on the basis of our existing hedges will increase by EUR300 million.

However, subject to no further airspace closures, which we don't expect, and an earlier return to normal bookings, which we do expect, we expect air fares, which fell 13% last year, to rise by between 5% and 10% due to the positive impact of our new routes and bases and the longer sector lengths this year.

Some of these routes bases, such as Faro and Malaga, are already producing higher fares during the summer although they will lead to a 10% increase in sector length.

Q1 will be adversely affected -- would be adversely impacted by weaker yields in May and June largely because I think as we went through the second phase of volcanic ash disruptions in early May, passenger confidence in airline bookings took a bit of a hit.

We responded to that by more aggressive seat sales.

So whereas we expect to hit our passenger numbers for May and June, it will now be a slightly lower yield.

Also the fact that the first part of Easter was included in Q4 last year rather than Q1 will also be a factor.

And as a result, Q1 net profits are expected to be slightly lower this year than last year.

Overall, however, we expect cost per passenger to rise by 4% in 2010, 2011.

On a sector length adjusted basis they will fall by 6%.

If, as we expect, higher yields offset the increased fuel and other operating costs, then profit, excluding the exceptional costs from the recent volcanic ash disruption, for the coming year should rise by between 10% to 15% to a range of EUR350 million to EUR375 million post-tax.

Howard, do you want to take people through the MD&A please?

Okay.

Thanks, Michael.

The extensive MD&A is on page 11 of the results release including the financial statements so I will just give you a summary of it.

All the numbers we talked about, the adjusted profit after tax, is after exceptional items with a EUR13.5 million impairment charge on the Aer Lingus shareholding recorded in the financial year ended March 31, 2010.

And in the prior year to March 31, 2009, there was a total exceptional items of EUR274.1 million representing EUR222.5 million on an impairment charge in the Aer Lingus shareholding and an accelerated depreciation charge of EUR51.6 million in aircraft to be disposed in 2009 and 2010.

The summary therefore then is the adjusted profit after tax increased by EUR213.9 million to EUR308.8 million(Sic-see press release) compared to EUR104.9 million in the year ended March 31, 2009, primarily due to a 29% decrease in fuel costs partially offset by a 13% decline in average fares.

Total operating revenues increased by 2% to EUR2.998 million(Sic-see press release) as average fares fell by 13% due to recession price promotions and the adverse impact of the movement in euro/sterling exchange rates.

Ancillary revenues grew by 11% to EUR663.6 million, lower than the increase in passenger volumes due to a decline in average spend per passenger primarily due to lower excess baggage revenues and a negative impact of the movement in euro/sterling exchange rates.

Total revenue per passenger as a result decreased by 11% while the load factor increased by 1 point [to] 82% during the year.

Total operating expenses fell by 8% to EUR2.586 billion, primarily due to lower fuel prices offset to the higher levels of activity and increased operating costs associated with the growth of the airline.

Fuel, which now represents 35% of total operating costs compared to 45% in the prior year, decreased by 29% to EUR893.9 million due to falling price per gallon paid offset by a 13% increase in the number of hours flown.

Unit costs excluding fuel fell by 3% and including fuel they fell by 19%.

Operating margin as a result increased by eight points to 13% while operating profit increased by EUR257 million to EUR402 million.

Net margin increased to 11% from 4% at March 31, 2009, for the reasons I have just outlined above.

Adjusted earnings per share for the year was EUR0.2159 compared to EUR0.071 in the previous year ended March 31, 2009.

On to the balance sheet, total cash and cash equivalents increased by EUR135.2 million to EUR2.813 billion.

The group generated cash from operating activities of EUR871.5 million and a further EUR89.2 million were delivery proceeds on the sale of three Boeing 737-800 aircraft and two spare engines which partially funded capital expenditures incurred during the year.

Capital expenditure of EUR997.8 million largely consisted of advanced aircraft payments for future deliveries and deliveries during the year of 42 new Boeing 737-800 aircrafts.

Total debt net of repayments increased by EUR557.8 million to EUR2.956 billion.

Net debt at year end was EUR142.8 million.

And that is the end of the MD&A.

Thanks, Howard.

Okay, we will open up the conference up to questions and answers please.

(Operator Instructions) Stephen Furlong, Davy.

Good afternoon.

Good results, Michael.

Two quick questions.

Just generally, obviously you have announced you are going into Barcelona, El Prat.

Just comment on what you see in terms of going into mainstream airports, maybe with capacity take up by competitors and also the way the airline has changed in terms of efficiency with the bags and the Web check-in, whether that is more interest going forward, excluding airports like Dublin of course.

And then just the second thing, I note since the last time you reported Boeing upped their production rate on the 737-800.

Just your comments on that and whether you would think that maybe, if at all interesting, maybe a reengined aircraft in maybe five or six years might be more interesting than the current aircraft type or is it just a better price?

Thanks, Stephen.

I think it's fair to say that in the last two years one of the biggest characteristics in our model has been the cutback, capacity cutbacks, among the flag carriers and others -- flag, non-flag carriers -- going bust.

That has created a large downward trend in capacity and traffic at a lot of mainstream airports who looking around see easyJet really not able to grow or most of their growth allocated to Milan Malpensa or Paris Charles de Gaulle, but not able to provide or meet their needs for growth.

And that has happened in the UK, in Italy, in Spain, and in Germany.

Those airports then turning around, coming to us, and offering us a package of low costs and much more important, efficient facilities.

We have the ability to do 25-minute turnarounds.

easyJet -- I am surprised, too, to an extent because easyJet and analysts fall for this myth that easyJet is at the mainstream airports and Ryanair is somewhere off on left field despite the fact that easyJet is still at Gatwick and Luton in London whereas we have opened up bases in Madrid, Baracas.

In the last 12 months, we have also opened up at Faro, Malaga, Rome Ciampino, and now more recently Malta, I said Malaga, and the Barcelona El Prat.

In all those cases, we have gotten what we think is a very acceptable cost deal.

I think one of the things that has been a key to that though has been the kind of revolution in our handling costs that we have brought in the last two years.

Two years ago, even if you could get a deal off the airport, you would have gone into some of the Spanish airports, they would have said look, you have got to be handled by Iberia or by our local handling operation which is very expensive.

In all those cases now we are able to go in and get self-handling licenses.

Our handling is a fraction of the cost of the incumbents because we don't need to rent all these check-in desks, because we don't need a lot of baggage handlers, because we are using Web check-in and because so few of our passengers are traveling with bags.

So there has definitely been a combination of mainstream airports like Barcelona El Prat, who as you know like Dublin last year opened up a second terminal last year taking their terminal capacity up to 60 million passengers in a year where their traffic fell from 30 million to 24 million.

The Spanish government responded by reducing airport fees to zero for growth and we have been able to get efficient facilities in the old terminal and our own handling license.

So it now becomes a real opportunity for us to go in.

If you look at the fares being charged out of Barcelona El Prat by easyJet, Spanair, or Clickair Vueling, they are in many cases a multiple, double or treble the kind of fares we have been charging from Gerona and Reus.

So I think we will go in and really clean up there by offering really low fares and forcing down the fares being charged by other high fare airlines like easyJet, Spanair, and Vueling.

So we see it as a big opportunity for us.

I think it has always been one of the soft underbellies, for example, of the easyJet model which has always been, well, Ryanair will ultimately run out of growth because there is a limit to the number of low-cost tertiary airports in Europe whereas we will be at the main airports increasing fares.

Well, no you won't.

By the way, there is no shortage of tertiary airports out there; we are still dealing with more offers than we can handle.

But there is increasingly now primary airports coming to us, recognizing that easyJet has either stopped growing or not capable (technical difficulty) their high fares.

[They are] coming and trying to get Ryanair -- give Ryanair an offer to get us to grow there.

In terms of Boeing upping their production rates, we are surprised by it frankly because I don't see any point in upping your production rates if you are not actually going to up the number of sales.

Boeing and Airbus have announced very few new orders this year.

We are being offered aircraft.

While Boeing and Airbus will tell you that their production is full out to 2014, we are inundated with offers of aircraft at the back end of 2010, summer 2011 and 2012 from leasing companies who can't give the aircraft away.

I know both, certainly Boeing and to a lesser extent Airbus, have this view that North America will have to refleet.

Well, it may have to refleet; it just doesn't have any money.

But it's not really a big issue on our horizon.

We have taken the decision in December.

We had agreed to pricing and delivery dates at Boeing.

Boeing couldn't reach agreement or were trying to then screw around on the delivery terms so we said no.

We are very happy with where we are.

We have enough aircraft to grow by another 30% between now and the end of FY 2013.

If we order some more aircraft between that then we grow at a much slower rate in 2014, 2015, and 2016.

And if we don't reach the new aircraft order, we suddenly won't grow the top line at all in FY 2014 and 2015 but we would still be able to open up new bases and roots by pairing out some of the underperforming routes and bases we have at the bottom of our network.

It would give us a year or two of no growth, which would allow us to do a lot of spring cleaning and cost renegotiation over that period of time.

So, frankly, what Boeing and Airbus do with their production is a matter for them.

On the reengining issue we are very supportive of a reengineering program.

Anything that reduces fuel consumption we would be all for.

We would be very opposed to the kind of rumored redesign of the 737 program which seems to us another mess waiting to happen by Boeing, who haven't been particularly successful in reengining or in redesigning the 787 or many of the other aircraft varies.

We think the aircraft 737 is fine.

Reengine it by all means, but stop wasting money and time redesigning what is a narrow tube that hasn't fundamentally changed since 1965.

We would like to get two rear toilets out of the aircraft and add six extra seats but that seems to be a challenge that Boeing aren't willing to take on at the moment.

That is great, thank you.

Jim Parker, Raymond James.

Michael and Howard, good afternoon.

Just following up on Stephen's question there.

I see on page 11 of your slides, you have 26 disposals 2010 through 2013.

What ability do you have to retain some or all of those aircraft and how will that change the capacity growth outlook?

We can retain all of those aircraft.

We could extend those -- that is as they come up to the end of their initial seven-year lease.

We could, if we want, to expand those leases but it's the net number.

It's the net and those disposals are in the net total fleet number and that is what drives the passenger numbers there.

So the traffic numbers could be higher than that if we were to either, A), extend those operating leases or, B), replace them with some new aircraft whether from leasing companies or directly from Boeing and/or Airbus over that period.

We also have six aircraft sales which we could clearly defer as well.

Okay.

And regarding ancillaries, would you provide some insight into the outlook ancillaries per pax and the growth, if there is going to be growth, and what are the factors that are driving that?

Yes, ancillaries, if you remember, Jim, we have completed kind of five-year program to get ancillaries to 20% of revenues.

In the last year, they were up to 22% although it's a little bit distorted by the fact that yields, passenger yields fell by 13% last year.

We expect revenues to level out at the kind of 20% number over the next two or three years unless or until we can find some new stream of ancillary revenues, which at the moment isn't visible to us.

We are working on penetration at the moment.

We had a couple of hiccups last year with the hotel deal having to be renegotiated, changeover in some of the car hire terms.

In fairness, some of our partners, which I think were pricing too high last year into the recession -- certainly Hertz have been much more aggressive on pricing this year.

Our new hotel deal is providing much better penetration but at lower rates.

And we have now automated the in-flight sales activity with these EPOS, handheld EPOS machines for the cabin crew, which allows us to track stocks and do price promotions and price deals.

Now if you buy a coffee, you can get a chocolate bar at a discounted rate whereas previously when it was all manually we couldn't do that because we weren't able to track the stocks.

But I don't see anything significant here in ancillaries for the next year or two.

Our real focus on the next year or two is to slow down the rate of growth and then begin to see if we can't exercise some pricing power over that period, particularly as we expand into longer sectors, into more higher yielding airports in a market where almost all of our competitors are either cutting capacity or stopped growing.

It looks like the same thing -- I think probably the same outcome that happened at easyJet when the [current] Stelios squabble is finished, I presume, will have to bend the knee and meet his needs or his desire to stop growing and start paying out dividends.

And I presume our announcement today on dividends will put even more pressure on the management and board of easyJet to give Stelios what he wants which appears to be a significant payout.

Okay, fine.

Thank you.

Tim Marshall, Redburn Partners.

Afternoon.

I have just got a couple of questions to add to mine this morning and both for Howard.

Could you just tell me what the increase in the financial aspects was in the cash flow statement?

Presumably that was some cash into short-term deposits or somesuch.

And then what is the advanced payment now within the net asset line that you have -- the aircraft that you have already paid for at Boeing?

The increase in the -- it's just the movement between short and long-term cash.

Okay.

In the balance sheet, our deposits are currently running just under EUR300 million -- just under EUR400 million, EUR380 million, EUR385 million.

Great.

Okay, perfect.

Thanks a lot.

(Operator Instructions) [David Li], [Luthard Investors].

Michael, you touched on the easyJet's primary airport or quasi.

Can you just talk a little bit about the opportunity there for you guys to go in there and really take share directly from them?

Look, it's not part of our strategy to go and chase easyJet because, frankly, there is not much point.

We have no desire to chase them.

I think in fairness to easyJet, their strategy over recent years has been to go into airports where we would never fly, like the Charles De Gaulle, and competing with the likes of Air France.

But I think easyJet have a very soft underbelly of airports, like the Schiphols, Barcelona's El Prat, Copenhagens, and Malpensa in Italy, which we could go into at any time.

We are talking to some or all of those airports at the moment, all of whom recognize the fact that easyJet has stopped growing.

Has not only stopped growing but are unable to deliver them growth whereas we have continued to grow and can continue to deliver them a significant amount of growth because our average fares are significantly lower than those of easyJet.

Now if you look at our new route profile out of Barcelona El Prat, I think it's fair to say the focus of our expansion there is not necessarily easyJet.

It's much more going in there and providing competition and choice to the high fare Spanish airlines like Vueling and the Clickair, the Clickair Vueling combine, and Spanair neither of which are very robust or very strong.

But there is absolutely no doubt that we will take a large slug of easyJet's -- of traffic off easyJet simply because the passengers who have already selected easyJet for their somewhat slightly lower fares than Iberia will now clearly move across the road to Ryanair.

Not alone because we have much lower fares than easyJet but we have much better punctuality and much fewer cancellations.

We think it's notable that easyJet continued to suppress their punctuality figures on the website.

They haven't published them now for a period of over a year and there is no doubt in our mind that that is because they are so bloody awful they can't compete with ours.

In fact, some of you may know we ran an advertising campaign featuring their dominant shareholder, Stelios, which apparently has taken some exception to.

He has refused to take up our challenge of a sumo wrestling bout in Trafalgar Square or a race around Trafalgar Square to settle the issue preferring instead to sue us for libel.

But we are quite happy to see him and see easyJet's suppression of their punctuality statistics exposed in the courts of London.

If they don't want to do it in Trafalgar Square, we will do it on the steps at the high court instead.

But it's not a big part of our strategy.

Remember, we continue to expand on an opportunistic basis where airports, whether they are mainline or secondary airports, give us a very low cost deal or efficient facilities.

And that has been over the last 12 months in places like the Canary Islands, in Faro, in Malaga, and now in Barcelona El Prat.

But I think you will see a number of other airport bases announced over the next year or two similar to Barcelona El Prat where, frankly, mainline airports are just making us very attractive offers to get us in there so that they can reverse their traffic slides of recent years.

So we will do it, not because we are going after easyJet, we will do it simply because that is where the opportunities -- those opportunities are presenting themselves at the moment as many of those airports try to, if you like, reverse recent traffic declines.

The only airports that seem to immune to traffic declines are, sadly, some of the UK and Irish airports where they are following this new genius economic strategy, certainly in Ireland, of on an island of introducing a EUR10 tourist tax and then the government ordering the alleged, the supposedly independent regulator to whack up the fees by 40% to pay for a second terminal that nobody ever wanted and nobody will ever need.

However, I have little doubt that the DAA will go bankrupt in the next two years.

They won't be able to service the debt.

Nobody -- there are out there talking to I think it's Air India at the moment who might bring them about 200 extra passengers a day in their new 20 million terminal two instead of talking to Ryanair.

But I think when the Irish government really realizes that they have completely (expletive) up the tourism industry and that the only way back is growth, they will eventually realize that they are going to have to talk to Ryanair.

Because we have written an offering growth to both the Irish government -- new routes and traffic growth to both the Irish government and to the DAA monopoly and remarkably neither of them have shown any desire to take up our offer.

So we are quite happy to grow in Spain and Greece and Italy where governments have scrapped tourist taxes and airports are reducing fees, in some cases by 100%.

If Ireland wants to just keep increasing fees and taxes, then fine their tourism industry will continue to decline.

But this year, Ireland will account for less than 8% of our originating traffic and I think at the rate they are going it will be less than 5% in two year's time.

Okay, thanks for that.

One more question just in terms of -- I understand you guys -- the discount airline market share in Europe is already a pretty big reasonable chunk of the overall market.

Can you just talk a little bit about going forward what were some of the things that have to happen for you to double or triple your passenger number?

And also talk a little bit about maybe opportunities at some of these primary airports.

I understand you mentioned in the past that turnaround time is not quickly enough for you guys to be in there, but can you see any sort of change down the road in the next couple years for you guys to get into the primary airport?

Let me split -- let me do the second part first and then I will come back to the first part.

If you take the time primary airports, I mean it's important to split the primary airports into two.

There is three primary airports which, in my humble opinion, we will never fly to.

That is Heathrow, Paris Charles De Gaulle, and Frankfurt Main because, even if they came and gave it to us for free, you simply can't get in and out of those airports in 25 minutes.

Almost every other primary airport, whether it's Rome, Barcelona, Madrid, Berlin, Zaventem in Brussels, Schiphol, Stockholm, Copenhagen, Stockholm, Oslo, you name it, you can do 25-minute turnarounds.

So it's just a question of waiting until the airports are -- need us enough that they are going to give us the kind of cost discount we want and allow us to do self-handling or at least subcontract our own handling and not use the local rapist or the local flag carrier to do our handling.

So in spitting I think it's inevitable at the moment that we are going to show up at almost all of the primary airports in Europe in the next couple of years with the exception of Paris, Frankfurt, and London Heathrow.

So in terms -- but there will still be a balance.

We will still also be opening up bases in secondary airports, but our rate of growth will slow down in the next couple of years as the number of aircraft delivery slows down.

That will help us to be even more cost disciplined because I think what you will see is we will still open up a significant number of bases but we will be closing more of the existing bases where either the airport costs aren't low enough or the performance hasn't been good enough.

I give you the example of Shannon Airport which we have -- the base -- we have effectively closed the base this year.

We have reduced it from four to one aircraft but from 35 routes to less than 10 routes where the airport we had a five-year deal, that is EUR2 per departing passenger.

They wanted to scrap the deal and take us straight to EUR7 per departing passenger.

We said, no, we are out of there and traffic at Shannon has imploded.

They have had a big day yesterday I think where some small Irish regional airline announced they were going to open up four routes.

Might add about 100,000 passengers a year at Shannon where they have lost 1.5 million Ryanair passengers in the last year.

So I think you will see more discipline in our airport negotiations as our rate of aircraft deliveries slows down.

What was the (inaudible)?

Market share (multiple speakers) we have seen figures where Southwest or the low fares airlines in the States have about 20% market penetration.

Between ourselves and easyJet at the moment, we are up to about 17%, 18% here in your Europe but clearly we could go much higher here in Europe.

I think in the short haul market in Europe, it's the BA model or effectively the BA short-haul model is broken.

They can no longer persuade people to pay them GBP200 GBP300 pounds for on short one-hour flights even for a free meal or an allegedly free drink or for the use of a business lounge at the airport.

I think increasingly Europe is moving the same way as the US.

There will be no business class on short-haul flights in Europe in the next three years to four years and all of that market, I think, is moving in our direction.

However, we are going to slow down our own capacity growth in 2012 onward so I expect us over time -- I think we are estimated to be something around 10% now on our own.

I see no reason why that won't go to 15% over the next five years as we grow from kind of 66 million to something around 100 million.

Now that obviously needs us a couple more aircraft orders after 2012 but a much slower rate of additional aircraft than we have heretofore.

Great, thank you.

Thanks, David.

Any other questions?

Eamonn Hughes, Goodbody Stockbrokers.

Just a quick little, couple of quick points.

Just on the cost side, you have given a bit of guidance for FY 2011 and one of the issues obviously at play is sector length.

Just trying to get a little bit of thought maybe, for the following 12 months could you see yourselves back on track in terms of or even the unit costs are still in decline?

While I think in the earlier conference call you talked about sector length kind of think of it as sort of low single digit.

I am just wondering if you could still keep it on a unit basis in decline in FY 2012 just the first thing.

I will just move on to the other ones after you answer that one.

I think looking reasonably beyond the horizon to the end of March 2011 would be kind of very speculative.

We don't know the route structure.

We wouldn't really be able to comment on that.

Okay.

And just Howard, actually just when you are on there, should we conceptualize even -- you have given kind of the growth in the net in terms of pax numbers at 73.5 million and 72 million.

Should we be thinking of or modeling the growth but the EUR50 million as kind of a lost -- it's cost plus the lost contribution or do we model the 72 million and the EUR50 million is just purely exceptional costs?

Yes, the EUR50 million is purely exceptional costs and that is made up of what we expect to reimburse to passengers on their EU261.

It's also made up of the costs associated with the aircraft that were grounded during those 18 days of disruptions.

It's the additional costs we have in terms of the people we have recruited to process these refunds and claims so it doesn't include an amount for contribution.

Okay.

And finally just one technical point just in relation to yield.

There is obviously a lot of variables at play in terms of the wider guidance.

But from what you can see is it possible, particularly where there is a lot of capacity that has been added in Spain and Italy, have you been able to see on an underlying basis, say on an existing route basis year on year, where you are getting improvements in Spain and Italy on yields?

No, you have got to look -- we are too big for this kind of -- an analyst is all the time going, well, can you separate existing routes from new routes?

No, largely because there is such a crossover between new routes at existing bases and existing routes at existing bases.

So our capacity growth tends to drive down yield across the piece.

It's not just all on existing basis.

A lot of our capacity growth is by adding frequency on routes that were doing well last year and can sustain additional frequency.

So I think its better off to look at it, Eamonn, on a broadbrush sense.

The key driver of yields in the next 12 months will be three things.

One, our sector length; that is going to go up by 10%, we know that.

Two, it would be the extent to which competitors continue to cut capacity in markets where we operate to get out of our way.

And three, it will be driven by the extent to which over the next two to three years we can consciously slow down our own capacity growth.

And we are clearly signaling that we are consciously going to significantly slow down our own capacity growth regardless of whether we do a new aircraft deal for post-2012 or not.

Okay, thank you.

So I think that the summation of that is plus or minus the occasional sort of unforeseen event like hapless mismanagement of airspace in the face of a volcano that is about 3,000 nautical miles away, the underlying trend in Ryanair for the next two or three years will be much slower capacity growth, a bit more pricing power.

We would expect -- bear in mind with yields at 13% last year we are only guiding at the moment that we get 5% to 10% of that back in the next 12 months but we expect to get most of those fair reductions back over the next year or two.

Okay, thank you.

Anybody else?

There is no further questions in the queue, sir.

Okay, ladies and gentlemen, thank you very much for joining us on the conference call.

As you know, we have the usual full-year roadshow in place.

Howard is largely in London and the UK this time around.

I am in Europe.

Michael Crawley, Jimmy Dempsey, David Broderick are in the States so I am sure we will get to everybody over the next week.

If not, please contact Davies or Morgan Stanley.

If you want a meeting, we will be happy to fit you in over the week or if you have any further subsequent feedback please channel it through David Broderick, our Head of Investor Relations, or through Davies or Morgan over the next week and we will get back to you.

Having said that, we have nothing further to add.

I hope everybody is pleased with the numbers and we remain committed to trying to improve the performance over the next 12 months, two years.

Thanks, everyone.

Thank you very much, everybody.

God bless, see you later in the week.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.