Ryanair Holdings PLC (RYAAY) 2011 Q1 法說會逐字稿

Good day, and welcome to the Ryanair Q1 results conference call.

Today's conference is being recorded.

At this time, I would like to turn the call over to your host today, Michael O'Leary.

Please go ahead, sir.

Good afternoon, ladies and gentlemen.

You are welcome to the Ryanair Q1 results conference.

I am here in Dublin.

Howard is joining us from London.

And colleagues in the head office, Neil, David and Jimmy Dempsey, who will be known to most of you.

I would refer you to the Ryanair.com website, the Investor Relations page, where you have the full details of today's announcement, the press release, the MD&A and the investor slide presentation.

We are not doing a road show, as is usual on the Q1 to Q3 results.

Just to touch you through on some of the highlights, as you can see this morning, the net profit, we've announced a net profit of EUR138 million, an increase of 1% over last year's Q1 figure.

This was characterized by an 8% rise in traffic, a 5% increase in average fares, and unit costs rose by 9% due to higher fuel prices, although excluding fuel, they rose 1%, as our sector length grew by 13%.

Ancillary revenues also rose at a faster rate than the growth in traffic to 23% of total revenues.

Fuel costs rose by 34% to EUR287 million as higher oil prices and the 13% sector length increase kicked in.

Costs excluding fuel rose by just 1% due to unit cost reductions achieved in staff, airports and handling costs, sales and marketing, and we continue to reduce unit costs across most other areas.

[We're also] at 90% hedged for the remainder of this fiscal year at $730 a tonne.

In recent months, we've extended our hedging program.

Now we have 90% of the first half of FY '12 hedged at an average of $755 per ton, around $75 per barrel.

The new routes and bases are performing well.

We opened up our -- we opened our 42nd base in the main Barcelona El Prat Airport in September, and our 43rd base in Valencia in November.

The aggressive competition between airports across Europe has continued to result in new airport unit comps falling by 8% in Q1, despite significant cost increases at our two main airports, Dublin and Stansted.

The Irish government's disastrous EUR10 tourist tax continues to cause a precipitous collapse in Irish tourism.

Traffic at Dublin Airport in May fell 15% as the Irish government's EUR10 tourist tax and the DAA's monopoly policy of increasing charges by up to 40% in the current year kicked in.

We believe that Irish tourism traffic and tourism can return to strong growth, but only when the Irish government scraps the tourist tax and the DAA reduces costs or reverses the substantial and significant cost increases this year.

In the meantime, we've switched much of our aircraft capacity away from Ireland and the UK, Dublin and Stansted in particular, to those other EU countries, such as Spain, Holland, Belgium additionally, which have either scrapped tourist taxes or lowered airport charges and have returned to tourism growth.

In the UK, the tourists have the APD tourist tax of GBP11, combined with the BAA's high airport charges are also damaging UK traffic.

We cut winter UK capacity by 16%.

Our Stansted capacity will fall by 17%.

We are working closely with the new UK government, campaigning to persuade them to scrap the damaging APD tax and also to proceed urgently with the breakup of the high-cost BAA monopoly, as previously recommended by the Competition Commission, which we think, like Ireland, would allow the UK to return to traffic and tourism growth.

The unnecessary airspace closures in April and May following the Icelandic volcano led to the cancellation of 9400 Ryanair flights, the loss of almost 1.5 million passengers in Q1.

We are currently processing claims under the unfair and disproportionate EU 261 regulations, and we've maintained our initial estimate of an exceptional cost of EUR50 million in this regard.

These events, however, clearly show that the EU 261 airline regulations should be amended to include a force majeure clause to relieve airlines of the duty to care and compensation in cases where the cancellations are not within an airline's control.

We also going to be calling for a cap on the quantum and period that passengers can claim either right to care or compensation for.

Such a cap would prevent the discrimination which currently exists between the airline 261 regulations and similar regulations which apply to coach and ferry operators, our competing transport providers, who both have a force majeure clause and a limit on their liability, both by reference to the ticket price paid and by the period of time that passengers can claim for.

We are launching a court case in the next couple of weeks here in Ireland which we hope will lead to an early referral to Europe, where we will challenge the EU 261 regulations and hope to have them -- or some degree of equity and proportionality introduced to them.

And our line would simply be it's ridiculous that, for example, the travel insurance companies paid out nothing during the volcanic disruptions, because clearly the volcano was an act of God, but the airlines were made the insurers of last resort by these badly thought-out and unfair, disproportionate regulations.

As I said, we are relatively satisfied with our Q1 results, but our outlook for the year remains cautious and unchanged.

We expect passenger volumes to rise by 11% to about 73.5 million.

That is before any adjustment for volcanic ash disruptions.

The net figure would be about 72 million.

We believe yields in Q2, where we have a good degree of visibility now, would rise by between 10% to 15% through the peak summer period.

But since we yet have low visibility into Q3 and Q4, I think it's right that we remain very cautious about yields for the second half of the year.

We believe it is reasonable to expect that the yield increase for the full year will be within our already guided range of plus 5% to plus 10%, as previously guided.

Unit costs, excluding fuel, will increase by approximately 4%, although adjusted for sector length, will fall by 6% this year in another exceptional cost performance by Ryanair.

As a result, we expect full-year net profit to rise by between 10% to 15%, or to finish up at between EUR350 million to EUR375 million after tax, which remains in line with our previous guidance.

Touching briefly on the balance sheet, cash in hand due to increased profitability rose by EUR259 million to stand at EUR3.1 billion at the quarter-end.

As you know, in June, we proposed a one-off dividend of EUR500 million be payable to shareholders in October 1 next, subject to shareholder approval at our AGM on the 22nd of September.

For further details of the dividend payment and to register for it, please go to the Investor Relations page on Ryanair.com, where you will also get all of the details of today's Q1 results release.

If I could now ask Howard, will you take us through the MD&A please for Q1?

Sure, Michael.

For the purpose of the management discussion and analysis, all figures and comments are by reference to the adjusted income statement, excluding the exceptional items referred to below.

The exceptional items in the quarter [ended] June 2010 amounted to EUR50 million pretax, EUR44.8 million post-tax, reflecting the estimated costs relating to the closure of airspace in April and May due to the Icelandic volcanic ash disruptions.

Exceptional items in the quarter ended June 30, 2009 amounted to EUR13.5 million, reflecting an impairment of the Aer Lingus shareholding.

As a result, adjusted profit after tax increased by 1% to EUR138.5 million compared to EUR136.5 million in the quarter ended June 30, 2009, primarily due to a 5% increase in average fares, offset by a 34% increase in fuel costs.

Total operating revenues increased by 16% to EUR896.8 million, as average fares rose by 5% due to an increase in average sector length.

Ancillary revenues grew by 23%, faster than the growth in passenger volumes, to EUR203.9 million, due to a combination of higher onboard revenues, which was helped by the longer sector length, improved product mix, increased take-up of priority boarding, and higher Internet-related revenues.

Total revenue per passenger as a result increased by 7%, whilst load factors remained flat at 83% during the quarter.

Total operating expenses rose by 17% to EUR727.4 million, primarily due to an increase in fuel prices, the higher level of activity and increased operating costs associated with the growth of the airline.

Fuel, which now represents 39% of total operating costs compared to 35% in the comparative quarter, increased by 34% to EUR286.6 million, (technical difficulty) an 18% increase in the number of hours flown.

Unit costs excluding fuel rose by 1%, and including fuel, they rose by 9%.

Operating margin decreased by 1 point to 19%, whilst operating profit increased by 10% to EUR169.4 million.

Adjusted net margin decreased from 18% to 15% at (technical difficulty), 2010 for the reasons outlined above.

Adjusted earnings per share for the quarter was EUR0.0936 cents compared to EUR0.0926 cents in the comparative quarter ended June 30, 2009.

Onto the balance sheet, total cash and cash equivalents increased by EUR259.4 million to EUR3.072 billion.

The Group generated cash from operating activities of EUR274.6 million, which partially funded capital expenditure incurred during the period.

Capital expenditure of EUR331.6 million largely consisted of advance aircraft payments for future aircraft deliveries and the delivery of 18 new Boeing 737-800 aircraft in the quarter.

Total debt, net of repayments, increased by EUR303.6 million to EUR3.259 billion during the quarter.

Net debt at period end was [EUR187 million].

Well done.

Thanks, Howard.

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

(Operator Instructions) Stephen Furlong, Davy.

Afternoon.

Maybe just two quick questions.

First, just on the network development, where the performance of the business was strong, I know last summer there was a lot of growth in Italy.

And you might just talk, Michael, through how those routes have bedded down this summer.

The second question, just on the cost line, I think with (inaudible) I think up 13%, the costs ex-fuel were only up slightly less than 1%, which appears to me to be a stellar performance.

I know you are maintaining your guidance for cost for the year.

You might just outline where you see maybe that stellar performance slowing down a little bit as we go through the year, maybe with lower loads or volumes later on in the winter.

That's great.

Thanks.

Thanks, Stephen.

On the network development, obviously last year Italy, was a big focus for us.

I think this year, the big focus will still be Italy, Spain, and we've added a lot of aircraft in the German market as well.

We see that continuing for the remainder of this year.

I think we should be cautious today as well, though -- there's a lot of these bases, Faro, Malaga, where they will be strong summer performers, but they may be more seasonal than the kind of Ireland-UK routes we would normally be used to.

So I think one of the reasons we are cautious on the year is that they may be significantly worse in the winter than they are in the summer.

But I think the network development continues to be focused on those airports who need us most.

At the moment, they continue to be airports in Spain, Italy, Germany, where at the moment we [will be] planning to maybe announce at least one or two new bases; that will be on hold pending some clarity from what the German government are up to with this proposed eco-tax on air passengers.

But we have lots of other offers and discussions out there with other airports, including, less people think we've closed the door on this -- we have a written offer into the Dublin Airport Authority and to the Irish government which would see us doubling our traffic in Ireland over a five-year period, but only if the travel tax is scrapped and the DAA price increases are reversed.

Not surprising, we haven't heard back from either the Minister of Transport or the DAA on these offers.

They are bleating on about how this is all the fault of the recession, despite the evidence that most of the European countries have returned to growth this year, while Ireland has continued to decline.

On cost, I think their performance on costs have been very good.

Yes, we have significantly longer stage lengths, but we are benefiting from significantly lower airport costs.

The handling costs are plummeting down as we continue to move people to web check-in, persuade them to travel with carry-on bags instead of checked-in bags.

One of the reasons why the unit cost performance in the winter won't be quite as good is, like last year, we will be sitting a number of aircraft on the ground.

We will also be trading up a number of people for next summer's growth; that is pilots and cabin crew.

And so just generally, the cost performance during the winter, as we move to (inaudible) to four-season routes and sitting aircraft on the ground isn't quite as good in the winter as it is in the summer.

Again, I think that is where -- is reflected in our guidance.

Howard, do you want to add anything on either of those two (multiple speakers)?

Yes, the only thing I would add on the winter, too, is obviously load factors are lower across our winter period, and we have less passengers, therefore, to spread our costs against.

So typically, our profile is we always have a kind of -- a less good performance in the winter period compared to summer where load factors are high.

So I think it is really the kind of seasonal nature of the business.

Okay.

Thanks, Howard.

Thanks, Stephen.

Thanks.

Geoff Van Klaveren, Deutsche Bank.

Good afternoon.

First on the fuel hedging for next year, can you just say what currency hedging you have in place for that?

And secondly, just on airport costs, a very good performance, as we talked about before.

What sort of benefit are you getting from the Spanish Airport rebates, I think particularly the Canary Islands, and when does that rebate end, please?

The second one first, Geoff.

On airport costs, clearly we're benefiting from the Spanish Airport rebates.

In the Canaries, it has been extended for a further two-year period on top of the first 12 months, where at most of the other Spanish airports it runs out at the end of -- or has run out at the end of December.

But it continues in the Canaries for at least another two years, which is why we are continuing to grow strongly in the Canaries.

Howard, do you want to take the currency hedging issue?

Yes.

Maybe I'll deal with them (inaudible), Michael.

Firstly, maybe I will start with CapEx.

So CapEx is hedged to the end of 2011 at an average exchange rate dollar/euro of 1.41.

And that is the same rate as we have for this fiscal year for operating expenditure.

So for the year to the 31st of March 2011, the average rate is 1.41.

And then for the first quarter of fiscal 2012, our average rate is obviously lower, reflecting the kind of movement in the market, but also reflecting the fact we did some hedging earlier on.

So the average is about 1.32.

Thanks a lot.

Jim Parker, Raymond James.

Good afternoon, Michael and Howard.

My question is about -- you indicate that you probably lost 1.5 million passengers due to the flights canceled as a result of the volcanic ash.

Can you quantify the revenue?

Do we just multiply the 1.5 million times the average revenue per pax, and then what is the margin on that?

What margin should we use to try to determine the earnings impact of missing 1.5 million passengers?

I think, Jim, it would a reasonable assumption -- I mean, you take the number for the quarter, just take the revenue by the average -- because it was generally broadly spread, take the 1.5 million passengers by the average revenue per passenger [work] and apply the same margin yourself.

The margins are probably slightly lower, though -- if the volcano hadn't happened, I think the yields in Q1 would have been a little bit higher.

There's no doubt that we had to engage in aggressive price promotion through the back end of April and into May and June, with the early part of June, to get people back flying, where there was a confidence issue certainly through the end of April into May that people wouldn't make bookings because they thought they might be stranded; even if the flight got out, they would be stranded on the way back because some idiot in the UK Met office would have shut the entire European airspace.

The good news is that is not likely to happen again.

The Europeans have essentially moved to the US system, where now there have been exclusions on -- around the volcano, but there won't be mass airspace closures.

Although that is nothing more than, I think, reflects the fact that it was -- the whole situation was mismanaged by the government and the regulators in Europe yet again.

So I think the overall -- you can work out the number, take 1.5 million by the average fare by the margin in Q1.

But if the volcano hadn't happened, it would have been slightly better again, because I don't think we would have to engage that kind of price promotions during late April, May and May for -- and for June and July to get people flying again.

Okay.

Michael, will you talk about the improved product mix in ancillaries?

Exactly what are you talking about there?

Generally speaking, the Company's (inaudible) new kind of new line and ancillary group, and working hard on increasing the kind of penetration.

There is no doubt that on the longer sectors you are getting -- on the longer sectors we're getting a better spend per passenger, and that is certainly improving.

We've also been working with Hertz and the hotel operators to improve their penetration.

We're developing dynamic packaging options; in some cases, they are working well; in some cases, we've had software issues, so we are not there yet.

But there is no doubt -- and also clearly, things at the checked-in bag fees and the new free form of payment, the MasterCard prepaid, have also had an impact on ancillary.

But generally, there is no one or two unique kind of features.

We've just -- as the headline rate of traffic growth slows down, I think we've been able to focus more on reducing unit costs, managing the yields that little bit better, and also we've recruited new people there with a better focus on targeting the spend per passenger in ancillaries.

Howard, anything you want to add to that?

Yes, (technical difficulty) I might mention, Michael, is the improvements in the [commercial] rate on travel insurance.

We've taken a more active role in terms of the management of that, and that has paid significant dividends.

Other than that, you've hit all the main headings.

Okay, thank you.

Okay.

Thanks, Jim.

Giacomo Picchetto, Arkos Capital.

Good afternoon.

Just, let's say, a further detail on what you were commenting on yield, that they have been impacted in Q1 from the volcano ash.

Just to understand, you had a 5% increase in yield in Q1.

How much of that has been from the flight length increase.

That is your, let's say, pace for the full year is 10%, so just understand how much of net of that has been your fare increase in Q1.

I don't know if you understood my question.

Sorry.

I didn't quite understand the question.

Is the question how much would the yields have increased if we hadn't engaged in the price promotions, is it?

This is -- well, in Q1, you already answered to that basically; it's a few percentage points.

But just understanding how much of the -- you have the flight length increase for the full year due to the sector change in terms of flights.

How much of that happened in Q1?

That is the question.

Well, the sector increase in Q1 was 13%.

Okay.

Over the full year, we are guiding sector length growth of about 10%.

And how much of that has been the impact on the tariffs in Q1, if you have made this calculation?

It is very hard to break that down into individual quarters.

I think it is fair to say all of the 5% average fare increase in fact and more than that is accounted for by the increase in sector length, adjusted for the aggressive price promotions we had to engage in at the end of April and early part of May, to get -- keep people flying in the aftermath of the volcanic ash disruptions.

So if I can answer the question certainly in the negative, if we hadn't had the volcanic ash disruptions, I think the yields would have increased not by 13%, which was the increase in the sector length, but it would have been at, I would think, a significant high single figure number, something close to 10% or between -- something under 10%, but obviously higher than 5.

But there is no -- it is very hard to get the direct relationship between the sector length and the yield (inaudible).

The trend on yields in the Q4 of last year was better than we had originally expected.

At the start of April, the outlook on yields was very positive, and it undoubtedly got kind of sidetracked through April and May by the volcanic ash disruptions.

If you look at our guidance into Q2, we are seeing yields -- admittedly, I think we've a lot of very seasonal dead routes now in a base like Faro/Malaga; we expect -- it looks like yields in Q2 will rise by between 10% to 15%.

So we are well on track, I think, at this point in time, with no visibility on yields for the second half of the year, to meet our guidance that yields will rise by between 5% and 10% for the full year.

And if there is likely to any movement, I would be helpful at this stage on this, absent any unforeseen event, that it would be towards the upper end of that range rather than the lower end of that range.

Great.

Thank you very much.

Jonathan Wober, Societe Generale.

Thank you very much.

Three questions please.

First of all, the performance of staff costs against headcount was obviously very much in your favor, so lower average cost per employee.

Is that sort of ratio likely to continue through the rest of the year?

Secondly, can you give a bit more guidance on the phasing of seat growth in the remaining quarters of the year, the year-on-year growth in capacity?

And then just thirdly, a clarification, please, on the unit cost guidance on the full year.

Can I just clarify that the costs that you are including there, you exclude the volcano costs from the top, but also on the bottom of that ratio per passenger, you are adding back the passengers lost to the volcano.

I'm not sure I understood the third part of that, Jon.

Let me give you the first one.

The staff costs, we have a pay freeze in place for all management and staff that will run through to the end of this fiscal year.

On the phasing of the seat growth, it is a little bit skewed towards the front half or the first half of the year.

There will be -- we will be sitting a significant number of aircraft on the ground over the winter.

So we would expect the phasing to mirror last year's phasing.

And the third, I didn't quite understand -- the unit cost guidance.

Yes, sorry, I was not explaining it very well.

Your unit cost guidance for the full year, ex-fuel, up 4%.

So the unit cost obviously has two sides to the equation.

One is the costs and the other is the number of passengers.

So the costs you are excluding the volcano costs, and the number of passengers, you are adding back the passengers lost.

No, we're excluding the volcano passengers.

Okay, but it's the actual number of flown passengers that you have --

Well, it's actually number of booked passengers.

We use booked, obviously, to (multiple speakers).

Okay, okay, but --.

But it would exclude those 1.5 million passengers who booked and we've refunded the money.

Okay, that's clear.

And if I could just add one more question.

Sure.

You've indicated previously that you would look to -- or you had proposed a further GBP500 million distribution to shareholders after the one that is due this October.

Is that still your intention, and what do you think is the likely timing?

I don't think there is any change in that, John.

We are still saying the back end of FY March '13, but it is heavily qualified based on there being no further aircraft orders or other CapEx, such as an Aer Lingus acquisition or something in between now and then.

I think if we have no other -- clearly, as the CapEx falls away as we move through 2011/2012, we would expect the cash buildup to be very strong, and we remain committed to distributing that back to shareholders if we have no other, better or more useful use for the funds.

Okay, thanks very much.

But I want to be -- ensure everybody's got it quite clear.

We don't have a commitment to a second dividend, but if we don't have a better use for the funds, that is what we will do.

And that has sort of -- kind of draw people's attention.

This year, because we didn't do the aircraft order with Boeing, we don't have any -- because there's no aircraft -- Aer Lingus acquisition, we are distributing EUR500 million in October, which is a year ahead of where we had originally predicted that we would have a dividend to shareholders.

Great.

Thanks.

Penny Butcher, Morgan Stanley.

Two questions.

The first is on the ancillary trends that we saw in the first quarter.

On the per-passenger basis, if I am calculating correctly, it was up 14% year on year.

What would be a fair estimation for us to expect that rate of per passenger increase to be on a full-year basis?

I think it is a bit slower than that.

We've had a very good start to the year, but I think I would -- again, without getting too bound up in ancillaries, the ancillaries in the first quarter were 23% of total revenues.

We expect over time that they stabilize at around 20% of revenues.

So I would expect the year-on-year growth to taper back towards 10% for the rest of the year.

Okay, great.

And my second question is -- I'm not sure if this will be possible to do -- but in terms of the 13% increase in sector lengths, or even on the 10% full-year expectation, what proportion of that is coming from new routes -- for example, the Canaries -- year on year?

And what proportion is driven by changes in routes, taking capacity away from Dublin and Stansted?

Are you able to sort of quantify the rough percentages?

No.

I mean -- it is obviously impossible to do, because you have to then decide, well, we took that aircraft away from Dublin/London, but that got allocated somewhere else instead of to the Canaries.

I think most of the sector length growth and most of the new aircraft have been allocated to new bases this year in Spain and Italy.

So most of the new aircraft account for the growth in the sector length.

Okay, (multiple speakers) it is a significant majority driven by the new routes, rather than major changes you've made to the existing networks.

Yes, that's fair to say.

Okay, that's great.

Are you happy with that, Howard?

Yes.

I would just kind of add in terms of the ancillaries, there was a little bit of a step change when we switched over to the MasterCard prepaid in December.

So what Michael was saying, Penny, is that there was a little bit of a shift in the fourth quarter, so the comparators will be more difficult.

So it will be probably more front-end loaded, the increase in ancillary revenue per passenger, but will tail off as we go through the winter.

Okay, that's great.

Thank you.

Tim Marshall, Redburn.

I just have a quick question on the promotional activity that you put in place.

It was noticeable that wasn't free seats, but it was -- I don't know EUR3, EUR5, EUR8, EUR10 seats.

Is that a means of managing the yield, and will it be going forward, rather than having the sort of free seats that you've historically put into the market?

Careful -- it is not about managing the yield, Tim.

It is the way we manage the load factors, where -- I think it is fair to say if you look absent the volcano since the start of this year, there has been no free seats there, whereas this time last year, we had three in the first half of the year.

That is undoubtedly a reflection of the fact that we are slowing down our own growth, but also that a lot of capacity has been taken out of the European marketplace.

We did engage in a couple of aggressive seat sales in April and May in response to the volcanic ash situation to get people back flying.

I would hope that we won't see too many more of them certainly through the remainder of the summer.

There will be some -- we will start having some seat sales over the next week or two now for September/ October.

But no, I think it is fair to say that there will be -- the seat sales now or the promotion efforts going into seat sales is less than we have had over the past two years, but then our capacity growth is significantly less.

And remember on the new routes, we are flying to significant -- longer routes and also to significantly better destinations.

I can't envisage ever doing a free seat to Malaga or to Faro or to Barcelona El Prat, because you just won't need them.

So I think it is more a reflection of -- as is the year generally -- of a better selection of routes and more -- a better kind of selection of airport bases and destinations -- not because we are changing the model, but because those airports and destinations now need Ryanair, so they are giving us the discounts that they wouldn't have given us two or three years ago -- and the fact that we are operating on slightly longer sector lengths.

And the take-up of those seat sales has been similar to those in the past that you've offered for free?

Yes, I mean, generally, the take-up is whatever -- we keep the seat sales going until -- if you remember, kind of build curve on every flight is pretty much the same.

So when you see us doing a seat sale, it is for load factor management, not yield management.

Okay, that's great.

Thank you.

Jarrod Castle, UBS.

Good afternoon, gentlemen.

Just two quick questions.

Firstly, can you give any indication in terms of your profit split?

Can you give an idea of if the ancillaries in terms of the percent of revenues that they generate gives a greater contribution as a percent of profit?

Or any kind of kind of clarity on something on the margin front, I guess on ancillaries versus passenger revenues?

And secondly, you said you are going to the Irish courts to try to push through changes on EU 261.

Do you think you're going to get any money back from the EU in terms of the EUR50 million of losses, or is that now just a (inaudible) cost?

I'll do the second one first here.

I don't think any of the airlines have any chance of getting money back from the European government, certainly not from the European Union or the European government under EU 261.

Although the regulation clearly says that you are entitled to reclaim these expenses from whoever caused them, which in this case would be the European government, who closed European airspace and prevented airlines from flying.

So I don't think there's any chance of getting money back from the European government, nor would we actually want it.

I'd be much happier if we could use this shambles to demonstrate to the European Court that the 261 provisions are fundamentally unfair, disproportionate and unlawful.

Because you have kind of the European Parliament and the Commission making private companies, i.e., the airlines, the insurers of last resort in circumstances where neither the travel insurance companies, the ferries, the trains nor the bus providers had to accommodate anybody in similar circumstances.

So I think they give us a good opportunity to have some degree of equity put back into the 261 regulations.

And I think hopefully we would be able to use the fast-track procedure -- the fast-track court procedure to get there.

We'd never -- we don't split out the profit between ancillaries and passenger revenues.

Clearly since some of the ancillary streams are just pure commission -- streams of commission, the profit margin on ancillaries is slightly higher than it is on passenger revenues.

But then equally, you wouldn't have a lot of the ancillary revenues if you didn't have the passenger revenues.

The vast majority of our profitability still comes from passenger revenues, not from ancillaries.

Thank you very much.

(Operator Instructions) Paul Butler, Macquarie Securities.

Just one question on the cost base and how that varies with the changes in the sector length.

Obviously for things like airport charges and handling, I imagine that's completely unrelated.

But I'm just wondering if you could talk me through how things like staff costs, fuel costs, route charges vary when we have changes in sector length.

In actual fact, oddly enough, some of the airports also vary by sector length, because on the longer routes, to Spain, to the Canary Islands, historically those airports have been very expensive because the charter companies would always have paid full price; passengers buying big, expensive packages, going on holidays.

That model is now changing.

But at some of those airports, we would be paying more at those airports than we would be at some of the short-haul destinations, I'm thinking maybe some of the Irish, UK or German regional airports.

But in general terms, as the sector length rises, our costs rise.

The variable ones are obviously fuel, sector length, aircraft ownership costs.

Staff costs rise as sector lengths rise because we tend to -- a lot of our pay -- the productivity pay for the pilots and the cabin crew is sector-length related, and as ancillary sales rise, then the cabin crew commission rises.

So depreciation, amortization, aircraft ownership, fuel, would generally vary -- depreciation, would generally vary by sector length.

Airports would tend to vary, although not directly linked to sector length, and handling costs would generally be independent of it.

Okay.

And things like marketing costs, I mean, that is completely unrelated, I presume.

Generally it is unrelated.

We spend so little on marketing these days, because most of our marketing is done with kind of PR initiatives, running adverts, having a pop at our large shareholders of competitor or not competitor airlines, stuff like that.

We spend so little money on marketing now, we are so big across Europe, that generally most of our marketing is done on the back of -- significantly of the price gap between us and competitor airlines, and then running around doing kind of PR stunts and initiatives.

Okay.

Thanks very much.

Eamonn Hughes, Goodbody Stockbrokers.

Just a few points maybe.

Just firstly, on -- the last time that we kind of chatted -- whenever -- in June or so, you had kind of given a sense around Ireland was maybe a little bit better, UK provincial was weak, but, say, London was high and kind of move around the country.

So just maybe like two months on or so, maybe to get your sense on what the consumer is doing in Europe in the consumer facing business.

Maybe just take that one first and I'll move on to the next one then.

It hasn't changed much in the last two months.

Ireland is still weak, but then we've cut back capacity in Ireland.

The people who are traveling on and off the island, which is a significantly smaller number, are definitely paying higher fares, but a lot of the higher fares are being absorbed with the government's tax and the DAA's higher fees.

That way, the traffic in Ireland will continue to decline for as long as that tourist tax and airport fees continues.

In the UK, it is different.

We have at least Bradford, clearly, where we have a new base that is growing strongly.

Most of the rest of the UK, again, is the same feature -- less capacity, higher fares.

The weaker euro, though, has probably helped some of the overseas travel.

I think most of the trend in the last month was (inaudible) -- have been spiked upwards in bookings -- as each country was knocked out of the World Cup, there was a noticeable spike in bookings out of the UK, out of Germany, stuff like that.

But really, I think the trends we saw on the full-year road show continue.

That is the kind of seismic shift across the European market base of people all switching down to Ryanair as the lowest fare operation, for our prices, our punctuality, and the general trend away from the high-fare consolidating airlines, who seem to be trying to put up fares and fuel surcharges at an even -- at a significantly faster rate to cover their exploding costs.

I think the only thing that has changed significantly within that would obviously then be although we wouldn't regard them as much of a competitor, is the continuing kind of inter (inaudible) within easyJet, where there seems to be a continuing disruption between the management and the Board and the major shareholders.

EasyJet seems to be in some significant disarray at the moment in terms of their crewing, a lot of rostering problems, a lot of delays, cancellations.

But it is that affecting our bookings?

It might need be -- I'm sure we're getting some traffic around the edge from it, people switching to us for our lower fares and better punctuality.

Just you mentioned there in terms of bookings.

Would you have a sense where, if you are looking at sort of August, September, October, where the level of pre-bookings are to the capacity available would be, say year on year?

Would it be slightly better in August year on year from where it was or whatever, just to get that sense?

And then secondly on this was what the competitors are doing, kind of partly touching on the area you said with easyJet.

But are you seeing -- since one of the perennial fears out there is that you'll eventually get these airlines out of capacity back again -- are you seeing people still hold firm, and that is giving you clearly a household boost in terms of the yields?

Or is there kind of a creeping back of capacity addition in some of the core markets for you?

I honestly don't see any, I think, creeping back of capacity.

Nobody has any additional capacity out there.

If anything, I think you're going to see particularly the switch of more capacity being taken out.

As, for example, the BA-Iberia merger proceeds, there is no doubt there will be a significant contraction in short-haul capacity, I think, within Spain and within the UK, as BA and Iberia focus less on short-haul routes and more on their long-haul developments, their long-haul network.

And I think that will continue to characterize the business in Europe for the coming 12 months.

We don't see any short-term trends of anybody adding capacity.

If you look at kind of the dispute going on in easyJet, it is over whether they add any capacity or none at all.

And their largest shareholder seems to indicate they want no capacity growth.

I think the airline wants some small capacity growth.

But really around the edges, it is very little.

We are still -- I think the trend you see is the large number of what I would call -- what every (inaudible) characterize as major airports, who two or three years ago wouldn't talk to Ryanair because they had some other flaky, low-cost startup or somebody else flying to their airport or taking the capacity.

They didn't see any need to talk to us.

They are now, almost without exception, in active negotiation with us, at various stages of success.

And --about trying to persuade Ryanair to commit to either entering their airport or growing at their airport for the coming years.

If we this year add a Faro, a Malaga, and a Barcelona El Prat, those would be historically, with the exception of Madrid, say, three or four of the biggest, most expensive Spanish airports.

At the end of this year, Ryanair is now operating and will have bases in all four.

Okay, and maybe just touching on the level of pre-bookings as you go through the month, maybe relative to year on year.

There isn't anything significant.

Remember, because we continue to manage the load factor sales here.

So it continues to be similar to last year.

If anything, though, because we have a higher proportion of domestic routes in Italy and Spain, if anything, we've consciously -- we are consciously running the advanced bookings maybe about 1% behind where they would have been this time last year.

That is because in recognition of the fact that we have more domestic routes, but it is also recognition of the fact that the yields are rising strongly at the moment.

And frankly, if they are, it is right that we should run -- maybe keep another 1% of the seat capacity available for close-in bookings within the month, particularly because that is when you get a lot of people switching off the typical easyJet, BA, Lufthansa or Air France passenger making the decision and switching away from those expensive kind of flight carriers in favor of Ryanair.

But whilst the bookings -- advanced bookings are maybe consciously we're keeping those about 1% behind where we were last year, if you look at the load factor in Q1, it was 83% bang-on where it was the same time last year.

So that trend is being [evidenced by today] is what is partly driving the higher yields in the first and second quarters.

Okay, thanks very much.

Michael, it is Howard here.

I'm just going to have to drop off.

I've got to go to the next meeting.

Okay.

Thanks, Howard.

All right.

Talk to you in the morning.

Cheers.

Robert Czerwensky, DZ Bank.

Hello.

This is Robert Czerwensky from DZ Bank in Frankfurt.

I have just a quick question, if I may.

Can you please provide us your view on the new German departure tax and your reaction plan, and especially do you see any risk for your yield outlook for the current year?

Thanks.

At the moment, Robert, clearly, we are very concerned about the German departure tax.

We think it will be as damaging to the German economy as the UK APD has been in the UK and the Irish tourist -- EUR10 tourist tax has been in Ireland.

At the moment, since we don't have any -- there is no kind of concrete proposal -- that we are not aware of them yet.

There are lots of rumors that it will be EUR13 or EUR26.

I understand such as the plans, that they won't be introduced until at least the first of January 2011.

I think it is unlikely to have a significant impact on yields or traffic in the current fiscal year.

I think going forward, however, if it is introduced, say, on the first of January, it will have a significant impact on our capacity plans for Germany in 2011.

We have -- we are at an advanced stage of negotiating one additional base in Germany for next year.

That is certainly going to go on hold; there's no way we are opening up a base in Germany if there is going to be a tourist tax.

We've actually canceled a number of new routes we had planned to announce in Germany in this winter schedule from some of the new destinations.

The new base in Valencia, for example, we had two German destinations in there, which we canceled and switched to an Italian and a Scandinavian destination instead.

And I think we would look -- at the moment, we have aircraft based in Bremen, Dusseldorf, Weese, Frankfurt, Hahn, and I think we would look at cutting back that -- the number of aircraft we have based in Germany next year if this tax goes ahead.

I think it will have the same impact as it has had on the UK and the Irish economies.

There will be a downturn in traffic and tourism.

There will be a downturn in general -- in aviation activity.

Clearly, Lufthansa seems to be out there lobbying strongly with the government to exempt their connecting traffic within the German market, which means it would be contrary to EU rules.

They are also trying to get their cargo operation exempted, which is why, strangely, Lufthansa doesn't seem to be quite as vociferous in opposing this tax as most of the rest of the industries in Germany.

But have no doubt, it will be a -- we would regard it as a retrograde step into German -- for the Germany -- for German traffic tourism and the German economy generally.

It will certainly be a negative for German jobs.

I don't think overall it will have a huge impact on Ryanair, because the proportion of our aircraft based in Germany is relatively small.

But it would certainly reduce over the next year or two if the tax goes ahead in Germany.

Okay, thank you.

David Pitura, Goldman Sachs.

I just wanted to check on your Q2 guidance, that the higher yield number in Q2 versus Q1 is to do with the slightly easier comp from last year, the impact of the promotional activity and then these sort of seasonal routes coming in, rather than an improvement in the underlying environment.

Yes, that's -- I mean, sorry -- yes, that is yes, although some of that does reflect an improvement in the underlying environment.

But I think fundamentally, it is based largely on a better selection of routes, destinations and the fact that we are flying to a number of very high-yielding summer destinations, like Malaga and Faro.

How that will evolve or how those bases will evolve during the winter will be interesting.

I suspect they will probably do better than we imagine through the shorter months, October -- September/October, February/March.

But I think they will be worse than our average fare in the real winter months of November, December and January.

Okay, that's great.

Travis Anderson, Gilder, Gagnon, Howe.

Good morning, or good afternoon.

I was going to ask you exactly if you know yet how the emissions tax is going to work and exactly how you are going to get screwed on that one.

At this point -- in Germany or the general ETS in the EU for post-2012?

The EU one, post 2012.

No, it is still -- we are still -- it looks at the moment like -- sorry -- A, it is still being worked out because it is based on 2010 capacity and 2012 traffic figures.

Clearly, as other [flags are causing back capacity] significantly this year, we will have a much bigger proportion of emissions allocated to us.

And as we significantly scale back our rate of growth between now and 2012, we begin thinking it will have a far smaller impact on us by the time we get to 2012.

But other than that, we haven't done any work on it at the moment.

And I don't think we would focus -- we will not (inaudible) be focusing much on it until we get to the end of 2010 and we see where the industry is going.

There doesn't seem to be -- I think the recession, though, the spike upwards in unemployment and the banking finance crisis has mercifully taken a lot of focus away from a lot of this environmental (expletive) here in Europe, not to mention the fact that global temperatures haven't risen for the last 10 years.

So I think as the recession unfolds, there is a bit of a movement back against a lot of the environmental (expletive).

That won't stop the idiots in Brussels taxing ourselves or making Europe less competitive by introducing eco-taxes.

But actually at the moment, I am much more concerned about silly measures like the Germans, talking about an air travel tax, copying the British model, which has nothing to do with the environment; it is just another tax measure.

I think that is the more immediate kind of concern.

Right.

Okay, thanks.

It appears we have no further questions at this time, sir.

Great.

Okay, everybody.

Thank you very much for taking part in the call today.

As I said, we are not doing a road show for the Q1 results, as we normally don't.

David Broderick, our Head of Investor Relations, is manning the phones at the airport in Dublin, as are myself, Neil Sorahan and Jimmy Dempsey.

If anybody has any follow-up questions, please feel free to contact us either later today or tomorrow.

We would be happy to take them.

Other than that, thank you very much for participating in the call.

As I said, we remain cautiously optimistic for the second quarter and then just cautious for the second half of the year.

But the first quarter has given a good platform for growth, and I think as the unit cost management demonstrates, we are ban on target and we are [running] at the business going well.

Thanks very much, everybody.

Hope to see you soon.

If not, we will talk to you in the second quarter.

Bye-bye.

Thank you.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.