Ryanair Holdings PLC (RYAAY) 2011 Q2 法說會逐字稿

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

Today's conference is being recorded.

At this time I would like to turn the conference over to your host today, Mr.

Michael O'Leary.

Please go ahead, sir.

Thank you.

Good afternoon, ladies and gentlemen.

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

All of the details of the press release, the results, the shareholder presentation, and the detailed MD&A is on the website, www.Ryanair.com, at the Investor Relations page.

Take you through just a couple of the headlines.

As you see this morning, we announced a 17% increase in the half-year profits to EUR452 million.

That demonstrates the robustness of our lowest cost, lowest fare of model.

We are continuing to drive strong traffic growth, up 10% in the half-year as we take market share across Europe from Air France, BA, Lufthansa.

Average fares this summer rose by 12% to EUR44, in line with a 12% sector length increase, and we have been particularly heartened by the strong performance of new routes and bases at places like Faro, Malaga, and Malta.

In Spain in July we overtook Iberia for the first time in terms of passenger numbers at the Spanish airport, which means that we are now the number one airline in Spain as well in Italy and Ireland and in the UK.

Unit costs increased by 13% in the half-year primarily due to the 13% (Sic - See Press Release) growth in sector length and significantly higher oil costs.

The fuel bill rose by 44% to EUR660 million due to the increased level of activity and higher oil prices.

Unit costs, excluding fuel, rose by 4% and sector length adjusted they fell by 8%.

We well this month's decision by the UK Court of Appeals which upheld the UK Competition Commission's recommendation that the BAA airport monopoly be broken up.

We hope that will take place sooner rather than later and that we will have a new owner in Stansted and probably Glasgow airport, hopefully, sometime before the end of 2011.

We believe the breakup of the failed BAA monopoly in the UK points the way for the breakup of the equally failed DAA airport monopoly in Ireland, which was modeled on the UK -- was originally designed on the UK model.

Traffic at Dublin, as we had predicted, continues to collapse heading for a second year of 14% or 15% traffic declines, which is strange and remarkable in a year when Ryanair will grow by 7 million passengers.

However, the combination of the government's crazy EUR10 tourist tax and a 40% increase in Dublin airport fees in 2011 when inflation is zero was inevitably going to lead to a collapse in air traffic and tourism in Ireland.

We continue to campaign with the Irish government to get them to scrap the damaging tourist tax and break up the failed DAA airport monopoly if Ireland is to become a cost competitive tourist destination once more.

We remain concerned that the repeated strikes work to rules are simply no showing up to work among ATC providers across Europe.

In particular strikes by being Belgians, the French, and the Spanish over the summer has led us to cancel over 2,000 flights and delay a further 12,000 flights.

In terms of impact, they have disrupted almost twice the number of Ryanair passengers that the Icelandic volcanoes did earlier in the year.

We are calling actively on the European Commission to take some action to reform this air traffic control mess in Europe.

We believe they should start by removing the right to strike as they have in the US where air traffic controllers are now by law prohibited from striking because it's an essential service.

And also that instead of having a single European sky there should be deregulation, thereby, allowing, say, the Irish or UK ATC, or ATCos, to keep French air space open when the French are, as they are frequently, on strike or on a go-slow.

We have got further visibility now on the claims rising from the Icelandic volcano situation.

As you will recall, we originally provided for EUR50 million of cost.

To date we have now refunded 100% of the ticket refunds of canceled ticket refunds and we are up to just over 90% of the reasonable expense reimbursement claims.

And on the basis of that we are now fairly confidentally able to reduce that provision from EUR50 million to EUR32 million.

It will be an exceptional cost so it doesn't affect the stated earnings, but it will -- obviously it will significantly reduce the exceptional items this year.

Balance sheet remains to be very strong.

We closed out the quarter at the end of September with cash just over EUR3 billion, EUR3.026 billion, and following AGM approval we paid out a EUR500 million dividend to shareholders on the first of October bringing to EUR850 million the quantum of funds returned by Ryanair to shareholders over the last three years.

Outlook for the remainder of the fiscal year remains cautious.

We have good visibility on Q3 but almost no visibility on Q4 yield.

However, based on Q3 forward bookings we now believe that the winter yields, the H2 yields, will be slightly better than previously forecast and therefore we expect the full year yield increase to be at the upper end of the 5% to 10% range.

Pretty close to 10% previously guided.

Given the somewhat better winter yield forecast, although with the usual caveats about limited Q4 for yield visibility, we now believe that the full-year net profit will exceed the upper end of our previous range which was EUR350 million to EUR375 million and now expect the net profit for the year to finish up, subject to the Q4 yield, within a range of between EUR380 million to EUR400 million.

With that I will now ask Howard to take us through the MD&A.

Howard?

Thanks, Michael.

For the purpose of the MD&A, all figures and comments are by reference to the adjusted income statement including the exceptional items referred to below.

The exceptional items in the half-year ended September 30, 2010, amounted to EUR31.7 million pretax, reflecting the estimated cost relating to the closure of airspace in April and May due to the Icelandic volcanic ash disruption.

Exceptional items in a half-year ended September 30, 2009, amounted to EUR13.5 million reflecting an impairment of the Aer Lingus holding.

Turning now to the adjusted profit after tax increased by 17% to EUR451.9 million compared to EUR387 million in the half-year ended September 30, 2009, primarily due to a 12% increase in average fares and strong ancillary revenues offset by a 44% increase in fuel costs.

Total operating revenues increased by 23% to EUR2.181 billion as average fares rose by 12%.

Ancillary revenues grew by 22%, faster than the 10% growth in passenger volumes to EUR423.8 million due to a combination of higher onboard spend which was helped by longer sector lengths, improved product mix, and higher Internet-related revenues.

Total revenues per passenger as a result has increased by 12% while load factors remained flat at 85% during the period.

Total operating expenses rose by 25% to EUR1.636 billion, 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 represents 40% of total operating costs compared to 35% in the previous year, increased by 44% to EUR660 million due to the increase in the price per gallon paid and a 21% increase in the number of hours flown.

Unit costs excluding fuel rose by 4%; excluding fuel they rose by 13% (sic -- see press release).

Operating margin decreased by one point to 25% whilst operating profit increased by 21% to EUR545 million.

Adjusted net margin increased to 21% from 18% at September 30, 2009, for the reasons outlined above and adjusted earnings per share for the period was EUR30.47 compared to EUR26.23 in the previous half-year ended September 30, 2009.

On to the balance sheet total, cash and cash equivalents, including restricted cash of EUR61 million, increased by EUR212 million since March 31, 2010, to EUR3.025 billion.

The group generated cash from operating activities of EUR392 million which partly funded capital expenditure incurred during the period.

Capital expenditure of EUR506 million largely consists of advance aircraft payments for future aircraft deliveries and the cost of 22 new Boeing 737 800 aircraft deliveries in the half year.

Total debt net of repayments increased by EUR297 million to EUR3.253 billion during the period.

Net debt at period end was EUR228 million compared to EUR142.8 million at the March 31, 2010.

With that I will hand you back to Michael for questions.

Okay, we will open up to questions, please, moderator.

Thank you very much.

(Operator Instructions) Jim Parker, Raymond James.

Good afternoon, Howard and Michael.

Howard, can you reconcile that your fuel cost per passenger was up 36% in the September quarter year-to-year?

Can you reconcile that increase?

Your fuel cost per ton was up 18%, you have sector length of 12%; can you get us to 36%?

Well, there are three drivers.

Well, actually the total fuel bill was up 43%, Jim, in the half-year.

The principal drivers of that were the flight hours; the number of hours we flew was up 22%.

The balance then is obviously the increase in activity and the remainder then being the rise in average price.

So I don't know really what you want me to do there, Jim?

No, that is okay.

That explains that.

Just, Michael, a question.

I believe that at the investor day recently that you all indicated that the region where the fares were the lowest, were most depressed was in Central Europe.

I am curious, are there any signs of improvement in fares in that particular region given that your fares are up pretty sharply in this September quarter?

We didn't give out kind of regional guidance or regional breakdown on fares, Jim, at the investor day.

I am not sure what the reference is to Central Europe.

Is that to the Eastern Europe --?

Perhaps that came from Michael Cawley in our individual breakout sessions?

He may have -- there was certainly a reference there that some of the Eastern European routes, some of the Polish routes, have been affected by the downturn in the economic activity.

Less kind of builders, electricians, and plumbers working in Ireland and the UK had affected the Irish routes.

But we haven't, we wouldn't have given out any detail like the Central European routes or the fares are falling there.

Michael, I don't know whether you want to add anything to that?

No, I think that is true.

I was making the comparison, Jim, I think between their performance in previous years and what we have seen, as Michael said, in the context of the economic downturn.

And particularly in construction and related activities in Britain and Ireland in the last 18 months where routes that were previously strong had a lot of frequency from places like Dublin and London and Liverpool to Krakow, Bratislava, and Gdansk.

We are now operating with significantly less capacity because the demand was well down.

There has been no change in that.

No reversal of that.

That is a continuing trend where they are operating at a much lower capacity than they previously were at.

Okay.

Just in that context, across your system where are the fares the strongest and where are they the weakest currently?

The difficulty there is it depends on where the capacity is being added.

We have had very aggressive capacity additions this summer into Spain where the fares have actually been strong, but year on year the yields are down because we have opened up bases in Spain.

By contrast, for example, one of the markets where the fares have risen most would be out of Ireland where there has been a huge contraction in capacity but the yields have also been down because a lot of it has been eaten up by the DAA cost increases and the travel tax.

So it's not helpful.

I mean there are no -- I know everybody is always looking for where is the mother lode of hugely profitable routes.

There isn't one it.

Generally, they tend -- we add and subtract, we take away and add capacity in various markets where -- obviously we add capacity where yields and growth is strong and we reduce capacity in those markets where yield and growth is weak.

Okay, that is fine.

That will catch me up.

Thanks.

Bob McAdoo, Avondale Partners.

A question about airport handling charges.

I am not sure it was a problem with our estimate or what but it certainly seemed like they were up more this quarter than in prior quarters on a per unit basis.

Is that correct and what would be causing that?

Yes, it would be correct.

What you see there is a profile of our move into some of the more expensive airports.

The bases in places like Faro, Malaga where we would have the -- where we would have gone in there on lower-than-published rates and charges but they wouldn't quite be as low as some of our existing costs.

We would also have busing at some of those airports which generally we wouldn't have anywhere else, but it's not a significant or material cost.

I can think of one airport in particular where we started on the basis of published charges but within the space of six months we have now got self-handling there and we will have significantly lower handling costs as well.

So I think it's more a function of the mix of airports at the moment in terms of handling costs.

As we look forward --

Sorry, Bob.

I think if you look at the absolute increase it was 14% and our volumes were up 12%.

Okay.

So taking -- take the current quarter as probably a good estimate going forward on a unit cost basis?

Of what, airport and handling?

Yes.

Through the third and fourth quarter we would expect those to be down.

Full year it would be substantially down.

Sorry, Bob, you cut out there.

Bob?

Yes, going forward and I am sure going forward the next two quarters will be less because total activity is going to be down.

But I am just curious on a per departure basis or whatever --

On a unit basis in the next two quarters we would expect the handling costs to be down slightly on a unit cost basis.

We will be reducing some of our handling deals at some of the more expensive or more of the mainline airports; partly as volumes rise as well we get reductions there.

Michael, I should also add to that that we have had some routes in the peak of the season which were exclusively seasonal routes which we will no longer operate during the winter.

And they would have been at, relatively speaking, expensive airports.

(multiple speakers) the other reason that they will fall in the winter, you know.

I think what we are saying, Bob, is overall for the year you should expect airport charges to grow at a slower rate than passenger volumes.

Got it.

Okay, thank you.

And remember within the airport and the handling costs is also you have the Dublin increase this year which is 40%.

Now we have reduced significantly capacity at Dublin but there is a number of big airport cost increases in that line that isn't on the handling line.

Yes.

Okay, thank you.

(Operator Instructions) George Humphreys, NCB.

Two questions if I may.

Firstly, in the statement you say that Q3 revenues are looking a bit stronger than you had originally expected.

Can you say what sort of yield increase you now think you will get in Q3?

And then the second question, just looking ahead to next year do you see any sort of cost pressures other than fuel and currency?

Thanks.

It's not helpful and I wouldn't want to split it down into Q3, but as we have guided this morning in the presentation the yield performance in the first half was up 12% and in the second half we are guiding for close to 7%.

Across the half year slightly higher in Q3, slightly lower in Q4.

We know Easter at the back end of Q4, but that is based on no visibility in Q4 at the moment.

And cost pressures going forward, the ones I would be worried about -- well, one it's not a cost pressure but the spread of these government ticket taxes.

The Germans imposed one, announced one last month; the Austrians have now followed suit.

We don't expect in our bigger countries, Italy or Spain, but that is not to say that they won't be looking at it.

Other cost pressures we would be concerned about obviously would be EUROCONTROL where despite the absence of any management and repeated strikes and an abysmal service they just seem to be totally immune to reality, so there may well be further cost increases there next year.

And fuel obviously will be up again next year.

We have hedged 90% for the first half of the year and we have 50% in Q3 hedged at a rate that is about $760 which is, what, up about 7% on this year?

Yes, if you take the currency, the movement on the cost per ton, it's equivalent to about a 6% increase.

So for next year we would be looking at about a EUR1, maybe a EUR1.30 increase in the unit cost per passenger.

Other than that we would expect airport -- the others on a unit cost basis to be declining, aircraft ownership, depreciation, amortization, maintenance.

Salaries; I don't think we will have a third year of a pay freeze.

I think we will have to commit to a modest, very modest pay increase next April but it would be of the order of 1% or 2%.

It won't be 4% or 5%.

And I think to be fair to most of our people job security at this point in time is a bigger priority than pay increase.

Perfect.

Thank you very much.

David Fintzen, Barclays Capital.

Good afternoon.

Two quick ones for me.

First, this morning you had mentioned that -- I think Howard had mentioned that in the quarter you saw some pressure on fuel costs and route charges from flying around because of the ATC disputes.

Was there anything in staff costs as well for more black hours?

Yes, there is a slight impact on activity.

All of our contractors, about 50% of the pilots and cabin crew were slightly less than that or are paid by the flight hour and so as we have slightly longer flight hours there would have been a marginal increase in those costs.

Okay.

And then in terms --

But it's not material in the half-year.

Okay, okay.

And then in terms of moving closer to the 10% on the yield range for the year, is the -- you mentioned the performance of the new markets.

Is that what is really driving sort of the improved yield outlook or is it something broader you are seeing in the network?

I think it's broader personally.

It's hard to be precise and scientific; I think it's broader.

We are continuing to see short-haul capacity being taken out of the network across Europe by a lot of the consolidating flag carriers.

We continue to see airlines going bust.

Aer Arann, for example, although they have had very little impact on our overall business in Ireland, is in receivership; probably destined to go bust anyway.

Hamburg International went bust in Germany last week.

Viking, which is a tour operator based in Denmark, went bust.

I mean I think you are going to see more of that this winter.

And I think, again, as the consolidation where you see BA merging with Iberia, I would expect Iberia to take more of the short-haul capacity out of the Spanish market as they focus more on long-haul transatlantic and Latin American markets with the help and assistance of BA.

Okay, that is helpful.

The biggest driver on yields generally has been our slowing rate of capacity growth and an absence of any capacity growth elsewhere in the sector in Europe.

And we think that continues for another year or two yet.

So in a sense do you think you haven't quite seen the cyclical consumer recovery or do you think that is in there as well?

I don't think -- it's a bit early for the consumer recovery yet but, frankly, the further away it is the better.

We tend to do better during a recession.

I think the big driver on our growth in the yield has been people trading down from the flags as they become more price sensitive during the current downturn.

That is not to say they will all go back to them.

They have never gone back to BA as you get a cyclical recovery, but presumably just more people.

There is more business travel in a recovery than there is in a downturn.

Okay, that is helpful.

Appreciate the color.

Thanks.

(Operator Instructions) [Tim Marshall], Redburn.

It's a very simple question.

Could you split the passenger growth between Q3 and Q4?

No.

Thanks very much.

If you come out -- obviously the traffic growth will come out as we give you the monthly figures but it's not helpful at this point in time to be splitting out Q3 and Q4.

Take it as half one and half two.

Okay, that is fine.

Stephen Furlong, Davy.

Hi, Michael.

Just a question in terms of, I think this summer it was 44 aircraft added this summer and I think for next summer it's a lot less.

So maybe just a bit of color on your own slowdown in growth where maybe it's mid-20s type of aircraft and perhaps that makes you -- you can be more selective in your placement of where you can put aircraft and put them into different airports?

Thanks.

To be honest with you I don't think it's that we would actually be more selective.

I mean, yes, the rate of the aircraft additions next year begins to decline.

I think for the summer next year we have about 30 aircraft to allocate where this year it was close to 50.

But we would still be -- if you add to that the -- we have taken four aircraft off Marseille; we will have taken on off Belfast.

And where is the other one we closed (inaudible)?

Kerry, Kerry.

(multiple speakers) Three out of Frankfurt-Hahn.

We will still have a significant number of aircraft to allocate next year.

We have more base offers or opportunities available to us than we can handle at the moment and some of the existing bases -- Malta, El Prat -- are growing very strongly and could easily take some more aircraft.

Equally, I think Malaga, particularly in the peak summer next year, could take almost any significant -- any amount of aircraft you could allocate to them.

So I think we will need to be a bit more -- it would be more difficult for us next year to allocate the aircraft because instead of having a huge number and just allocating and getting rid of them, I think we will need to be more discriminatory in where we choose to allocate the resources, particularly through the summer peak.

Absent any other outside kind of decisions, clearly we would be inclined to take aircraft away from Germany with the travel tax.

I think we would continue to be inclined to take, unless there is a change in sentiment in Ireland, if the -- for example, I think there is definite move in Ireland towards, I think, removing the travel tax and perhaps the government facing up to the breakup of the DAA.

We would be very keen to add maybe 10 or 15 aircraft to the Irish airports if there is a decision to break up the DAA, sell off the two competing terminals at Dublin, and sell off Shannon and Cork.

We would very much like to reverse the significant traffic declines at those airports over the last year.

So, yes, we will have fewer aircraft to allocate next year.

I think you will see that translated in yield performance next year in what I hope will be a more benign environment.

But we continue to be opportunistic and that is we will allocate the aircraft wherever there is a real cost incentive or a cost reduction incentive to allocate them.

That is great, Michael.

Congrats by the way.

Thank you.

Any other questions?

We have no further questions.

Okay, folks.

Can I thank everybody for participating in the call?

As I said, all of the documentation is up on the website, www.Ryanair.com.

We have the usual roadshow coming to a town near you for the remainder of this week.

Anybody who hasn't got a meeting, please feel free to call either Morgan Stanley or Davy and ask for one.

And anybody who has got any follow-up questions in the early part of next week, please feel free to call us.

We will all be back in the office in Dublin.

Thank you very much.

Look forward to seeing you and if we don't see you this week to talking to you in the weeks after that.

Thank you, everybody.

Bye-bye.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.