Ryanair Holdings PLC (RYAAY) 2011 Q3 法說會逐字稿

Good day, and welcome to the Ryanair Q3 results conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Michael O'Leary.

Please go ahead, sir.

Good afternoon, ladies and gentlemen, and welcome to the Ryanair Q3 conference.

I'm joined on various different phone lines by Howard Millar, David Broderick, Neil Sorahan, and Jimmy Dempsey.

Michael Cawley sends his apologies.

He was in London this morning, but he's heading for an aircraft.

As you will have seen, we released the results and the shareholder presentation this morning on the website at Ryanair.com.

Just click the investor relations page for it, and we will now take you through the highlights of the results.

As you can see, we announced a slightly reduced Q3 loss of EUR10 million, down from the small loss of EUR11 million in the comparable quarter last year.

Total revenues grew 22% as traffic increased 6% to 17 million passengers in the quarter.

Average fares rose by 15%.

Unit costs also increased by a similar 15%, due to a 14% increase in flight hours as average sector length rose 7%.

Excluding fuel, which itself was up 37% in the quarter, unit costs rose by 8%.

As I said, the small Q3 loss is a little disappointing as we were on track to break even, but earnings in the third quarter were hit by a series of ATC strikes and walkouts in Europe.

This was compounded by a spate of ridiculous bad weather, airport closures in December.

The scale of these disruptions is evident by the fact that we canceled over 3,000 flights alone in Q3, compared to some 1,400 cancellations during the entire four quarters of the previous fiscal year.

However, with constrained capacity growth, we delivered impressive scheduled revenue growth with traffic up 6% and average fares rising 15%, largely a function of our 14% sector length growth.

On top of this, ancillary revenues grew by 20%, considerably ahead of our 6% traffic growth.

We continue to believe that the short-haul fuel surcharges imposed by many of Europe's flag carriers, which at the moment are rising, allied to the high and rising fares charged by some of our not so low-fare competitors, is creating opportunities for Ryanair to grow, even during winter periods, slightly higher fares.

Unit costs rose by 15% in the quarter, primarily due to 14% increase in flight hours, a 37% increase in our fuel, and the impact on ownership costs of sitting up to 40 aircraft on the ground during the winter months.

However, despite a 14% increase in flight hours, we still delivered strong performance on costs as staff costs, for example, rose by just 9%, airport and handling charges increased by 6%, and accordingly, our relentless focus on costs continues.

Although oil prices have risen significantly in recent months and again over the weekend, Ryanair continues to benefit from a favorable fuel hedging strategy.

While current spot prices have risen to around $900 per ton, we are 90% hedged for Q4 of FY11 at $750 per ton, and we are 80% hedged for FY March 2012 at an average price of just -- of some $800 per ton.

We've also hedged 70% of our dollar requirements for FY12 at an average rate of $1.34 to the euro, compared to $1.40 to the euro for FY11.

We have been surprised at the extent that the negative commentary on the Irish economy recently has been allowed to cloud some people's judgment of Ryanair's future growth and profitability.

Some commentators clearly misunderstand the fact that over recent years, due to high airport costs in Shannon and Dublin and a crazy government tourist tax, we have been shifting our capacity -- we have shifted most of our capacity growth to lower-cost markets in continental Europe, most notably Spain and Italy.

As a consequence, Ireland has fallen from over 20% of our originating traffic to less than 10% in the current year.

Ryanair has very little exposure to the Irish economy.

We do, however, believe that Irish tourism is ripe for growth, given the increased competitiveness in the sector over the last 18 months, but this potential will not be realized until the new government -- until the government travel tax is abolished and the high-cost government-owned DAA airport monopoly is broken up and replaced with competing terminals and airports.

We sincerely hope that any incoming Irish government will work with Ryanair, the world's largest international airline, to exploit the enormous potential for Irish tourism and job growth by returning to the low-cost access policy which drove Ireland's tourism industry successfully in the 1990s.

The extraordinary scale of the ATC and weather cancellations during the third quarter brings renewed focus on the unfair discriminatory nature of the EU261 airline regulations.

Urgent reform of these regulations is vital since it's inequitable to force airlines to pay for right to care or compensation in circumstances where widespread flight cancellations are caused by ATC strikes, airports' failure to keep their runways open, or the Icelandic volcanic ash airspace closures.

It's entirely inequitable that airports enjoy a boost to their restaurant and retail revenues from stranded passengers when their runways close through their own incompetence, yet the airlines are obliged to pay for meals, drinks, and hotels when these cancellations are outside of our control.

We look forward to testing this issue before the European courts and challenging what we believe are the unfair and discriminatory EU261 regulations within the next 12 months.

Our outlook for Q4 in the remainder of FY11 remains largely unchanged.

As you know, Easter does not fall in the current Q4, which makes the Q4 comparisons challenging.

Nevertheless, we expect traffic and average fares to continue to benefit from our better mix of new routes and bases, as competitor fuel surcharges, which in many cases exceed Ryanair's promotional fares, continue to rise.

We expect our unit-cost performance in Q4 to be marginally better, thanks to the earlier launch of new routes and bases in February and March, which will reduce the number of grounded aircraft by comparison with Q3, and accordingly, we are now confident that our Q4 and full-year results will be towards the upper end of our previously guided range of a net profit after tax of between EUR380 million and EUR400 million post-tax.

Howard, will you take the MD&A now, please?

Yes, Michael, thanks very much.

There are no adjusted items in this particular quarter, so I'll just start with a summary of Q3.

The full nine months MD&A is, of course, in the attachment to the release.

Net profit -- sorry, net loss after tax decreased by EUR0.6 million to EUR10.3 million, primarily due to a 15% increase in average fares and strong growth in ancillary revenues, offset by higher fuel costs.

Operating -- total operating revenues increased by 22% to EUR746 million, due to a 15% increase in average fares and a 6% increase in passenger numbers.

Fuel, which represents 38% of total operating costs, compared to 34% in the prior comparative quarter, increased by 37% to EUR283 million, due to a higher price per gallon paid and an increase in the number of hours flown.

Unit costs, excluding fuel, rose by 8%, and including fuel, they increased by 15%.

Operational margin remained flat, and we had an operating loss of EUR0.3 million in the quarter, compared to an operating profit of EUR1.4 million at December 31, 2009.

Turning to the balance sheet, total cash and cash equivalents, including restricted cash of EUR54 million, decreased by EUR526.5 million since March 31, 2010, largely due to the payment of a EUR500 million dividend.

The group generated cash from operating activities of EUR198 million, which partially funded capital expenditure incurred during the period and the payment of the EUR500 million dividend.

Capital expenditure of EUR566.9 million largely consists of advanced aircraft payments for future aircraft deliveries and delivery during the period of 26 new Boeing 737-800 aircraft in the nine months.

Total debt net of repayments increased by EUR311.2 million to EUR3.267 billion.

Net debt at period end increased to -- increased by EUR837.7 million to EUR980.5 million, due to the payment of the EUR500 million dividend and the purchase of the 26 new aircraft.

So that ends the summary of the MD&A and the balance sheet, so I'll hand it back to Michael.

Great, okay, Howard.

Thanks very much.

Okay, folks, as you can see, I think a solid set of results.

Nothing spectacular, either on the upside, nothing on the downside.

We're continuing to execute the plan as we originally promised shareholders, and I think you can take some degree of confidence that we've lifted the guidance for the full year to the upper end of the range.

With that, we'll open it up for questions, please.

(Operator Instructions).

Jim Parker, Raymond James & Associates.

Just regarding -- you don't have a -- or may not have a new aircraft deal coming.

Of the aircraft that you have currently -- you have some number that's coming off lease or you've agreed to sell, how many of these aircraft do you have the option actually to retain, should you elect to do so?

We have a total at the moment where there's, I think, 26 aircraft come off lease over the next four years.

I think of that number thus far, we have -- Howard, you might tell me.

We delivered six, is it?

(Multiple speakers) we've returned three aircraft so far.

And we have, obviously over the next couple of years, up to 17 operating leases.

So that would take us out to the end of 2013.

Now clearly, we could extend -- I think we have options over about 50% of those to extend them, if we so wished.

But I did state they are coming to the end of their seven-year lease, and -- so clearly, now they're coming to another stage of maintenance.

But we do have an option, about 50% of them, to extend them, if we so wished and we have books.

We've estimated six aircraft sales during that period as well.

And if we assume that you don't get an aircraft deal with either Boeing or Airbus, I believe you suggested you want to have some growth in the fleet just to hold costs down.

How might you do that?

How many aircraft does that entail?

Can you elaborate on that a bit?

Yes, it doesn't.

We don't require any aircraft to keep the costs down.

We will -- if we get rid of all the aircraft that are coming off lease out to the end of FY 2013, we'd have a fleet of 299 aircraft.

The average age will be under three years.

We would have no difficulty letting the average age of that fleet rise up to seven years from three.

In other words, four years would have no material impact on costs.

We're not under any pressure to do an aircraft deal.

At the moment, looking at the body language coming from Boeing and Airbus, they don't seem to be interested in a significant aircraft order over that period, and if that's the case, we were -- we're very happy that we will not add fleet after FY13 and there will probably be a second dividend to shareholders in that stage because we will be hugely cash generative.

So the ball is essentially in the manufacturers' court.

If they come up with a deal that's acceptable to us over that period, fine, and if not, equally fine.

Neil Glynn, Credit Suisse.

Three questions from me, if I may.

The first in relation to passenger numbers for 2012.

Just wondering, the figure for 2012 went down from 80 million to 78.5 million for the year.

Just wondering what was driving that.

And then, second of all, in relation to just getting a further flavor for demand that you're seeing in the current quarter.

EasyJet obviously mentioned it certainly -- disruption to bookings due to passenger uncertainty with the winter weather.

Are you guys seeing anything there and perhaps might demand be even stronger without the winter weather underlying?

Then a final question on sector length for the summer.

At this stage, do you have an idea as to how sector length might develop year on year through the summer, or is it still a little early?

It's a bit early on all three, Neil.

We've avoided -- studiously avoided any forecasts into the next fiscal year in this morning's results for a couple of reasons.

One, we haven't finalized the summer schedule yet.

There's still one or two bases and the possibility of significant growth in one or two bases that we would hope to conclude those negotiations with airports in the next week or two.

So that would very much drive the sector length for the summer.

We've reduced the passenger numbers slightly for the year.

Originally, it was 80 million.

We've taken it down to 78.5 million.

Again, to reflect the fact that we expect to sit a significant number of aircraft, between 40 or 50 aircraft on the ground next winter, if we don't get acceptable cost yields at some of the bigger, the more expensive airports like Dublin and Stansted.

And demand in -- I'm not sure whether we're talking about the current quarter or our Q4 or Q1 of next year?

The quarter to March, effectively January and February in particular.

Yes, I think like we see no particular change in demand.

We are happy with the demand patterns.

We are on track to hit our passenger targets.

I mean, I think the only thing we would draw any attention to at the moment is the fact that there is no Easter in this year's Q4, whereas the first half of Easter was in the prior-year comparables.

We haven't seen any significant impact of the adverse weather in December on bookings, nor have we seen any particular impact of side shows like the Aer Lingus dispute, partly because we are kind of aiding and abetting Aer Lingus at the moment by offering them very low-cost, efficient aircraft to help them defeat another spurious union dispute.

So, I mean, I think if there is any message we can convey today, it's business as usual, boringly reliable.

There's no huge upside in the fourth quarter, but equally there's no huge downside, as some of our competitors have been whining on about recently.

Geoff Van Klaveren, Deutsche Bank

It's Geoff from Deutsche Bank.

With respect to the closure of the Marseille base, are there any other countries where you feel under pressure to bring employees on local terms and conditions, and just your reaction to Air France announcing a new base there?

We haven't yet heard anything about Air France -- they have already had a base in Marseille.

So I'm not sure what it is they've announced, but I suspect it's been dressed up, not very important development in Marseille.

We'll have our own announcements ourselves at Marseille in the not-too-distant future for next summer.

But no, we're not under particular pressure anywhere else.

There are discussions ongoing with our -- over social insurance payments in Italy and in Spain, and we are cooperating with the authorities in those, as they examine where those employees should be paying social insurance.

The Irish government in the finance bill last week imposed another provision just to clarify the fact that Irish people operating on Irish aircraft, which are defined as Irish territory, should be and will be expected to pay their tax here in Ireland, and they get offset in -- for tax in other EU countries.

So, we don't see it as a major issue.

Clearly, some of the unions will be pushing it in places like Marseille, but we think we may have an alternative solution to the Marseille issue.

I think it's important to say we didn't close the base.

The base is still operational or will be -- sorry, we did close (multiple speakers)

You're flying in there.

You're still flying in there.

(Multiple speakers)

We are flying in there from [third] locations.

Which I think will limit the ability of Air France or somebody else to -- whatever it is they've announced, but I wouldn't hold my breath since all Air France is interested in is Marseille-Paris, and it was one of the few routes we had no interest in.

We're still working with Marseille to try to come up with ways of finding some growth for them, in addition to the 13 routes we're already -- we continue to operate there from overseas-based aircraft.

Stephen Furlong, Davy Stockbrokers.

Just -- can you just remind me in terms of the aircraft that you have allocated for next year or next summer, just remind me again just the numbers.

How many are they -- how many are left to be allocated or, as you say, just maybe one or two more base to allocate.

I know there's eight in Barcelona, but do you want to just go through where the aircraft have been allocated?

That would be great.

It actually wouldn't because we presently have most of the aircraft allocated.

I think we only at this point in time have six aircraft on allocation for this summer, but we're talking to two other large airports about very significant low-cost arrangements there, which, if they came to fruition, would involve us juggling some of our existing aircraft, and reallocations to those two bigger airports.

So, net net, I mean, I think it's easier, I think, from an analyst's point of view to say this, but within -- by about mid-February, we will have finalized all of our aircraft allocations and our base decisions for next year.

But to look at it for the point we only have six aircraft to allocate isn't helpful because we may in the next two weeks be announcing one or two very significant bases, of which would -- each of which alone could eat up about another 10 aircraft.

In which case, we then have to run around and start renegotiating with some of the smaller airports and be pulling aircraft off them.

But it's safe to say that the overwhelming majority of next year's aircraft have already been allocated, and that is to the new route -- the new base, well, it's no longer new, but we started this autumn in Barcelona El Prat.

We have more aircraft going into Manchester.

We announced last week Leeds Bradford.

We have the three bases on the Canary Islands, Grand Canary, Lanzarote, Tenerife, and we are announcing more new aircraft -- more routes from Oslo Rygga airport tomorrow in recognition of the fact that Norwegian have recently announced their decision to close the Oslo Rygga base because they're unable to compete with Ryanair's prices and our punctuality.

And Michael, just can I ask, for the winter, would that all include the summer?

You say there's going to be one or two maybe announcements soon, but you would expect some more bases to be announced for the winter as well?

Yes, for next winter -- next winter, you know, if you take the number of aircraft we grounded this winter, next winter we could still announce two or three new bases.

We have the flexibility, if we get an appropriate cost deal, we could fly some or all of the 40-plus aircraft we grounded this winter.

But clearly, they are not going to fly -- the obvious one is we have made offers to both Dublin and Stansted airports in recent -- in the last two or three years, and if we get a break on their ludicrously high costs during the winter, we'd be happy to deliver them winter growth.

In both cases, though, because they're, generally speaking, badly-run monopoly airports, they kind of say, no, go away, we want our high charges.

Okay, then you get significant schedule cutbacks.

Penny Butcher, Morgan Stanley.

Just to clarify that answer to the previous question with regard to your guidance for the passenger growth number into 2012, did you answer that by saying that it basically is your choice of how many aircraft potentially are grounded in the winter?

It's a guidance.

Our -- we're working on the budget at the moment for FY12, and whereas we have a fair degree of visibility of the summer where we just -- we plug in a number of aircraft that we would ground for next winter based on what we did this winter.

That requires, if you like, the previous guidance, which was 80 million, rough guidance, was based on operating a full fleet for the full year.

Clearly, we expect at this point in time to ground a similar or possibly slightly bigger number of aircraft next winter, and that's caused us to reduce the guidance to about 78.5 million passengers.

Much the same with, this year, the original guidance was about 75 million passengers, and it'll finish up with 73.5 million gross.

And Howard, just to clarify, on the CapEx profile, could you just remind us what to expect for the three years of the remaining deliveries on gross CapEx?

We have 800 penciled for this year, 600 for next year, and 400 for the final year.

Thereafter, we have assumed, although we think it's a fairly aggressive number, we should be allowing in your model about EUR100 million of kind of ongoing maintenance CapEx, but at this stage, that looks a little top heavy.

But just for model purpose, I would include that.

So clearly, as you can see, the CapEx is going to collapse in -- absent an aircraft order, CapEx is going to collapse, cash generation is going to explode, and we'll be back in those circumstances looking at the possibility of another distribution before the end of 2013.

I should say, of course, that that assumes that that's gross CapEx.

So, it could be lower if we do operating leases, which obviously are off balance sheet, as it were.

And just a final question, with regard to sort of medium-term indications on where you would perhaps like the yield to develop as you moderate this growth rate, is it still fair to say that perhaps on the medium term, you're looking to get back to sort of the mid-40s type level on average yield?

Again, I'm not sure it makes sense to have an absolute target, Penny.

I think as we begin to moderate the growth and the capacity growth of this -- in FY12 would be of the order of 7%, 11% in FY11, but 7% in FY12, about 6% in FY13, we'd be disappointed if we're not seeing yield.

That's the first time in 20 years we've grown at that pace.

I think we'd be disappointed if we didn't see kind of average fair growth or yield growth, plus or minus fuel, of about 5% a year.

Now that would come, obviously, covered in caveats, economic circumstances, nonsense about Egypt, and all the rest of that kind of stuff.

But where we don't fly -- we've been fending off questions about the impact of the Egyptian crisis on us all morning.

And we're going, like, what are you talking about?

I think it's fair to say, too, Penny, that obviously we will have a headwind in terms of fuel costs next year.

Yes.

If you look at where we've hedged now and where we're hedged in fuel, and also in currency, we've got -- we're looking at about a EUR2.00 to EUR3.00 per passenger increase in fuel costs from about -- just below EUR17 to maybe EUR19 to EUR20, depends on where it pans out.

Obviously, we would be looking to move up average fare to cover that, and obviously to make progress beyond that point, as Michael said, but we haven't got an absolute number that it has to be or has not to be.

I think that the sensible thing is, you know, the experience of the last two fuel spikes has been that the flags across Europe and some of our so-called low-fare competitors have been lorrying up the fuel surcharge as we continue to guarantee no fuel surcharges, and it wouldn't be unreasonable to expect if fuel surcharges rise this summer, as we expect they will among competitors, that our underlying fares will trend upwards.

But in terms of the target, I think you've got to work -- you've got to guess it yourself.

Our average fare in the current year is about EUR34.

Next closest to us is EasyJet at EUR52, and they couldn't have been more blatant in their guidance recently.

We have to get the fares up because our costs are rising.

And other than that, Aer Lingus at EUR77.

They need to get the fares up because even when they are not on strike, their fares are rising.

And as for Iberia, Air France, Lufthansa, British Airways, you look at the consolidation going on and you know plan A is consolidate and plan B is take out capacity and crank up the fares.

Now, as long as there's capacity kind of discipline across Europe short-haul, which the absence of aircraft orders across the industry would suggest there will be, I think on balance it's likely that average fares and yields will trend upwards, and we have an enormous headspace between us and every other competitor across Europe.

I mean, I see the kind of commentary coming out of some of these other airlines.

Well, we're at the big airports, so we're going to get more business passengers and our fares will rise very significantly.

I mean, if that bull was true, BA would be the world's most profitable and most successful airline.

They're not.

I think clearly, as an example of Southwest in the States has over many years demonstrated and as we continue to demonstrate today, if you are the lowest-cost provider and you have enormous price advantage over every other competitor in Europe, and you're operating across 44 bases over 1,000 routes, our upside in terms of yield appreciation over the next number of years, although our focus would still be on cost reduction, unit cost reduction, we have plenty of headroom nobody else does.

And I think that's why so many of the bigger airports are now actively negotiating with us.

I think they recognize that the EasyJet model, the BA model, the Lufthansa model is broke.

If you want growth, the Ryanair model is the only one that works.

Jarrod Castle, UBS.

Two questions, please.

One just to follow up to Penny's question.

You gave some yield guidance for 2012, 2013, I mean subject, obviously, to (multiple speakers)

No, we didn't.

Sorry, you said 7% in 2012, 6% in 2013 (multiple speakers)

No, no, sorry, no, no.

That was capacity growth.

All right.

Okay.

I take that back (multiple speakers)

Very careful -- we give no yield guidance to anything beyond the fourth quarter.

Can you say anything in terms of sector lengths?

Do you see it kind of stabilizing in terms of where you've got to now or is it too early to say?

It's really difficult.

I mean, until -- until we finalize the summer schedule, our core summer schedule for next year, it's almost impossible.

But clearly, if you take the third quarter, we've had quite a significant increase in sector length, up 7%.

We wouldn't expect that to be replicated next year unless, for example, we put a lot more aircraft next winter into the Canary Islands, which is a possibility.

So, it's hugely influenced by new route and base selection on a quarterly basis.

And until we finalize the summer schedule, which as I say we expect to have done by mid- to end of February, we really can't give you any sort of sense of the guidance on that next year.

Okay, thank you.

And just another -- one other question, if I may.

Your ancillary revenues, and as I saw, very good growth, can you kind of give some items, I guess, that you saw some good growth from, or I guess some of it was due to the increase in flight hours.

Were there any other specifics in terms of ancillary take-up?

I get nervous because some of the ancillary, particularly in the two winter quarters, is a little bit lumpy, and it depends what was in the prior-year comparable.

So, for example, this year we have the credit card income or the fee is up, whereas we were changing over to the credit card providers this time last year, so some of it is because we have weak comparables.

Same thing, we had a dispute going on with one of the hotel providers this time last year.

But we continue -- as we have said in the past, we continue to expect that ancillary revenues will rise at a slightly higher rate than scheduled traffic.

Although I would caution that that won't -- the 20% growth won't be repeated in the fourth quarter.

It could be significantly less than 20% in the fourth quarter.

I think, Jared, that would be the progression you would've seen if you look at the first and second quarters.

As Michael said, toward the fourth quarter, it will start to tail down obviously ahead of passenger volume growth, but much lower than the level it is that the penetration rate of the MasterCard prepaid picks up.

So, this is something we highlighted in the early part of the year.

There was some surprise at the half year, but you can see the trend is slowly dipping down as the penetration rate rises.

But there's no doubt that the longer sector length has certainly (multiple speakers) the in-flight sales, onboard sales.

Jonathan Wober, Societe Generale.

First of all, just on the P&L, there were a couple of cost lines which seemed to jump out rather disproportionately to the other cost lines and to the passenger growth.

One was maintenance materials and repairs and the other was the marketing distribution and other line.

I wonder if you could talk a bit about what was driving those two, and what the outlook is for those two in the rest of the year.

And then, if I could also ask on sector length, I know you're not giving guidance for next summer, but what about the fourth quarter?

And can you talk a bit more, also, about the relationship between sector length and flying hours, which seemed to be very different in the Q3 numbers?

Again, the Q3, the maintenance materials and repairs is distorted in Q3 because as we ground a lot of aircraft, we also accomplish a lot of annual maintenance, which tends to drive up the maintenance, the materials, and repairs, and also some of that is charged for on a sector-length basis -- or on flying-hour basis, which is up 14%, ahead of the passenger traffic.

Marketing, again, it's a bit of a -- the two winter quarters are a bit distorted because you tend to be doing a lot of your kind of marketing back end of the year.

We ran some advertising, some seat sales in response to the ATC strike, and also it reflects increased payments on airport commissions.

We pay increased -- or commissions to some of our airport providers based on things like bag charges, the check in, the boarding card, reissue penalties where they -- to ensure that they carry out or carry out the policies rather than waive them.

So there's not nothing untoward on a full-year basis.

Both those items will be running at or slightly below the growth in scheduled revenues.

The sector length in Q4 will not be dissimilar to the sector length in Q3.

Although we will have some new bases, the new Canary bases starting in the -- [on whether or not] there will be some domestic routes.

It will be relatively similar.

I wouldn't expect much of a difference on 6% sales (multiple speakers)

Yes, I think on the sector length, we said at the outset that we expected it to be 10% for the full year.

That was 12% in the first half, 8% in the second half.

The only thing, maybe, if I might add that, Michael, is (multiple speakers) some maintenance.

We did, as I said earlier on, return some three aircraft during the period, and as you can see there, maintenance costs are relatively a very small portion of our total cost base.

So, small increases can have a disproportionate effect, but we did have some kind of one-off costs associated with the handback of those three aircraft.

So as Michael said, they will turn more to the normal rate of increase, maintenance in particular, in line with flight hours.

And the same for the market.

Again, it's a relatively small number.

I think part of the deal there is obviously we've worked very hard in terms of restructuring some of our airport and handling costs, and we have changed some of the airports onto a more commission based, which is obviously -- you are seeing in the ancillary line, but the other side of the ancillary line is obviously we've got to pay commission costs.

And the -- just to understand better the relationship between flight hours and sector length, you had a 14% increase in flight hours and only a 7% increase in sector length.

It's a factor.

It's fundamentally longer sectors.

As we've flown a lot down to the Canarys during the winter compared to, say, short-haul domestic routes, you get longer flight hours in there compared to sectors.

If you take that the -- we had an additional 6% more sectors, so we had 6% more sectors and a 7% increase in average sector length, so that then translates into 14, but 1.06 multiplied by 1.07 gives you 14%.

So, it's a combination of volume and a longer sector length.

Alexia Dogani, Liberum Capital Limited.

I just wanted to ask a bit more about this sector length and the impact it had on average fares in Q3.

Obviously you said average fares were up 15% and sector length up 7%.

I was wondering if you were able to split out the impact of the new, longer routes from Malaga and Faro on the average fares, just to get a feeling of how the underlying performance was if we had a stable sector length?

Yes, no, we're not.

It's kind of a theoretical question, and we'd have to give you some sort of theoretical answer to it.

Robert Pickels, Manning & Napier Advisors Inc..

For some time now, you've had this goal of, I believe, EUR800 million in profits.

And it seems as though you guys are really executing well on your strategy.

And the one major issue that you don't always have control over, or one of them, is fuel.

So I'm wondering how you think of that EUR800 million goal in the context of a rising fuel environment.

Is capacity tight enough where you can pass the fuel cost on and still achieve that goal, or do you think it's getting harder?

It depends on the economic environment.

I mean, it's -- I'm always slightly amused.

Everybody will raise the EUR800 million profit goal and not the conditionality, which was fuel at $45 a barrel.

Fuel clearly won't be at $45 a barrel by the time we get to the end of 2012.

It remains our aim, but we're going to be trying to do it with much higher -- no, we're not going to get there if oil is at $100 a barrel unless there is an enormous increase in yields.

But we have two variables here.

Our EUR800 million target for the end of 2012 was based on $45 a barrel oil and yields at a certain level.

The yields will be higher, oil will be significantly higher, and you don't need a huge jump in yields between now and the end of 2012 to get to EUR800 million.

But much of it could be eaten up by fuel.

So, frankly, our guidance, when we get there for next year to FY12, will be whatever it will be based on our hedged fuel at that stage and our best estimate.

When we get to the first -- or the full-year results roadshow, we get to our best estimate of where we think yields will be for the full year.

And just out of curiosity, why is it that you don't include fuel surcharges?

You certainly aren't opposed to other sort of fees outside of the base fare.

So, why no fuel surcharge (multiple speakers)

The difference is all of our other fees are introduced not to raise revenue, but to change passenger behavior.

Every other fee in Ryanair is avoidable.

So you don't check in the bag, you don't pay the bag fee.

You use MasterCard prepaid, you don't pay the credit card fee.

You don't use -- you don't want priority boarding, you don't have to pay for it.

Whereas fuel surcharges are simply -- it's a fare increase.

They're unavoidable in BA, Air Berlin, or any of the other airlines that charge them, and we don't believe -- if you're a low fares airline, we should be selling simple, low fares and not have a fuel surcharge.

It's, also, I think, it's a very key and important marketing tool for us during periods of fuel surcharges around Europe.

We -- our no fuel surcharge guarantee, we think, is a very key selling point for us.

Now the fact is, in the last two oil price spikes, our average fares and yields have risen up behind those airlines with higher fares and fuel surcharges.

But I think it's important -- we believe it's a key marketing tool for us, but we are not unhappy or -- we're not afraid to let the average fares rise.

Remember, we are price takers in every market in which we operate.

We will roll out the cheap fares, and if they sell faster than we planned, we close them out, and if they are selling slower, we open up more of them.

What we try to focus on all the time is managing costs.

That's why we see the fuel is well hedged out for the rest of this fiscal year and for both next fiscal year.

And we're still running around lowering airport costs and getting more efficiencies into the system.

But as for our other fees, don't confuse them with a fuel surcharge because all of our other fees are avoidable.

I think that's an important distinction.

Thanks for your time.

Joe Gill, Bloxham Stockbrokers.

Two questions on funding, first of all, just for Howard.

The recent changes in ECA financing rules, what implications, if any, does that have on the financing and funding of your fleet out to 2013, and will it have any bearing on your decision-making about a new aircraft order versus a special dividend?

And then, secondly, just in relation to the corporate tax rules in Ireland, do you have any concerns that a new government would be under pressure from Europe to change that, and if they were to make any adjustments, how would you respond?

Thanks.

Howard, do you want to take the first one, the ECA financing rules?

Yes, obviously this new agreement, or ASU, as I described it, the air finance called airline screwed again.

But, thankfully for us, we managed to get all of our aircraft deliveries out to the end of 2012 and then 2012 grandfathered into the current agreements.

So, certainly in terms of our financing profile for the next two years, it won't have any impact.

In terms of future deal with Boeing or Airbus, as Michael said earlier on, that's clearly some time off.

I think, based on all the information I've picked up in the last couple of weeks, it looks like this agreement will be challenged and possibly overturned in the not-too-distant future, and certainly within the timeframe of any order, we might have with either Boeing or Airbus.

Want to talk about corporation tax, Michael?

Yes, again, it's all of the issues.

It's a bit like this, the amount of commentary on Ryanair's prospects that ill-informed commentary added up that we're some kind of exposed to the Irish economy or to Irish corporation tax.

First, let me give you my view.

I don't think there is any of the remotest possibility in hell of Irish corporation tax rates changing, firstly because the entire U.S.

multinationals would disappear out of Ireland, I think, at a stroke if the 12.5% -- or the assurances that the government has given all the multinationals, if those assurances are not maintained, I think you'll see all of the foreign inward, or a very significant portion of the foreign inward investment, disappearing overseas, and Ryanair will be one of those.

We've made it very clear to the Irish government, A, that we're a large Irish multinational.

We have a number of plans to move the headquarters overseas if there's any change in the -- significant change in the Irish corporation tax rate.

However, even if there was, I think the investors should be aware, we have over EUR6 billion in kind of capital allowances from our aircraft orders, most of which we barely use.

So, I think it would have no impact on our earnings or on our cash flows.

We have very significant capital allowances, but I believe there is no chance of the Irish corporation tax rate changing because of whatever prospect of fiscal revenues the Irish government have, most of them come from corporation tax and income tax, and they would be under significant pressure if the tax rate rises, and Ryanair would lead the charge overseas and the headquarters would move overseas to lower tax jurisdictions in other EU countries.

Johannes Braun, Commerzbank.

I was just wondering if you could give us any indication on how yields have developed in Q3 on a sector length adjusted basis?

No, we don't.

We don't get into sector length adjusted yields in Q3.

We're a relatively straightforward operation.

It's all short-haul flights around Europe, and it doesn't help the analysis, which is why we never do it.

Then maybe on Q4 yields, maybe you can give us there some indication on how you see that develop at the moment (multiple speakers)

I don't mean to be discourteous, Johannes, but it's in the statement this morning.

It's in our guidance for the full year.

All right.

Sorry about that.

Eamonn Hughes, Goodbody Stockbrokers.

Maybe just two or three quick questions.

The first one, maybe, towards Howard.

I think the previous guidance on net debt was sort of around the EUR500 million to EUR600 million level at the end of the year.

Just wondered if that's still on track.

Yes.

Obviously, we had an increase in net debt because of the dividend.

But this will be obviously bookings as we roll into the summer and into Easter, in particular, so that's going to see our cash balance rise.

Net debt, as you saw at the end of the period, was eight hundred and -- EUR980 million, so we'll obviously claw back a significant amount of that.

So actually, I think, overall we might be slightly better than the numbers you quoted there.

Okay.

And maybe just -- maybe for both of you, just -- I'm not even going to mention Egypt, other than saying that.

But Spain, just given all the concerns that's been on there in relation to the European economies that may struggle over the next few quarters, are you seeing any weakness at all, because it looks like on sort of CPI data there for airfares, it's actually doing quite well, whereas Italy is weak.

And I just wanted to get your sense on what you're seeing on the ground there as two reasonably major economies for you.

I think it's fair to say both of them have been growing well.

We're very pleased with the new rules in base development in both Italy and Spain.

Again, we tend to be kind of slightly countercyclical.

The worst kind of economic environment, or the deeper the recession, the more and more people are switching onto Ryanair.

The more price sensitive they get.

We see that here in Ireland at the moment.

We see it in the UK.

We see it in Spain.

We see it in Italy.

If you look at Ryanair's kind of numbers today in terms of traffic growth, yield progression, and compare them to the whole list of range of other competitors' and flag carrier airlines' numbers for the third quarter, you can clearly see we're powering ahead with a huge cost advance and a huge price advantage.

Everyone else is struggling with disappointing -- well, you know, the fares didn't rise as much as we thought they would and our costs are rising.

These are the times when the IKEAs, the McDonald's, the Ryanairs, and the Tescos make hay.

Just on that point, Michael, just the 20% pretax margin average that's been out there for the last decade, can you think you can get back there over the next two or three years?

Underlying, I think as -- what difference in the next couple of years, and why I think I'd have to call it for optimism, is we've never gone through a period where we've dramatically constrained our capacity growth.

We've always been banging along at 15% or 20% capacity growth.

We now have a stated plan for the next two years of slowing that down from 11% to 7% and to 6%, and then zero.

I think we could have enormous opportunities here for yield progression, while still obtaining very significant cost discipline by forcing airports to compete against each other.

The staff costs are under control, the maintenance costs are under control, our marketing costs are minimal.

So, I think we -- now, clearly, what could blow all that out of the water is obviously war or terrorism or some huge upward shift in oil prices.

But our experience in the last two huge upticks in oil is that the flakes around Europe who can't make money in good times and need fuel surcharges in bad times go with fuel surcharges.

So, I think there are significant calls for optimism.

But we haven't seen it yet because we haven't executed this dramatic reduction in capacity growth that we're planning for the next two years.

And that's really only as a kick into the latter part of next year, really, is it, when the capacity growth rates start to (multiple speakers)

I think as you start kicking into -- possibly even this summer.

We will have significantly less capacity growth this summer then we will have ever had before, and then through into summer 2012.

I would also, Eamonn, take -- you're seeing four quarters in a row where average fare rose, albeit off a relatively low base where we were last year.

But that is consistent yield progression that you haven't seen in quite some time, only in prior periods when we had periods of very slow growth.

(Operator Instructions).

Tim Marshall, Redburn Partners.

I think my question was really answered.

I wouldn't want to spoil the effect from your previous answer, really.

Robert Pickels, Manning & Napier Advisors Inc..

It's an extra question.

Just thinking about that the change in your growth, the capacity growth, do you have to change at all the way you price your product, or is it just -- you know, is it as simple as you described earlier?

You put the fares out, and as demand comes in, you adjust the fare accordingly.

Does that whole process change when you're growing more slowly?

The answer to the question is, we don't -- we don't really know because in the last two years, we've only slowed down from 17% to 14%, 14% to 11%.

But the -- if you look at the trend of average fares over the last 12 months, as we've slowed from 14% to 11%, there's been a significant trend there associated with a period of falling oil prices.

I think it becomes -- what people, again, misunderstand about the Ryanair model is that for the last number of years, we are the largest airline by a mile in Europe in passenger number terms, and yet we're growing by about the annual size -- by the size of Aer Lingus every year.

We trash a lot of our own yields in a lot of our own markets because you take, for example, a base like Gerona has six aircraft, and we show up and then lob another four aircraft into it.

Now it goes to 10 aircraft.

All of the routes and fares out of Gerona get trashed as a result, but we build, we lock away at much more lower cost -- I'm using Gerona, obviously, just as an example.

We lock in a much lower cost base at the airport.

We blow away the competition.

And we think we can leverage off that as capacity slows.

Now we're coming to a period of time in the next number of years, and we see it ourselves even with the new route airport or the new routine, kind of bristling, almost, that I need more aircraft, we need more aircraft, we have more opportunities, we can do more here.

Well, sorry, guys, you're going to have to play them off against each other because we don't have that kind of -- the historical volume of aircraft numbers here.

So, I think it does allow us to be more selective, and you've seen that, too, in recent months where we pruned out the Marseille base because we were being screwed around by the local authorities down there.

We closed the Belfast base because three years after they promised us a runway extension, we hadn't got it.

And we closed the Shannon base because they refused -- they expected us to take up a EUR1.00 cost base.

They expected us to take up a EUR10 government tax.

Good luck, lads.

We have lots more lower-cost alternatives for our aircraft, and I think it's a good, strong message to send to competing airports, like, if you want to work with us and grow business, Ryanair is your man, but if you want to screw around and fail to deliver on your promises or expect us to pick up increased costs, then equally go to hell.

So I think it'll be a very interesting time, and I think if we approach it in a very disciplined fashion, which is what we tend to do, I think there will be far greater opportunities for continued airport and handling cost reductions than we've had in the past where, if anything, there was almost a pressure on us to find homes for 40 and 50 aircraft a year.

The next two years is going to be much slower, of the order of 30 and 20 aircraft a year.

Jim Parker, Raymond James & Associates.

I have to pay for another one here.

Tax rate, Howard, went up, I think, up to 19% in the quarter.

Am I reading this correctly?

Was there any increase in the tax rate in the quarter -- the previous quarters?

What happens, Jim, as you know, is that the -- it's a cumulative adjustment.

So, when we come to the full-year end, the average tax rate will be about 11% on average.

But we have to make -- there will be another adjustment in the fourth quarter.

The average rate for the full year will be closer to 11%.

It's the way we have to calculate our tax charge.

So, yes, it is a bit higher in the third quarter, but when you get into the fourth quarter, it will average out for the year at about 11%.

So in essence, it's a quarterly movement.

Don't pay too much attention to it.

It's a quarterly movement.

Don't pay any attention to it.

It's not any particular change.

It's just the way the taxation runs in the third and fourth quarter.

So, you will see -- if you look at the average for the year, it's probably running 12% for the half year, a little bit higher as we go in, and then a correction in the fourth quarter, which you'll see the average down to about 11%.

Anybody else, Cara?

Not at the moment.

Okay, folks.

Thank you very much for coming on the call today.

As I said, the results, the press release, and the investor presentation is on the website, www.Ryanair.com.

And we're not doing a roadshow as is usual on the third-quarter numbers, but if anybody has any follow-up questions, please feel free to direct them to us through David Broderick, as you know, who is here in Dublin, and we'll get back to you with any further follow-up questions or information you might have.

As I said, if there was any message I could leave you today, it's that we're continuing to execute, we're continuing to deliver, in as best we can.

It's fairly boringly reliable in a very uncertain and volatile world, but I think that reflects the fact that we have such a huge unit cost and unit price advantage over every airline competitor in Europe.

We intend to continue to exploit those advantages as we roll out a slower rate of growth over the coming year or two, which we believe should translate into higher profits, significantly larger cash, and then we'll have a decision to make by 2013, do we buy some more aircraft or return more cash to shareholders?

Okay, thank you very much, everybody, for participating today, and we look forward to talking to you all in the coming days.

Thanks, everybody.

Bye-bye.

This will conclude today's conference call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.