Ryanair Holdings PLC (RYAAY) 2012 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 Mr.

Michael O'Leary, CEO.

Please go ahead, sir.

Okay, good afternoon everybody.

You're very welcome to the Q3 conference call.

I'm joined here in Dublin by Neil Sorahan, Jimmy Dempsey, Dave Broderick.

Howard is joining us on the call from London.

Apologies Michael Cawley can't make it.

He's down in Barcelona in active discussions with the El Prat airports and the Generalitat about how we can rescue the poor stranded Spanair passengers.

And touching on our Q2 results, you've seen the press release this morning.

We announced a Q3 profit of EUR15 million compared to a EUR10 million loss last year.

Revenues increased 13% to EUR844 million while traffic fell 2%, but average fares rose 17%.

Unit costs rose 11% due to a 7% increase in sector length and an 18% increase in fuel cost.

We are very pleased to report this Q3 profit of EUR15 million.

It's slightly ahead of our expectations.

But largely due to the benign weather conditions experienced in December 2011 compared to the widespread snow closures, deicing comps we suffered in December 2010, and also better yield performance as we grounded up to 80 aircraft and cut our traffic in Q3 by 2%.

The 17% rise in average fares, which does include our optional baggage fees, is due to reduced seat capacity, longer sectors and significantly higher competitor airfares and fuel surcharges.

Ancillary revenues also grew 6% to EUR177 million and rose by 8% on a per passenger basis.

We have rolled out our successful reserve seating service from 80 to all routes in the network, with effect from January 10th last.

Our new routes and bases have performed well this winter.

We've opened -- or we open five new bases in the coming months -- Baden in Germany, Billund in Denmark, Palma de Mallorca in Spain, Paphos in Cyprus and Wroclaw in Poland.

We expect to launch at least one more base for summer 2012 shortly.

We hope to have it announced before the end of February.

As you can see the EU recession, higher oil prices, unfolding failure of the package tour operator model, significant competitor fare increases and capacity costs have created enormous growth opportunities for Ryanair as large and smaller airports across Europe compete aggressively to win our growth.

Our unit costs rose 11% mainly due to an 18% increase in fuel costs.

Excluding fuel, sector length adjusted unit costs fell 1% as we continued to control costs despite a 2% basic pay increase, higher EUROCONTROL fees and significantly higher Dublin Airport charges.

In FY '13 we are 90% hedged for half-one at about $99 per barrel, 70% hedged for the second half at approximately $100 a barrel.

We do expect to hedge out the balance of H2 FY 2013 needs over the coming months.

But at these prices, our fuel bill for FY 2013 will rise by approximately EUR350 million, which poses a significant comp challenge as we move into FY '13.

The BAA's recent announcement that it will pay dividends of GBP240 million this year to Ferrovial and its other shareholders is further evidence that it's generating monopoly profits under the CAA's inadequate regulatory regime.

Over the past five years, while Stansted's charges have doubled, traffic has declined by 26% from over 24 million in 2007 to just 18 million last year.

The BAA's monopoly shareholders are being unfairly enriched at the expense of Stansted Airport users who continue to suffer high charges and inadequate service.

We again call on the UK government and the CAA to bring forward the sale of Stansted to enable competition between London airports to deliver lower airport charges and improved customer service, where the BAA airport monopoly and the CAA's inadequate regulatory regime has repeatedly failed.

We'd also like the UK government to scrap the dismal APD tourist tax which is damaging UK tourism and jobs.

A similar visitor tax in Holland was scrapped after just one year when it was proven that its detrimental impact on Dutch tourism and the economy was far greater than the revenue it generated.

UK APD was doubled in 2007 to GBP10 and further increased this year to GBP12 and has caused the UK to have the highest aviation taxes in the world, to the detriment of UK's tourism industry, which one was one of the UK's most important revenue earners before its visitor numbers declined by some 20% over the past four years.

In Ireland the government-owned DAA airport monopoly recently published its 2012 traffic figures, which highlights a 26% decline in traffic over the past four years, from 30 million passengers in 2007 to just 22 million in 2011.

While most other UK and European airports delivered growth in 2011 by reducing charges, the government-owned DAA monopoly, protected by the useless Department of Transport, raised its fees by 40% and delivered another year of underlying traffic declines.

Sadly, the new Irish government after one year has failed to deliver any change or reform in either airport or tourism policy and has also failed to scrap the EUR3 tourist tax.

Ireland needs competition between Dublin, Cork and Shannon airports in order to reduce the DAA's high airport charges and return our tourism industry to growth, which is the only way we can create thousands of badly needed entry level jobs in the Irish economy.

We continue to campaign for this change in reform since the Department of Transport's current policy of protecting the DAA monopoly and increasing access costs to an island on the periphery of Europe clearly isn't working.

Our Q3 net profit of EUR15 million was slightly ahead of guidance due to a combination of benign weather, which caused fewer flight cancellations and significant deicing savings, and a better performance on yields reflecting our planned winter capacity costs, longer sectors and higher competitor fares and fuel surcharges.

Should these positive Q3 trends continue into Q4, we now expect our full year profit will exceed previous guidance of EUR440 million and rise to approximately EUR480 million after tax.

Just a note for everybody, too, in terms of an EGM, as you will be aware our September 2011 EGM authorized the Board to buy back ordinary shares representing up to 5% of our issued share capital.

However EU ownership rules require that at least 50% of the Company be owned by EU nationals.

Currently that figure is about 51%.

In order to facilitate further share buybacks, the Board intends to hold an EGM in March 2012 to seek shareholder approval to include ADRs as well as ordinary shares in future buyback programs for up to 5% of our issued share capital plan and to ensure that we stay within the 50.1% EU ownership.

A detailed letter to shareholders explaining these matters will be issued in due course and the Board believes that shareholders will support this proposal, which will be subject to Stock Exchange and regulatory approvals in due course.

Howard, can you take us through the MD&A for the quarter, please?

Thank you, Michael.

Profit after tax was EUR14.9 million compared to a loss after tax in the quarter ended December 31, 2010 of EUR10.3 million, primarily due to a 17% increase in average fares and strong ancillary revenues, offset by significantly higher fuel costs.

Total operating revenues increased by 13% to EUR844.4 million, primarily due to a 17% increase in average fares offset by a 2% decrease in passenger numbers.

Fuel, which now represents 41% of total operating costs compared to 38% in the prior year, increased by 18% to EUR333.6 million due to a higher price per gallon paid and a 3% increase in the number of hours flown.

Unit costs excluding fuel rose by 6%; when adjusted for stage length unit costs fell by 1%.

Including fuel, unit costs rose by 11%.

Operating margin as a result of the above rose to 3% whilst operating profit was EUR29.4 million compared to an operating loss of EUR0.3 million in the quarter ended December 31, 2010.

Turning then to the balance sheet, gross cash increased by EUR39.5 million to EUR2.98 billion.

And the group generated cash from operating activities of EUR401.7 million which funded net capital expenditure of EUR106 million, debt repayments of EUR239.3 million and an EUR85.1 million buyback program.

Gross debt increased by EUR155.9 million to EUR3.493 billion.

Net debt has fallen from EUR708.8 million at March 31, 2011 to EUR513.4 million at the period end.

Shareholders' equity increased by EUR301.9 million in the period to EUR3.255 billion due to the net profit after tax of EUR558.4 million in the first nine months and the issue of new shares associated with the employee share option program of EUR5.2 million.

These are offset by the EUR85.1 million share buyback, and the impact of IFRS accounting treatment for derivatives and available for sale financial assets and stock option grants.

I will hand you back to Michael for the Q&A.

Thanks, Howard.

Okay ladies and gentlemen I think we'll open it up for questions now.

If I can, though, just to temper some of the irrational euphoria, I think the overriding view of these numbers -- they're heavily distorted by very benign weather conditions in Q3 last year compared to horrendous weather conditions in the prior year Q3, a significant decline in cancellations, flight disruptions, significant savings therefore in disruption, deicing costs, etc.

Unless anybody lose the run of themselves, I'd like to highlight again that we do face very significant fuel cost headwinds over the next 12 months.

We expect our fuel bills to rise by up to EUR350 million given our continuing expansion.

But then of course, on the other hand, fuel will be rising very significantly for all of competitor airlines, many of whom won't be as well -- aren't as well hedged as we are and certainly don't have the margins to pay for these higher costs.

So I think the underlying theme, which is the continuing switch of passengers across Europe from high fare airlines like Aer Lingus, British Airways, Lufthansa, Air France to Ryanair as they become more price-sensitive continues.

We're certainly having to discount less fares to fill our flights.

And while we're grounding up to 80 aircraft this winter, with five new bases already announced for the summer, a sixth one on the way, all of the fleet will be up and flying by April/May time this year.

So I think our traffic growth will be strong.

Significant fuel cost headwinds and a fair challenge to try to ensure that, through cost management and selective price increases, we can cover that higher oil bill this year.

With that, LeeAnn, if you could open it up to questions I would appreciate it.

(Operator Instructions).

Neil Glynn, Credit Suisse.

Good afternoon everybody.

Two for me please.

The first one on the revenue environment, your own and EasyJet fares have surprised repeatedly positively over recent quarters.

I'm wondering does this suggest any particular strength in late bookings.

Or would you see fare strength as more uniform along the forward-booking curve?

And then second of all, if we could revisit your exposure to euro weakness relative to the pound.

Can you confirm what the current or indeed next year's and net long sterling position is?

I'll take the first half.

Howard I'll let you do the second one.

I think -- I mean our focus -- I don't think there's any particular strength in late bookings or close-in bookings.

I think what we've seen through last summer and continuing into the winter, though, is slightly stronger.

We're discounting less to fill our flights.

And I think that is a combination of a couple of things.

One, there is undoubtedly competitor fares and fuel surcharges driving passengers in our direction.

I think the continuing collapse of the tour operator model, these vertically integrated tour operator holiday companies, particularly in the big holiday markets in Spain and Italy.

Passengers are no longer willing to shell out 800, 900 or 1200 quid for a high-priced airline and a hidden -- for a high-priced airline seat hidden in a package.

And more and more passengers are now coming to the Ryanair.com website, booking the air travel cheaply with Ryanair to Spain, Italy, Canaries, other holiday destinations and then sorting out the accommodation themselves.

I think you see that reflected in the various profit warnings emanating from the Thomas Cook's, the TUIs and those -- as far as -- I think it's over for them in those short-haul holiday markets where Ryanair is now the number one airline in Spain, number one airline in Italy.

They don't come close.

And then I think -- so if you remember the kind of curve we have on the buildup, I think the strength of our fares -- average fares over the last 12, 18 months has been -- we're doing less free seat sales, less EUR2.99 seat sales, but people are still flocking to us and snapping up the EUR9.99s and the EUR12.99 seats.

And if you go in close-in, the kind of fares being charged within a week or two weeks by Aer Lingus, Lufthansa, Air France, BA are outrageous.

In many cases the fuel surcharge on some of those airlines are is more than half Ryanair's underlying airfare and that is driving the traffic in our direction.

That can only be augmented, I think, over the coming months by obviously the Spanair collapse last Friday.

Air Berlin's significant capacity cutbacks, which is certainly attracting us to grow more in Germany and in Palma, which is one of their big bases.

So the underlying themes we've seen over the last couple of years of capacity cutbacks by the high fare guys, passengers coming in our direction and the continuing implosion of the package tour operator market in Europe I think is driving -- it certainly means we're having to do less very aggressive price promotion to fill our seats.

Howard, where are you on the exchange?

Yes, generally we would be much more favorable on -- we prefer the sterling to be stronger against the euro.

Approximately 28% of our revenues are in sterling.

About 25% of our costs are in sterling.

So we're net long on sterling and so we'd kind of look forward to a strong sterling against the euro.

But as to what the net surplus will be, obviously depends on yields over the summer and winter of next year.

But overall net long, about 28% in revenues, 25% on costs.

Great.

Thanks, Michael, Howard.

Next question, please.

Joe Gill, Bloxham.

Good afternoon.

I've just got two or three questions, one in relation to aircraft net capital expenditure now for fiscal '12 and fiscal '13.

Could you have just updated numbers on those two?

And secondly in relation to the whole aircraft debate, what your latest thoughts are there and in particular what your views are in relation to the new generation Boeing and Airbus aircraft on offer in the market.

And thirdly in relation to capital -- sorry, capacity increases for fiscal '13.

Any sense of how that will be structured between summer quarters and winter quarters?

Do you plan next winter for example to be flat to down again?

Or might you increase next winter and so on in relation to summer?

And the final question, just a technical one.

What was the average sector length in the third quarter?

Thank you.

Okay, so I don't miss any, just writing down those notes.

Okay.

Gross CapEx for 2012 is, what, EUR500 million?

EUR500 million, and hopefully next year we will be dropping down aircraft capital expenditure, about EUR400 million for fiscal '13.

Okay.

On the aircraft debate, the new generation aircraft, I think like most people we have been impressed with the Airbus neo and the fuel savings it can deliver.

I think equally like most people we have been singularly unimpressed by the MAX.

We don't -- certainly there seems to be an inferior fuel savings.

The 737 is challenged in terms of the engine size, but there is a significant waste penalty on the aircraft for an inferior fuel savings.

We don't frankly see there's going to be much in the MAX that isn't going to be absorbed with ever increasing EUROCONTROL weight charges or some landing charges at European airports.

As I said, we continue to be very impressed with the Chinese, the Comac offering, but at 174 seats it is a bit small for us.

But we're encouraging Comac as much as we can to at least deliver that aircraft into the commercial service by 2016, which would at least create I think a much more competitive environment for airlines to have three manufacturers competing against each other instead of two.

I think at the moment anybody ordering aircraft currently is nuts.

The price of new aircraft is, I'd say, close to an all-time high.

And you'd really want to be smoking something to be ordering aircraft now for delivery in 3 or 4 years' time given the high prices and escalation.

I wouldn't be overly impressed with anybody announcing significant aircraft orders.

I wouldn't be surprised if we see an order from BA and Aer Lingus, given that they usually manage to time their aircraft orders at the very peak of the cycle.

There must surely be an order coming from one or other of them in the coming weeks and months.

Where we're concerned, we take delivery of another 25 aircraft through calendar '12.

We have no aircraft deliveries after that.

I think that's quite -- I mean almost by accident a good position to be in.

We're very happy with our growth.

We'll continue to deliver some small headline growth by increasing -- or reducing the amount of aircraft we ground over the next couple of winters.

But I don't foresee any requirement for us to grow the topline or grow the fleet until maybe the summer of '16 or summer of '17, and we're very happy to wait and see what happens to the aircraft cycle between now and then.

The one great disconnect that I struggle to -- well, I don't struggle.

I think it is easy to understand, but I struggle to understand new aircraft pricing at the moment, it's that the secondhand market is completely dead.

We've always been sellers of good, young, secondhand aircraft.

We haven't had a sniff from anybody for about two years on secondhand aircraft.

And if the secondhand market is weak, and it seems to be very weak, aircraft financing market is completely blown out of the water, we fail to understand why people are rushing out there at the moment to order lots of new aircraft for delivery in 3 or 4 years' time, when many of them won't be able to or aren't capable of growing their business.

And they're certainly not capable of funding new aircraft orders at expensive prices.

Capacity in fiscal '13, again, we have not yet finalized the budget for fiscal '13, and for the purposes of today's call I'd rather stay off it.

We will give some further color later on, other than there will be I think small sales -- modest single-digit capacity growth during the peak summer.

But we're still a long way away yet from deciding what we'll do next winter with aircraft and with sector.

And it's a very fluid situation at the moment.

I mean we're still dealing with some German airports who are very concerned about further cutbacks in Air Berlin.

Clearly we're down in Barcelona today talking to El Prat, AENA and the Generalitat.

I'm off to Alicante and Palma to announce some more aircraft and routes tomorrow.

All I can tell you is we're still dealing with far more base and route offers than we can handle at the moment.

And I have -- I can't read my notes on the last one.

750 miles, Michael.

Average sector is 750 miles.

750 miles, sorry; average sector length.

Okay, thanks for that.

(Operator Instructions) Jarrod Castle, UBS.

Good afternoon.

I'm just trying to understand a little bit more about your potential changes in your share buyback program.

Will you still have the flexibility under this to decide whether to buy the ordinary line or the ADR line?

Or they have to be some proportion of buyback?

And does it make sense to be paying a premium for the ADR line I guess as well?

Secondly, can you just clarify where you are in terms of dollar hedging for calendar 2013 please?

And then lastly, I mean I guess it's too early to say, to give much color.

But can you say anything about any of the bookings kind of April, May, June time, how that's looking?

Thanks.

The share buyback program, yes we have complete flexibility up to, obviously, the limit of 50.1% has to remain in European ownership.

I think obviously from our perspective we will continue to buy the ordinaries wherever we can.

The ordinaries are -- the ADRs do trade at a premium.

But wherever there is a danger that we are likely to trip over the -- trip under the 50.1%, we need to have that flexibility to be able to buy ADRs.

And also, when we are -- our experience in doing past share buybacks is it becomes difficult sometimes to get sufficient volume of ordinaries, and on a day-to-day basis it may be easier to get some volume of ADRs.

But we need the flexibility to be able to do both, primarily so that we can stay below the 50.1%.

But obviously I think our focus will be to continue to try to purchase the ordinaries by way of -- under the share buyback program.

So the restriction at the moment is that we can only pay a 5% premium on the ordinaries.

The ADRs tend to trade at about 15% premium to the ordinaries, which puts them out of our price bracket.

And we want -- we need EGM approval, therefore, to buy the ordinaries at up to a 5% premium, and buy the ADRs at up to 5% premium wherever we need to.

But we will have complete flexibility in terms of how we operate the program.

Howard, do you want to take the fuel hedging for calendar 2013?

And then I'll do the April/May bookings.

Okay.

In terms of currency hedging, our CapEx is hedged at $1.40.

And for this year, for FY '12 euro/dollar average exchange rate will be $1.36 and for FY '13 it will be slightly better at $1.38.

At the moment, we have 90% of our requirements hedged for the first three quarters of FY '13 and 50% of Q4, which is an average of about 80% for the full year.

I would expect to close out the balance of the remaining 40% of Q4 over the coming months.

Thanks, Howard.

In terms of, again, it's a little bit early yet, Jarrod, on the April/May bookings.

We have some decent visibility up to March.

All I can say, if you take our April and May bookings at this stage, now remember Easter falls bang in the middle of April this year.

Last year it was a little bit on the early side.

So at this point in time we're running a little bit ahead of the forward bookings into April and May, but off a very small advance -- off of a very small percentage of advanced seats sold.

Quite significant strength, though, particularly for things like the school holidays, midterm breaks, UK market into Spain, into Italy.

I think there's been a big switch of people switching away from the tour operators.

And obviously there's been an enormous surge, even over the weekend, of bookings to places like Barcelona with the Spanair.

We launched a rescue fare of EUR49 one-way and sold over 5000 of them on Saturday and Sunday alone.

So, I would expect the forward bookings are 1% or 2% ahead of where we would have been this time last year, and without us having been as aggressive on pricing as it were.

We'll continue to try to keep the forward booking profile building in the same -- into the same profile as last year.

But try to do it at slightly higher fares, given that we have a much bigger oil bill to pay for next year.

Thanks Michael, Howard.

Mark Manduca, Merrill Lynch.

Hey, Michael.

The majority my questions have been answered; just a quick question on yield, just following on from that point you just made.

If I take the guidance, and this I guess is a bit of a mundane question.

But if I take the guidance that you have given in terms of net profit and the weaker comp on yield in Q4 versus Q3 in 2011, is it fair to say there is an element of conservatism in the Q4 yield trend that you're putting in, i.e., essentially implying 12% growth in yields in Q4?

And I guess sort of the attachment question to that is, given what you've said about pricing, particularly around April and May, is there any sense that I would be wrong in assuming that you could keep a double-digit yield trend going into Q1 and to Q2 of next year?

If I were to say that the answer to those questions is back, I think I'd be [asking to laugh].

And could we keep a double-digit trend going into Q1 and Q2, I think we would be hopeful.

A lot depends on what happens, A, with fuel surcharges amongst the competition and with capacity.

Everything we see looking out into this summer suggests that the Lufthansa's, the Air Frances's, the BA's are under very significant cost pressure.

There is a likelihood that there would be an upward trend on pricing.

We see no significant capacity growth across Europe this summer.

That should be helpful.

But this is always a business where you're always -- expect the unexpected.

It's never going to be blue skies.

So while we remain -- there's significant concerns about the euro.

There's always a concern about maybe terrorism or some kind of naughty stuff breaking out, out there.

But absent anything untoward, if the current trends we see continue into Q1 or Q2, I would be hopeful -- but I would be sort of more -- I think I would be confident that there will be yield increases into Q1 and Q2.

I'm not sure whether I would want to be predicting double digits.

You know, the business has become more seasonal; but we'll certainly be working in that direction.

We need -- with the pace of the higher oil, we need to have an average fare increase this year something on the order of EUR3.50 to EUR4.00, so we've got to get close to a double-digit just to pay for the higher oil.

Q4 yields, yes -- no, I mean I think our guidance today is pretty current.

Remember in Q4 this year you had a little bit -- in the first half of Easter was in comparable Q4 last year.

Easter fell early in April -- no, I've forgotten my dates.

It fell at the end, Michael.

(multiple speakers) It fell at the end.

Our guidance is fairly -- I think it's fairly accurate.

We still don't have -- we're weak visibility still into March.

We still need a good outturn through the end of February and March.

But we also have cost penalties coming through in Q4, significantly on the oil where there is a big step up in our oil, our hedged oil position from Q3 where we were at kind of $83 a barrel, into Q4 we're up at $100 a barrel.

But even if I assume EUR1.6 billion for the full year in terms of fuel costs, I still find it hard to get to a position whereby I'm assuming that Q4 is negative year on year on a euro basis, on a net profit line versus Q3 which was up year on year.

And that is fine.

I understand obviously there is a weather effect, but I'm just saying there is an element of conservatism attached to the net profit forecast that you've given.

The other thing, Mark, is obviously Q4 we have the full quarter of the ownership costs of the grounding of the aircraft, whereas in Q3 it was only in play for two months.

So you might just want to have a look at that as well, because obviously with an extra month with 80 aircraft grounded that does have an impact on the bottom line.

Yes.

Understood.

Thanks very much.

Stephen Furlong, Davy Research.

Afternoon guys.

Could you just remind us in terms of Barcelona currently what aircraft you have based there, at Girona and Reus?

How does -- when something -- an event like this happens, how do you think in terms of allocating capacity?

I know you said, Michael, it's a very fluid situation.

But are you prepared to allocate even further capacity, or it really depends on competing deals all over Europe?

And then just a general question, then, about airport costs.

I mean I saw there was a stack up in terms of Dublin Airport, but what would your view be on the deflationary or inflationary pressures in airport costs going forward?

And do you think that more medium-term there's a big opportunity for growth at Stansted?

Thanks.

Thanks, Stephen.

Barcelona, I think clearly the Spanair demise on Friday will be very good for us.

But we have, I think at last count we had 11 -- no, 8 aircraft I think based in Barcelona in El Prat.

We had cut back Girona from 8 to 4 but we've now reached agreement with the Generalitat on cost, so Girona is going back up to 8 this summer.

We plan to increase main Barcelona or El Prat I think is going from 8 to 10 this summer.

Reus has -- we closed it during the winter; it just goes to one aircraft.

So in total this summer we would expect to have about 20 aircraft based at the Barcelona airports.

Now of those there is a significant crossover between us and Spanair in Barcelona, particularly on the Spanish domestic routes; we were largely operating two and three times a day.

There are, however, a number of routes where Clickair, Vueling, the Iberian subsidiary, would have a monopoly in Spanair's absence.

And we're meeting with AENA this afternoon in fact and with the Generalitat.

We could allocate another two or three aircraft to it this summer, but the problem is we've only got about three or four aircraft left to allocate.

So it would be difficult for us to give them all to Barcelona, even if we got a good deal from AENA.

But I think the point we're making in Barcelona generally today is the Spanair problem is still very much a byproduct of AENA's high costs.

If you remember, one of the more lunatic proposals down in Spain in recent months is that the Spanish government would privatize AENA but with a built-in 5% price increase every year for something like the next 10 years.

You know, some kind of crazy stuff.

But -- so I would expect -- I'd be disappointed if we're not sometime within the next week or two announcing one or two more aircraft based in El Prat this summer.

At the moment I said we have 11 summer aircraft in El Prat and that might rise to 12 or 13, which would give us the capacity to add flights on maybe six or eight new routes that we presently don't operate at.

But we also have to keep an eye on the fact that at Girona up the road, we are already increased -- the summer fleet this year is already increasing from -- we had three in the winter, we're going up to nine in the summer.

Last summer we had only six.

Got it.

In terms of airport costs generally, with the notable exception of Dublin, airport costs generally across Europe are coming down.

That is kind of the way most of the airports across Europe have returned to growth in recent years.

We see that most pronounced at the moment in Germany where there's a number of the airports are very concerned about Air Berlin, where I think there's going to be very significant capacity cutbacks and they are offering us very attractive deals.

Spain there continues to be opportunities; obviously the demise of Spanair will speed that up.

But probably the come to the rescue of some of the other so-called low fare but loss-making Spanish airlines, there will probably be a temporary respite there.

But the big driver for us will still be taking out handling costs, driving down the amount of check-in baggage, simplifying the procedures so we get people away from check-in desks, check-in staff, baggage handling people.

And that is where the big cost savings will continue to come from.

And in terms of Stansted, I think there's been no change at Stansted for the last two years.

Costs haven't risen.

But I think certainly our ongoing dialogue with the CAA would indicate that there's a new team in place there.

They're certainly more active than the old team, but I think anybody with a pulse would have been more active than the old team in the CAA.

I think they feel themselves under significant pressure given the Competition Commission's ruling that the CAA's regulatory regime was inadequate.

And there's definitely an in-depth analysis going on about how -- comparing Stansted where over the last five years traffic has declined, but operated by 25%.

Their operating comps have grown by some 30%, and how that stick can be lined up compared to other similar airports in the UK which are no longer regulated, like Manchester, like Birmingham, like Bristol, where they too have suffered either flat or declining traffic over the last five years.

But their operating costs have declined, or have been flat on a passenger basis but declined overall.

So there is a glaring still unexplained cost issue in the Stansted numbers.

The BA are (expletive) on about how it was increased staffing and increased security and all the rest of that.

They also seem to have transferred a bundle of electricity costs and other costs from Heathrow, shoveled it into Stansted because the regulators were asleep.

We -- their Mid Q5 Review will be completed by the CAA sometime by the end of April.

We're moving into a Q6 Review.

And I think the fact that Stansted now hasn't grown its traffic for the last five years, the CapEx -- the original crazy decision on the second runway, second terminal has clearly been [exposed].

It's going to be much harder for Stansted to pull the wool over the regulators' eyes this time around.

So I would certainly be very hopeful that there will be significant charges reductions at Stansted going forward.

And let's face it.

There needs to be, if you are going to get Stansted -- put Stansted back on a growth path.

Obviously around the edges UK government policy in this area is a shambles.

You have the likes of Boris Johnson running around rabbiting on about an airport in the middle of nowhere out in the Romney marshes or something that has no transport links, no motorways, no train, no infrastructure, when the obvious solution to it is additional runways at Stansted, Heathrow and Gatwick.

But the Tories are unable to stand up and come up with an aviation policy that does anything other than pander to a couple of environmental headbangers.

But I think ultimately it will come when they realize that the UK aviation tourism is being overtaken by the Germans, the French and the Spanish who are just laughing at the British policy.

They keep opening up new runways, developing new runways at the main airports while the UK government is sitting on its hands dithering and dribbling.

But I think it will come in time.

In the meantime, I think Stansted has some significant growth potential, but only when it recognizes that the way to grow is to reduce the unsustainably high charges.

I mean they've doubled the charges there over the last five years.

And it's not just Ryanair.

Even as we have cut capacity back at Stansted, our market share at Stansted has actually risen from just under 60% to north of 70%.

It's just that everybody else has pulled out of Stansted at an even faster rate than Ryanair.

That's great, Michael.

Thanks, Stephen.

Jim Parker, Raymond James.

Michael and Howard, good afternoon.

Hi Jim.

Hi Jim.

I'm curious.

There's a phenomenon we're seeing in the States regarding some carriers, how fuel prices are very high, of course, and how they're cutting back on sector length, which means they burn less fuel.

But the proportionate cut back or pullback in the fare is much less, so it ends up being a profitable stage length maneuver.

Why is Ryanair not doing this or have you considered it?

Anything else?

The other thing is I notice you're saying that you've increased your wages 2%.

I'd like to know which proportion of the labor force -- who got the 2%?

And how can you keep your non-fuel costs, keep them stable or going down with very little capacity growth?

Okay, thanks, Jim.

At the moment sector length is very much a byproduct in Ryanair's model of the airport deals that we're offered from time to time.

So we continue to be very opportunistic.

We'll go wherever the airports give us the best package of efficient facilities and low cost.

And as you can see in the third quarter, that meant we had average of sector length increase of 7%.

Oddly enough, I never cease to be amazed by the flip-flopping strategy of the US carriers.

Generally speaking, slightly longer sector lengths reduces your fuel consumption.

You spend more time in the cruise and less time in the climb.

But if I had my -- if we had a choice, we would clearly fly more shorter sectors, not because of the fuel savings.

It's just that you tend to get higher yields on the shorter sectors.

Or in other words, you don't get three times the fare for three times the sector length.

But the opportunity for us in Europe continues to be driven opportunistically by airport deals, and also by the fact that really if you look at across the continent the real competition for us, there's going to be -- as consolidation plays itself out there's five principal carriers -- Lufthansa, Air France, BA, EasyJet and Ryanair.

There's only one low fare carrier out of those five, and the other four are massively or significantly increasing fares and in some cases fuel surcharges, and send the traffic in our direction.

So I think we will continue to grow or expand opportunistically.

We will set up headline growth for the next year or two.

How will we continue to keep a downward pressure on our operating costs?

By continuing to be very vigilant.

We expect airport and handling cost to continue on a unit basis to be low.

We still haven't decided -- I think there is unlikely to be any pay increase here at the Company in April of 2012 given that we're facing a EUR350 million fuel bill increase.

And we continue, then, to fight with suppliers on a regular basis and try to minimize costs, particularly in areas like aircraft, financing, maintenance.

The one that we'll struggle with will be EUROCONTROL, and obviously -- with the EUROCONTROL and fuel.

But I would remain hopeful that on a sector length adjusted basis we'll be able to keep costs at least flat over the next -- sector length adjusted excluding fuel at least flat during FY March '12.

And Michael, your sector length for FY '13, what do you anticipate?

Jim, we've no answer; we have no idea yet.

It all depends on the final outturn.

Again, my guidance to you at this stage, which would be general, will be flattish.

But it really depends what deals we get at which airports, and it's too early to say yet.

We have not finalized the budget yet for FY '13.

Okay, thank you.

Thanks, Jim.

Gorm Thomassen, AKO Capital.

Hi guys.

Two questions if I may.

The reserved seating -- what's been the uptake and what is the revenue potential?

That's my first question.

The second question, if you could just go a little bit into what has been driving the ancillary revenue growth of 8%.

Thanks Gorm.

The reserve seat uptake, again, here you have got to be careful.

The reserve seat uptake has been pretty positive, but only on the first 80 routes that we ruled it out on.

Now we generally selected those holiday routes and longer sectors where we thought reserved seating would be an attractive proposition.

So thus far in the first summer we saw a 3% and 4% uptake.

What was more important, though, was that it didn't seem to reduce the priority boarding much.

Priority boarding fell by about 1% whereas we thought originally anybody taking up reserve seating simply wouldn't buy -- it would be a straight switch.

It has turned out not to be, and I think that is because people are recognizing both that, A, the reserve seating is an attractive offering.

But also, there's lots of people who don't want to sit in the front row or in the over-wing exit, but still want to board the aircraft early to get out of an aisle seat or a window seat close to the front, like myself.

And they're very happy to buy the priority boarding and not take the reserve seating.

So now having said that, I think the uptake on it, it will decline as we have rolled it out now across the fleet.

There's lots of very short routes where just philosophically I don't know what the term is, I just don't think there will be much of an uptick on reserve seating on a Dublin/Liverpool flight for 40 minutes.

Why would you want it or need it?

But I think also over the system we would still expect certainly over the peak summer months to generate -- we would hope to continue to grow both priority boarding, which is now in a mid-double-digit, midteens, and reserve seating which started off at 3% or 4%.

But it's 3% or 4% on what we think would be the most -- the easiest routes for us, so I would expect that will decline as we roll it out across the piece.

But that overall the revenue will be win-win.

Generally on ancillaries, continues to be a strong performance across most of the categories of ancillaries.

We continue to see strong sales -- hotels, new Hertz product.

We've been working on dynamic packaging.

The credit card income fee, the admin fees -- all of those really we've been working on to increase the take-up of those on a per passenger basis.

And I think you look at the numbers over the quarter, the fact that ancillaries are up 8% on a per passenger basis really highlights how well we've been able to manage that profit.

But there's no big standout.

There's no big easy one.

So --

Any new things you are trying?

I think we're always trying new things.

The reserve seating -- but whilst reserve seating was good on the 80 routes, in total revenue terms you wouldn't notice it yet.

No, generally we are very focused on working with partners to try to encourage (inaudible) to offer our passengers more attractive propositions and to try to encourage them to take up some of these propositions.

Great, thank you very much.

Andrew Light, Citi.

Hi there, Michael.

Andrew, hi.

Hi there.

I've noticed in your various press releases of late that there seems to be an increasing focus on Eastern Europe, albeit from a low base.

Do you see that as a major source of growth in the future, and if so, what is changing that?

And then secondly, just had a query, Howard, on the FX, those numbers you gave $1.36 to euro for FY '12 and $1.38 for FY '13.

Are those the hedging levels you're at, or would that be effective after considering hedging off the current spot?

I'd say firstly, Andrew, again I would overlay this with the fact that we'll always be opportunistic anyway.

But, yes, I think there's no doubt that these what we would call Central European countries, we would expect those to be a source of significant growth over the next two or three years.

Again, more because the pullback of the flags continuing; I think the financial difficulties of the airlines like Malev, Wizz Air, are not particular.

I don't think they've ever made a profit and don't seem to be in expansion, I think.

So a lot of the airports in Central Europe, who a year or two ago had lots of silly people like Wizz and Malev and some of these other guys, AirBaltic showing up offering to pay the full charges (inaudible) that really seems to have pulled back quite significantly.

You know the example we've given is Budapest where, say, 18 months ago we pulled out of Budapest where we were just getting (expletive) around by the airport.

There has been what I would call a rapprochement between ourselves and Budapest, where they're very concerned about the future of Malev.

And I think they're very concerned to get us back in there quickly, because let's face it Bulgarian tourism needs Ryanair more than Ryanair needs Bulgaria.

But having said that, then, you see events like the Spanair collapse on Friday, the continuing uncertainty that seems to exist over some of the -- of Air Berlin's capacity.

And there is undoubtedly other opportunities in what you call Western Europe.

But I think it is more likely in the next -- it's more likely absent anything else not going bust, though there will be more bankruptcies in Western Europe of the second-tier flaky carriers.

I think it's more likely that you'll see further base and new route announcements in Central Europe.

As I said, I expect that we'll be announcing one more base in Poland before we get to this summer, hopefully by the end of February.

But we're now down to having -- there's three Polish airports going through kind of a final bake-off to try to get a two-aircraft base from us, and that may well be complicated by how our discussions go this afternoon and through the remainder of this week with AENA and the Generalitat in Catalonia about possibly diverting some of our aircraft into El Prat or Girona, to take up the quite considerable slack left by the Spanair demise.

So I think Eastern Europe will continue to be a growth area for us, particularly where you are taking on weakened competitors like Malev, like Wizz Air, people like that.

I think as we've expanded in Spain and Italy in recent years they've had a bit of a holiday.

Now we're moving into those areas, not because, by the way, we're targeting any individual airline.

It's just the airports want us in there and want us to go there quickly.

Howard, do you want to take the currency on the exchange rate?

Yes.

Under [there, the absolute] rates, we have hedged us.

So it doesn't allow for the balance to be hedged.

So if you look at FY '13, we have hedged 90% in the first three quarters and 50% in the fourth quarter, so that's just above -- over 80% of our hedge in place at $1.38.

And obviously the balance is whatever is remaining, 7% or 8%, whatever the rate turns out to be in the next few months.

So, I guess the average -- if it is current rates, clearly it will be lower than $1.38.

So we'll have to see where that pans out over the next couple of months.

Okay, great.

Thanks a lot Howard and Mike.

Thanks, Andrew.

Thanks, Andrew.

Peter Hyde, Liberum Capital.

Hi.

Can I just ask sort of one question in two slightly different ways, which is new routes and additional routes?

One, if you put in new bases, do you think your brand name is strong enough now that you don't have to particularly have cheap lead-in fares?

And I suppose the other way of putting that is if you are talking to, let's say, some Spanish airports and some Eastern European airports, when you look at those routes do you actually think you need cheap lead-in fares?

I.e., are new routes dilutive to the overall network?

Or do you actually think these days, because you are so strong, that you get maturity fairly quickly?

Thanks.

Was that the two questions or is there a second one coming, Peter?

No, no, that was the two-part question really.

I think the reality for us -- and I'm not sure that our brand name is all that -- that it's much about a brand.

But I think that there is so much recognition of Ryanair out there now across the piece, in some cases positive recognition, in some cases negative recognition.

But everybody across Europe recognizes the fact that we have very cheap airfares.

I think the difference going forward and certainly I noticed in somewhere like Budapest last week when we were coming back to five routes (inaudible) competing with Malev.

We launched those at a EUR9.99 kind of one way fares with seat sale.

Two years ago that would have been a free seat fare.

Not because there was any other competitor with pricing anywhere close to Ryanair.

It's just that we were growing the capacity by 15% or 20%.

We were having to fill 8 million, 9 million, 10 million additional seats in one year.

What's happened in the last two years, we have slowed that down quite considerably.

By grounding aircraft this winter we're only growing the seat capacity by 4 million seats in this fiscal year, next year something similar.

So, we're really -- 4 million seats on an 80 million base is only 5%.

So the amount of additional capacity we're shoveling into any one market is now relatively small compared to our, if you like, underlying capacity.

So the incremental capacity growth is much smaller.

Then we're putting them into markets where opportunistically somebody else has fallen over, whether it is Air Berlin taking capacity out of Palma or some of the German airports.

Spanair clearly creates -- I mean Spanair in many ways creates a difficulty for us.

We prefer an airline to continue to be incompetent but trading, because it's kind of -- vacuums make it more difficult for us to turn up immediately and fill them.

Although fortunately by having 80 aircraft sitting on the ground, we will be able to turn up in Barcelona in El Prat within four, five, six weeks with a couple of additional aircraft.

But that will absorb most of what we have left in terms of summer seat capacity.

Now, there may be other solutions.

We were offered, for example, four secondhand lease aircraft for summer 2012 as recently as two weeks ago.

Which again kind of takes you back to the point of I think secondhand market is completely crap.

And some of the lessors still haven't put away aircraft for summer 2012.

But unless we got a really major financial incentive to do so, I wouldn't be interested in leasing somebody else's empty aircraft.

I think what the real driver of our yields at the moment is the fact that we're not competing with ourselves by adding 8 million, 9 million, 10 million additional seats a year.

We've really cut it back to growing at 3 million, 4 million, 5 million seats a year.

So we're down to low single-digit capacity growth and across a much better spread of markets, across Spain, across Italy, across Central Europe.

Really the only market we're not growing in at the moment is in Ireland.

And whereas the fares are rising in Ireland, the costs are rising even faster.

I was asked on Irish radio this morning how do you justify a 17% fare increase?

Well, I said the oil went up by 18% and Dublin Airport's charges went up by 40%.

So I don't have anything to justify.

Maybe you should ask the government how they justify a 40% increase in airport charges on an island where traffic has declined for five years in a row.

So I think really -- I don't think it's a brand name per se, although clearly we are very well known everywhere now.

I think it's just the message continues.

We keep drilling home the message, not so much the Ryanair brand, but that the Ryanair pricing is so much cheaper than everybody else.

And as the others then raise fares, raise fuel surcharges, you see EasyJet for example is dealing with very significant cost pressures, back worrying about pilot negotiations and silly stuff like that.

I think they'll be under much greater cost pressure going forward than we will and that helps us.

I think it helps or switches people in our direction.

Sure.

All right, thanks.

Eamonn Hughes, Goodbody.

Hi there, Mike.

You chatted a lot actually at the start of the call about an abnormally favorable winter and de-icing costs and stuff like that.

Is it possible at all to quantify that for the quarter, and maybe would that be a similar guide in terms of Q4?

That's the first point.

Secondly, just load factors were down a touch in the quarter, just wondering; is that a trend we could maybe expect rolling into the final quarter?

Maybe your views on load factors maybe into next year, whether there is any shift in tactics from yourselves.

And then I just want to chat a little bit about the cash flows then maybe after that if that is possible.

Okay.

Again, some of the coverage of the results this morning was a little bit overenthusiastic.

I think somebody did a piece on stellar Q3 numbers like we made GBP15 million on 900 million turnover, which is good in the airline business, but I wouldn't exactly call it stellar.

I do want to caution everybody; we had a really dreadful Q3 prior-year comparable with the weather disruptions, de-icing costs were horrendous.

So we picked up -- an awful lot of that turnaround is in that.

You didn't have the same -- we don't have the same adverse weather impact in the comparable Q4 last year, so it's a much more like-for-like comparison.

And we do have an enormous fuel cost penalty in Q4 and also the ownership costs and staff costs of grounding the fleet for the full three months.

So, we will definitely lose money in Q4.

Clearly the question is how much.

At the moment given our profitability we're expecting to lose about EUR70 million.

The thing is, can we lose a little bit less than that?

We will certainly be doing our best.

But it's difficult in this quarter particularly with the fuel cost increase.

Load factors, there isn't anything statistically significant.

The load factors are marginally down in Q3.

We expect a similar outturn in Q4 marginally down.

And again -- but we have all kind of planned for that.

It is almost part of the presentation by having lead-in fares of EUR9.99 instead of free seat sales.

We want to complete Q4 and enter into Q1 and Q2 of next year without doing any massive seat sales or doing free seat sales.

We want to try to re-educate at least our customer base.

EUR9.99 is going to be the lead-in fare.

Book it now if you see it, because it's not going to get any cheaper than that.

But certainly we're meeting no resistance from people who are trading down to us from the Spanairs, the Air Berlins, the EasyJets and the Aer Linguses, and we will continue I think to see a flight of people coming, trading down to Ryanair's prices from those higher fare, in some cases fuel surcharging airlines.

But I expect the load factor in Q4 to be somewhat similar to Q3, down marginally on the prior year.

Okay.

Just in relation to the cash flow, Michael, you mentioned earlier on about -- just in terms of timing and you discussed various options for you on the CapEx side.

But you talked about in terms of winter, you can release several plants that are parked; but obviously the summer, if you want to expand, you were talking about sort of 2015, 2016.

So in the context of that, with significant free cash flow next year and the year after, the EUR500 million dividend is it a case that -- and it's not guaranteed -- a buyback is on top of that?

Or could we be looking at more regularity on the dividends given that the lead-in on investment is still a couple of years and you only pay a fraction up front?

Yes, again, I get very reluctant to try to come up with a forecast by 18 or 24 months out, because in this business there's a curveball coming somewhere.

It's fair to say this year, its current trading and profitability continues through the summer, we're very likely to generate something like EUR700 million, EUR800 million in free cash flow.

I think we committed that there will be a second special dividend before the end of FY March '13.

We have no decision made yet.

The board hasn't even begun to look at whether that will be the end of this calendar year or in the early part of calendar '13, but it's sometime around then.

I would be very reluctant and I would almost say at this stage it definitely won't be any more than EUR500 million.

But I think it's fair to say that all other things being equal, and there's no untoward events like breakup of euros, terrorism, something much worse, I think we would want to complete another one or two share buybacks; maybe do two more share buybacks EUR100 million apiece, so that they're a combination of maybe EUR500 million in dividend and may be subject to being able to complete them.

And liquidity is a big issue for us as we're trying to do them, maybe one or two share buybacks of EUR100 million to EUR200 million cumulatively would see us kind of use up most of that EUR700 million between now and March FY '13.

We've got some feedback from some shareholders who obviously find it attractive to receive dividends.

There is another group of shareholders who find the dividends unattractive and would prefer to see share buybacks.

And we think, given that we have tried in the past to do both dividends and share buybacks and neither seems to be the solution in terms of getting people to focus on Ryanair's extraordinary cheap and very affordable share price, I think we need a mix of both to give us that flexibility.

I would be nearly certain too, by the way, that if there is a special dividend before the end of FY March '13 there will not be a special dividend in the year to FY March '14.

But we will try to do more share buybacks during that second year.

I'm very reluctant, and obviously I'd be a significant beneficiary of dividends, but I'm very reluctant that we don't get ourselves into this having an annual dividend policy and [expletive] listening to shareholders whining on about our dividend rate not being significant enough or not growing enough.

I think is a cyclical capital-intensive business.

There will still be lots of opportunities for us.

We clearly have another aircraft order to place some time between now and the end of calendar '15, but I think our focus is for the next year or two trying to maintain profitability with a very big fuel (inaudible) headwind and having enough common sense to -- if we generate strong cash flows, submit it back to shareholders through a mix of dividends and share buybacks.

Okay, Mike, making me cheeky; just one last one.

You mentioned there a lot about the positives around possible options; Germany, Central Europe, Spain.

You mentioned Ireland as the one area where you would be looking to cut back, so if you kind of churn it in the mix a little bit the portfolio, where else beyond Ireland do you think might lose out a little bit in terms of the focus of the next 12 months or so?

Honestly it's really very difficult.

I think Ireland is likely to lose another aircraft or two at Dublin and maybe Cork Airport.

At the moment, UK provincials are going very well for us.

We're seeing very good expansion particularly in the northwest of the UK with the new base in Manchester, which is performing well; Liverpool growing strongly; [Lee Bradford] doing very well.

And there is some fairly inferior competitors up there in that neck of the woods, and I think I would say some consumer nervousness about booking well in advance with a number of the carriers up there.

We would like to encourage that trend wherever we can.

But really when we're getting down apart from Ireland where the airport (inaudible) the passenger charge in Ireland, to depart parking passenger base in Dublin is nearly EUR19 and there's a EUR3 passenger tax.

So before we get sent on a departing passenger out of Dublin we have to pay over EUR21 to the Irish government and its bastard child, the DAA monopoly.

So I couldn't have put it better than I think Kristof Moeller described the DAA airport charges this year as insane, although I hear the Minister was on Irish radio the weekend blaming the problem of Irish tourism on Ryanair's prices, which is quite interesting.

It seems despite his youth and figure, he's been captured by the civil service the bureaucrats within the space of 12 months, because he seems to be singing their song.

But really it depends on where the deals come.

I think there is an opportunity for us to maybe to cut back some capacity around the edges in the UK.

We made take another aircraft or two out of Stansted.

We might.

But really that is about it.

I think Dublin and Stansted will be the focus of where, if we have to come up with a couple of spare aircraft quickly for really good deals at other airports, I think Dublin and Stansted is where they will come from.

Okay, thanks very much.

Brian Divine, NCB.

It's Howard here.

I'm just going to drop off.

I'm going to do that meeting for you and I'll give you a shout later on this evening.

Yes, that's fine.

Thanks, Howard.

Cheers, good luck.

Okay, guys.

Sorry, Brian; go ahead.

Just in Spain again, just in terms of how the average fares will be held up for you guys at to date in Spain, and just given that you said you could probably only allocate three or four aircraft yourself in Spain, do think there's further opportunities for fare increases given the drop off in Spanair?

And just secondly on Aer Lingus, we've seen press reports that the pension deficit is now in the region of EUR700 million.

Would you be opposed to Aer Lingus despite its remonstrations against doing this, they're committing money to help solve this problem once and for all?

Again, I would urge caution in Spain.

Ryanair doesn't put prices up.

What we do is we manage our load factors.

We want to fill 85% of our seats on a year-round basis.

But I think what we're seeing in Spain -- remember, fares in Spain last year were very low partly because Ryanair was growing so rapidly.

We were growing for example -- we are still -- we just combined -- in March we will complete our first 12 months with a base in the main Barcelona airport, El Prat, in addition to bases and (inaudible) and Girona.

But this year we are adding up a new base in Palma, which is funny enough Air Berlin's largest base.

This isn't even in Germany's.

It is actually down in Palma.

But we're also adding other bases.

It's a very good spread of the bases this year -- Billund in Denmark, Baden in Germany, Palma in Spain, Paphos in Cyprus, Wroclaw in Poland and probably a second one to come in Poland.

But I think it's too early to say yet what the outturn from the Spanair situation will be, but I think it is inevitable that there would be less seat capacity in the Barcelona market this summer, although we will certainly want to add seat capacity.

I think we would certainly want to keep the Vuelings, the Clickairs and the Iberia's honest.

And if that means we have to add some additional frequencies or one or two new routes into the Barcelona market, then I think we would see us do that.

We might have to do that by switching maybe switching may be an aircraft or two out of Girona and putting it into El Prat, so we'll play with some of the capacity within Catalonia itself.

But we will be determined to make sure that Barcelona El Prat was well served and that we keep all the high fare fuel surcharging competition down there honest.

You know EasyJet has a timing presence in down that marketplace.

Really now going to be between ourselves and the Iberian subsidiary of Clickair and Vueling.

And our experience today is when you are competing with an Iberia subsidiary, it's a bit like taking sweets from a baby.

We're very concerned about the reports of the Aer Lingus pension, the whole thing -- the whole development.

And there's a couple of developments in Aer Lingus that we will be concerned about.

Obviously I would say we are one of the bigger investors in Aer Lingus.

We did so on the basis of an IPO prospectus five years ago, which clearly signaled to both the market and to their prospective shareholders that Aer Lingus has a fixed contribution to the pension schemes.

They account for the pension schemes on the base that they are defined contribution pension schemes.

Their annual accounts every year for the last five years has reinforced that message.

Therefore it is quite clear while by the pensioners of the scheme, who are also former DAA employees who may have a defined benefit entitlement, but it's absolutely clear in our minds that the contribution rates are fixed within Aer Lingus and have been accounted for in the basis for the last six years as defined contribution.

This is something where I think we're drawing the attention of the various regulators, the newly -- the regulators in Ireland, both the Stock Exchange, Central Bank and also the -- because if they have been telling the shareholders based on providing for their pension liabilities on the basis that it is a defined contribution pension scheme.

And to be fair, we accept that it is a defined contribution pension scheme.

I think all of our experience in Ireland suggested if it wasn't a black-and-white defined contribution pension scheme, the unions would have had them in court long before now and assert that it's a defined benefit.

And I think the very fact that the Irish unions haven't gone near a courtroom surely suggests in our minds that the Aer Lingus interpretation is right.

We welcome the comments of Kristof Moeller and Andrew McFarlane at the investor day in London recently where they couldn't have been more black-and-white.

They said it is a defined contribution pension scheme.

They said Aer Lingus will not make any further contributions over and above the (inaudible) of [6.35] or something contribution rate.

And I think Kristof Moeller also offered that if there was to be any change, that it would clearly have to come back to shareholders for prior approval.

And you take all of that kind of background music, which it couldn't be clearer, you really have to wonder what the [expletive] Aer Lingus are doing down in front of the labor relations commission in recent weeks with the DAA and the unions discussing the pension deficit.

It is defined contribution pension scheme.

This is a (inaudible) and a company shouldn't be paying to it.

Clearly we're very concerned that this will be yet another example of the unions and the government raiding Aer Lingus shareholder funds as kind of a sweet jar.

They've done it before when they bailed out the ESOPs.

The bankers going to foreclose on the ESOP debt, we understand, in December 2010.

Aer Lingus just wrote a check for some EUR27 million to pay off the ESOP bank loan.

It seemed to us to be a clear case of favoring one shareholder over others.

Yet the Irish Stock Exchange and the (inaudible) Central Bank did nothing.

It ran again in March of 2011 when, lo and behold, they leave and rehire scheme, and negotiated and approved by the current board of Aer Lingus blew up in their faces.

The employees had to pay EUR30 million in tax liabilities and yet again, shareholder funds were simply rated without permission or approval of shareholders.

They wrote a check to the Irish Revenue for something like GBP30 million.

Here we are again a company that has clearly told its shareholders, (inaudible) the Stock Exchange and the regulators that they don't have any liability for any debt to the pension scheme, is down in the employment or one of the bloody useless labor (inaudible) here in Ireland.

The Irish government clearly, in our view, inappropriately putting pressure on the company to kind of sort out the pension scheme so the Irish government can sell its shares.

And we would be very concerned that the shareholder funds would be misappropriated in some way, to make a contribution to or pay off the pension scheme deficit.

We have our lawyers looking at this.

I think we will see sometime over the coming week or two we will be I think taking steps.

We and possibly some other shareholders taking steps joyously to ensure that the board of Aer Lingus honors what are clearly the binding commitments in its IPO prospectus and subsequent annual accounts, that Aer Lingus doesn't have any liability toward the pension scheme over and above its fixed contributions, and no more shareholder fund will be wasted or time wasted down talking in front of the labor relations commission here.

Another development I thought was interesting in the weekend it appears that the Minister has now said and decided in his wisdom that Aer Lingus should pay a dividend.

As you know, Ryanair has been calling for a special dividend to be paid for about 12 months now.

We even asked for an EGM to be held at least so the shareholders could offer their opinion on the subject.

And again we're told to go to [expletive] by the board of Aer Lingus and our views ignored.

I suspect now that the Minister has asked the board of Aer Lingus to jump, their response will be how high Minister, and how big a dividend would you like, which I think reinforces yet again that Aer Lingus is really run and controlled by a government-appointed board.

And sensible shareholders like Ryanair are ignored, although usually what we are calling for comes to pass with the passage of time.

Thank you.

Jonathan Wober, Societe Generale.

Thanks very much.

Good afternoon.

Just three questions please.

First of all first I could come back to the question on airport costs.

In your statement you attributed the higher growth in airport costs versus passenger numbers to a number of things.

The higher charges at Dublin which are well-known, increased air bridge charges in Spain, but also you talked about a mix of new routes and bases launched.

I wonder if you could expand on that last bit a little bit, because I thought -- it was my understanding that new routes and bases would be on the basis of lower airport costs.

And second question is, can you explain -- in the guidance you talk about FY '13 fuel costs being up by EUR350 million.

A couple of months ago you said it would be up by EUR250 million.

I wonder if you can talk us through the difference there.

And then the final question, just a quick detail is what was the average number of employees for Q3 please?

Thanks, Jonathan.

At the airport costs, obviously one of the biggest ones have been Dublin.

We are happy we have an air bridges issue and some cost increase at the Spanish airport.

The mix of new airport, new bases and destinations, yes, while new airports are generally speaking lower-cost and they've been -- if you like Dublin and Stansted, in some cases the structure of the deals are that we are typically safer in some places in Spain, we are booking and paying kind of published charge at the airports but receiving either discounts back from the airport or some marketing support from the local or the regional tourism authority in order to deliver growth.

So, it's more a function of how some of those are booked.

But clearing new routes and bases in Spain will be slightly more expensive, for example, than new routes or bases in some of the Central European or in the UK airports where we've opened up new bases.

Some of that would also, though, be reflected in increased marketing support or reduced marketing spend below the line.

I think you've got the numbers mixed up on a fuel costs.

The EUR250 million would be a reference to the FY '12 figure, our fuel increase.

Jimmy is here now shaking his head at me, but no, we never had a figure of EUR250 for FY '13 have we?

(multiple speakers) the move from EUR250 million to EUR350 million is a combination of what we're looking at in terms of capacity for next year, and also which is the larger number and is the movement in where the currency is and the oil price will move.

If you look at the oil price between November and now, it's largely driven by the fact that the euro price of oil has considerably changed.

So that is driving the price much, much higher.

Didn't you have a significant currency hedge in place already?

Well, we have had a currency hedge in place where we didn't have it fully locked out in November.

We would have guided in November a currency position of around 50% at the back half of next year.

(multiple speakers)

Just to reconfirm on FY '12 you had said EUR350 million increase in this year as well is that still the case?

Yes, correct.

That is correct.

(multiple speakers)

And then just a last question on average number of employees please.

Generally at the quarter end, the average headcount (inaudible) is 8500, up from 8000 on the prior year Q3 number.

I didn't actually quite catch it.

There was an interference on the line but maybe I will come back to Jimmy (multiple speakers)

Up from 8000 to 8500 at the end of Q3, but that figure is a slightly artificial number in that it excludes a number quite a considerable number of cabin crew and pilots who are off the payroll at the end of Q3, either by virtue of unpaid leave as we ground the aircraft or have been furloughed for a number of months during the winter.

Thanks.

Thanks, Jonathan.

Gerard Moore, Merrion Capital.

Hi good afternoon.

I've three questions as well please.

The first question just on the fare increases within the quarter.

Ignoring sector length, would you say that the underlying increase was fairly standard across the different countries?

Or were there some countries where it was a little bit more difficult to increase prices because of customer weakness, austerity measures, etc.?

The second question is really following on from Norwegian Air's aircraft deal that was announced recently.

Will that change at all your view of the Scandinavian market, even in terms of your operations there presently or in the future?

And the third question is just on the fuel forecast for next year to EUR350 million.

Does that also include perhaps some costs for the ETS carbon scheme or will that be reported separately?

Thanks.

Thanks.

There is no -- I mean the fair performance or the euro performance across Q3 has been pretty uniform across the business with two exceptions.

The fare increases out of the Irish airports and at Stansted has been slightly higher than that, because that's where most of the capacity cutbacks have taken place and also where we're paying the highest airport charges.

So generally speaking other than that it has been remarkably uniform, plus or minus exchange rate movements between sterling and the euro.

The Norwegian aircraft deal was a very strange one.

I think in a funny way it makes it more likely that we'll expand significantly I think in the Scandinavian market, but over a -- in the next two or three years.

We think they will have -- suffer enormous indigestion trying to fund and take on that kind of fleet growth.

Now whereas the vendors might provide them with a short-term funding, we don't see any capacity for -- Norwegian has all the smell of an Air Berlin mark 2.

Last year they were announcing long-haul aircraft orders.

Their 787's coming, now they have A320neos and now 737MAXes.

For an airline that's struggled to get very far out like Scandinavia, and it has clearly benefited from SAS's difficulties up in Scandinavia, I think they have quite a decent niche up there.

But it's not one of either by profitability or market cap.

I think their market cap resell last year week or two weeks ago was about -- between EUR200 million -- EUR250 million to EUR350 million.

This is not an airline I'd like to be trying to finance a couple of billion of aircraft orders for, particularly when they've yet to demonstrate any ability to open or grow bases outside of the Scandinavian market.

I do think, if I was given my choice, I think we would expand significantly in Central Europe for the next or three years.

After that I think the next great opportunity will be in Scandinavia.

I think SAS will implode at some point in time.

The only way forward I think is either the Scandinavian government put in some management who is finally actually manage SAS, or Lufthansa will be sort of encouraged or induced to go up there and work the Lufthansa magic.

There has been such a success with British Midland and [FN] Brussels.

They may be so encouraged to go up there and repeat that formula up in Scandinavia.

Either way I think it is inevitable.

It may be next two or three years there will be significant cutbacks in SAS.

I don't think Norwegian has the capacity to grow or fund the kind of aircraft orders they announced last week, and I therefore believe it is inevitable that we will see a growing trend of Scandinavian airports coming to talk to us and taking the place of the German and Central European airports are presently talking to us at the moment.

In terms of fuel next year, we have included ETS in that number.

But it is a very small number.

It is really immaterial.

I think our total budget for the ETS in the next 12 months is EUR15 million, EUR20 million.

I will expect to recover that in that EUR0.25 ETS tax so that all of our passengers can be fully aware of what these idiots in Brussels are doing with their stupid environmental taxes that just increase the cost of flying, while not in any way penalizing road transport or ferries or coaches or boats.

Okay, thank you.

And maybe just very quickly, is that ETS cost also based off a carbon price of around EUR8 per ton, the current spot price?

Yes.

Current market.

Thanks a lot.

Thank you.

As we have no further questions, I would like to turn the call back over to you for any additional or closing remarks, Mr.

O'Leary.

Okay, folks again thank you very much for participating in the call.

If I could leave you with two thoughts.

One, the Q3 numbers are heavily distorted by a very weak prior-year comparable.

I wouldn't expect to see that necessarily repeated in Q4 where we don't have quite such a weak comparable.

And obviously the bigger challenge for us, and I think many of the European airlines for the next 12 months, is going to be a very significant fuel headwind.

So I would urge caution or some of the more irrational exuberance in terms of airline share prices over the last week really should be tempered by a bit more nervousness about oil prices we know will rise significant in the next 12 months.

Demand will continue to be, I think, generally soft across Europe but characterized by a continuing speed in the switch from high fare fuel surcharging, flag carrier airlines to Ryanair.

Other than that, we're not doing the roadshow obviously on the Q3 results.

If anyone has any follow-up questions please feel free to direct them to David Broderick, our head of investor relations here in Dublin, or myself, Howard, Jimmy Dempsey, Neil Sorahan.

We would be happy to talk to you individually if you want give us a call off line.

Thanks everybody.

Thank you LeeAnn.

You sure helped with the call.

Thank you everybody.

Thank you.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.