Ryanair Holdings PLC (RYAAY) 2013 Q1 法說會逐字稿

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

Today's conference is being recorded.

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

Please go ahead, sir.

Good afternoon, ladies and gentlemen.

Thank you for participating in the Ryanair Q1 conference call.

As to the Q1 numbers, I'm going to run through this fairly quickly and I am going to spare you all.

You will pleased be pleased to know Howard reading the MD&A.

The results, the MD&A and the investor presentation is on the website at www.Ryanair.com.

Please feel free to have a look at and download it as you wish.

So just to summarize today we announced our Q1 results.

As we had previously guided at the full-year results, the earnings were down 29% to EUR99 million.

Overall revenues increased 11% as traffic grew 6% and average sales rose by 4%.

This led partly because of unit cost increase of 10%, which was mainly due to a substantial fuel cost increase of over EUR117 million, the Q1 profit declined by EUR40 million.

And as I said, as we previously guided, the significantly higher fuel costs caused the Q1 profit to fall by EUR40 million.

Nevertheless the growth continues; our 6% traffic growth combined with a 4% rise in average fares led to an 11% increase in revenues.

Ancillary sales grew by 15% to EUR286 million and now account for 22% of total revenue.

Operating costs for the quarter rose 10% primarily because fuel increased 27% or an increase of EUR117 million to a total bill for the quarter of EUR544 million.

Fuel in Q1 accounted for 47% of total operating costs.

We were hedged at $820 per barrel -- per tonne rather in Q1 last year, compared to $1,000 per tonne this year, a price increase at 22%.

As a result the Q1 numbers suffered the largest fuel costs rise in the coming FY 2013 numbers as the pricing differential narrowed significantly over the remaining three quarters of the year.

The Q1 yield increases were dampened by EU wide recession, austerity measures, and some heavy fare discounting particularly at new base launches in Cyprus, Denmark, Hungary, Poland, and in Provincial UK.

Excluding fuel, Q1 unit costs rose by 3% despite -- which was largely caused by 2% rise an average in flight crew pay, higher charges in certain airports, and the impact on costs of stronger sterling against the euro.

More recently developments on July 1, the Spanish government more than doubled airport taxes at the AENA's already high-cost cost airports in Madrid and Barcelona.

They also announced smaller tax increases at other Spanish airports.

These tax increases have already led to a winter capacity cut by Ryanair and many other airlines in Spain, and we think will result in traffic declines at the major Spanish airports, which is exactly what the Spanish government deserves for this kind of economic stupidity.

Much more importantly, last week we warmly welcomed the UK Court of Appeals the dismissal of BAA Ferrovial's seventh appeal against the 2008 Competition Commission recommendation that Stansted be sold.

We note the BAA intends to appeal this again to the Supreme Court but believe that that appeal has little chance of success particularly given the Court of Appeals decision to refuse them the right to appeal last week.

Nevertheless we think they will go ahead with the appeal but we think the Supreme Court will dismiss the appeal.

We were somewhat concerned by the BAA's comments last week that traffic growth -- the traffic declines at Stansted was due to low consumer confidence.

This of course is complete rubbish and the same low consumer confidence hasn't affected traffic growth at both Heathrow and -- Heathrow and Gatwick airports.

The real reason why traffic is declining at Stansted is because the BAA monopoly had been gaming the regulatory system, raising airport prices, presiding over traffic declines so they can fatten up the P&L for the inevitable sale of Stansted.

And the sooner this revelatory gaming is brought to an end and Ferrovial is forced to sell Stansted, the better it will be.

We believe that Stansted Airport will return to growth and Ryanair is keen to grow our traffic at Stansted but only when there is a new management or a new owner in place committed to lowering the costs of the airport and working with Ryanair, the airport's largest airline to grow traffic.

Looking forward, 90% fuel hedged for FY 2013 at approximately $1,000 per tonne, a 21% increase on last year's price.

We've recently hedged 50% of our half one FY 2014 requirement at the lower price of $940 per tonne; however, these lower fuel prices will be more than offset by lower euro/dollar exchange rates.

The outlook for the remainder of the year remains cautious.

We expect full-year traffic to grow 4%, which will be a combination 7% growth in the first half and 1% in the second half Q2, which are a repeat of last year winter's significant capacity cuts.

We expect positive yield growth will continue in Q2 but believe that a smaller fuel cost increase, mainly due to higher Q2 comparables last year and the impact of fuel saving measures we have recently implemented, should improve the profit performance in Q2.

Currently as you know at this time of year, we have no visibility over next winter's yields but we continue to be cautious.

We expect the continuing austerity, EU recession, and lower fares in year that new bases will continue to restrain fare growth.

However until we get some visibility over the H2 yields, our guidance for FY 2013 remains unchanged in the range of EUR400 million to EUR440 million, as previously guided the full-year results.

As I said, we're not going to ask Howard to read through the MD&A, we take it that you've all either read it or can read it.

Before I open up to questions, may I just caution everybody we are not going to take any questions about Aer Lingus or the offer for Aer Lingus.

As we said in the statement this morning, we are in the middle of a process, an extensive process, of engaging with the EU Commission.

It's underway.

We expect to run through until the end of August or mid-September and we are not willing nor do we believe it appropriate to comment forwardly on that process so that we give the team in DG Com in Brussels every opportunity to consider the issues, the competition issues, and the remedies that we will be tabling for it.

But please, somebody, don't ask any silly questions about Aer Lingus because we're not answering them.

With that, we will open up to questions.

(Operator Instructions).

Mark Manduca, Bank of America.

Michael, thank you for taking the question.

Wage control, in regards to -- I seem to always ask this question actually in regards to Q1, Q2, Q3, and Q4 and how one gets to guidance, but bear with me, all right?

So you made in simple terms last year EUR543 million or EUR544 million of net profit.

One expects that to be slightly above this year for H1.

So how do I square the circle with Q3 and Q4, having only made in H2 last year EUR2.2 million to get me from the EUR545 million -- let's call it for the sake of argument in H1 this year to your EUR440 million at the upper end of guidance based on everything that we know about fuel and how it's weighted in H1 and H2 and all the currency effects.

I am just trying to work out how conservative you are being, Michael.

We are being conservative as usual for the second half of the year.

We don't have any yield visibility and we think the yields will be down in the second half of -- margin that will be flat in the second half of the year.

Howard, do you want to take the asset question?

Yes, Mark, we think that we will make up the deficit from Q1 in Q2, which would see us at or slightly ahead of where we were last year.

Q3 we would expect to move from a profit into a loss and have a loss again in Q4.

So you made EUR14.9 million in Q3 last year and in Q4 you made minus EUR12.7 million.

So you have to lose essentially EUR100 million in H2 to get you to EUR440 million and lose EUR140 million to get you to EUR400 million.

Fair?

Yes.

(multiple speakers)

The combination is significant to higher oil prices and lower yields.

Understood.

But the way that the EUR300 million extra of incremental fuel is weighted, it's EUR40 million, EUR30 million, EUR30 million Q1, Q2, H2.

So I'm assuming there's basically an incremental EUR90 million in H2.

And still that doesn't get me to the incremental EUR100 of losses.

So it is just a point I guess.

You are just basically trying to say and the market gets the joke.

Look at how the stock has traded today, so I'm just trying to make a point that it seems to me very, very conservative.

We would not describe any of these fuel cost increases as a joke, nor do we regard our guidance as a joke, Mark.

But yes, I think the way you are seeing the fuel is pretty much in line with what we are now -- we now estimate.

Mark, I might remind you that on the conference call in May, we guided mid single-digit yield guidance, which a lot of the analysts ignored.

We also guided that profits would fall significantly in Q1, which quite a few analysts ignored.

So we can only give you our best guidance; whether people want to listen to it or not, that's up to them.

Understood, thank you very much.

Stephen Furlong, Davy Research.

Just I noticed, just a question on the capacity growth.

I noticed in the winter you planned growing by 1%.

I think before you were saying 3%, so there is some this winter capacity cuts.

In the current schedule, what is the plan in terms of grounding aircraft?

You grounded 80 last winter or have you decided on that?

And secondly, just related to that, have you factored that into the cost guidance in the second half of the year?

We factored in the loss guidance for the second half of the year, Steve.

At the moment it's a little bit early to be able to say precisely how many aircraft we will ground.

Last year it was 80; there are still some negotiations ongoing with airports and with governments around Europe.

It could be a little less than that.

It could be a little bit more than that.

Certainly we are reallocating aircraft at the moment that we are taking out of Spain, particularly the Canaries, Madrid, and Barcelona.

Some of those will get reallocated -- we will be announcing further growth or some new [rules] activity later on this week and early next week later.

So it's a bit fluid yet but I think a reasonable number at the moment will be the 80 aircraft.

It could be bit higher, it could be a bit lower.

Okay, great.

Thanks a lot.

Jim Parker, Raymond James.

Good afternoon, Michael and Howard.

Would you update us on the breakdown of your currencies as a percentage of the expenses that are in USD, sterling, and euro?

Howard, do you want to take that one?

Well, the easiest one, Jim, is sterling.

It's about 25% of revenues and about 25% of COGS.

So although we are not fully covered, we are almost entirely covered by that.

And in terms of our fuel costs, that's our biggest portion of our cost base and if you look at Q1, Jim, it's 47%.

This year it looks like being about 40%, a bit over 40% of our total costs and that's mainly our dollar exposure.

We do have some other smaller exposure on maintenance, aircraft insurance but they are really quite small.

Okay, Howard, what hedging -- how much hedging have you done with currency; hedging the euro against USD?

We are fully hedged for the remainder of this year.

Our average rate is 140 for CapEx and 138 for our fuels.

That's to March 2013 (multiple speakers) this year.

Assuming you don't require any additional aircraft, what would be your fleet growth in fiscal years 2014 and 2015?

It's a bit below -- it is below single digits, Jim.

It depends on how many aircraft we sit on the ground in each of those winters.

At the moment this year, we take delivery of another 11 aircraft in the quarter three, calendar quarters three and four.

That would give us about 4% headline growth next summer.

And then we would plan over that the following winter and maybe the following winter again to not ground up to 80 aircraft.

But the situation would be fluid depending on the outcome of negotiations with airports and growth incentives we may get.

All right, thank you.

Gerard Moore, Merrion.

Good afternoon, gentlemen.

I have three questions, please.

First of all on the yield, so you've just increase the yield by 4% in the quarter there and the guidance I think for Q2 is for growth of 4% to 7%.

Could you maybe give us a bit more color as to what you are seeing on the ground that makes you confident that the yield in Q2 will be better or stronger than the yield in Q1?

Is there any particular region that's doing better than another?

Are there any other factors that you could explain to us?

The second question is probably for Howard, just you gave us there details on the dollar hedging for FY '13.

Could you give us an indication of your dollar hedging for FY 2014, just at what rate and what percentage you are at?

That would be great.

And the final question is just on the guidance for the nonfuel unit cost inflation to be flat this year.

Is that flat taking into account currency movements or is that flat on a pre-currency movement, pre-sterling movement like we saw impacted this quarter?

Thanks.

Okay, Gerard.

Dealing with the first part first, the yield, a bit more color in Q2.

There's a couple of factors that influence that.

Clearly one of them is that we have most of the new bases where there's been a lot of intense price competition in Q1 are more up and established, and benefiting from peak period traffic flows during Q2.

We have also seen a strong bookings in recent weeks from Ireland and the UK to Spain, Italy, places like that which we attribute to some benefit from the (expletive) weather we've been having up here in the northern part of Europe, and also in the UK a desire to get out of London during the Olympics.

But I don't want to overplay it.

Like you know, we are being fairly modest or cautious in the yield outlook.

As we said, we went to some pains on the full-year results to say the yield growth is a little bit flatter, it's a bit softer than we have seen in the prior year.

But I think it's important to stress yields are rising at the moment but the rises are not significant -- are not enough, sufficient enough to fund the significantly higher oil prices.

Nevertheless traffic is growing and yields are growing.

We do expect a slightly stronger yield performance in Q2 and we say that now at the end of July so we have a good bit of visibility on Q2.

Howard on the hedging -- (multiple speakers)

We don't have any cover for FY 2014.

For the 50% of H1 we have hedged, so we are unhedged at the moment.

If we were to hedge at current prices, that would be adverse about 5% on unit cost.

And the other question --?

Nonfuel unit costs were flat.

Yes, nonfuel unit costs.

Yes, of the 3% in Q1, about 1% was the impact of sterling or a bit over 1% and one or two smaller one-off costs in Q1 but the real underlying rate is a bit over 1%.

So we are saying broadly flat for the year that could be up or down 1% or so.

What we think for the back end of the year is the impact of shorter sectors.

So we expect sector lengths to start to fall looking at the schedule as it's set at the moment, which will help keep unit costs down.

Okay, maybe just one follow-up question.

How much do you expect the sector lengths to fall in the second half of the year and is that also one of the reasons you expect the yield to be slightly down?

In H2 I think you mentioned that earlier on?

It's important for the stages -- remain still at this stage subject to the concluding discussions and negotiations with various airports, new route development, some possibilities of new route launches in the second half of the year.

It is just too early to say yet.

We'll have a much better fix on that by the time we get to the end of September/October, we know what the actual -- what the schedule looks like.

Okay, thanks a lot.

Peter Hyde, Liberum Capital.

Just a couple of questions then for me.

Firstly, ancillary revenues 22% of total revenue.

Do you think it's going to come back to 20% on your long-term goal or do you think it's kind of a shift in consumer mentality that they are happy to pay for ancillary type stuff but not for the [Fed]?

Second point is you couldn't give us roughly how much capacity is at these new bases, could you?

No, to the second part of the question, off the top of me head I can't but we will come back to you.

If you want, you can do a follow-up later on, Peter, with investor relations here and will work to give you some numbers on capacity at the different bases.

On ancillaries, don't get too hung up on it.

We still believe that over the medium term it will be about 22% -- sorry it will be about 20% -- 22% is marginally higher than we would expect it to be.

But it's a function of the fact too that the yield growth in the Q1 wouldn't have been as impressive as it was in Q1 year of the prior year.

I still think that for the purpose of your modeling ancillaries at around 20% over the medium term is reasonable and it may hover at or about that number.

We have been a little bit higher than that for the last year or two partly because we have been getting good at separating out new forms of ancillary revenues like the priority boarding, the reserve seating has been working particularly well, and that will continue but it's also a function of the moving yields.

Can I just ask one other question then if you want to answer it (multiple speakers) which is Stansted.

There's sort of chat about the fact that you would be willing to take a 25% stake, is that right?

What are your thoughts about investing in airport infrastructure?

I think we talked to about five different consortiums who are interested in bidding for Stansted.

Some of them are very keen to get us to sign up to a traffic growth agreement as a precondition for their bidding.

Some of them want us to take a portion of the consortium to kind of demonstrate our commitment to delivering traffic growth etc.

We are not particularly interested in bidding for airport assets.

It's not our business but we don't have any difficulty as long as -- we don't have a difficulty taking a minority and it might be a sizable minority stake in Stansted Airport as long as it's with a like-minded partner that is committed to reversing the doubling of airport prices that was imposed by the BAA monopoly four years ago, which has led to five years of unprecedented traffic growth over there.

We think that there is very significant traffic growth available to Stansted but only on the basis of reversing those price increases from five years ago, which would still make Stansted a very profitable long-term asset.

I think the real opportunity for a consortia particularly ones working with Ryanair is that we would not require any significant CapEx there to be able to take the traffic that has fallen from 23 million to 18 million in the last five years.

We think it is capable of going from 18 million back up to probably 28 million, 29 million passengers whereas it has on the current runway and terminal infrastructure, it could go to 30, 35 MPPA.

It also has a planning permission in place for a second runway.

Although that was part of a previous BAA scam to blow something of the order of GDP2 billion or GBP3 billion building a second runway.

Thankfully that has now been abandoned.

But we do believe, frankly we support the general campaign at the moment over there for additional runway capacity to the Southeast.

It should not be focused around Heathrow although we are concerned that the BAA, Ferrovial and the BAA are trying to sterilize the land around Stansted before they sell it to prevent a second runway being constructed in Stansted partly so they can force the authorities into constructing a third runway at Heathrow.

We do believe and I believe in the lifetime of the current useless government in England that there will be additional runway capacity in that Southeast will be allowed to proceed.

Logically that should be the second runway at Stansted followed by a third runway at Heathrow and then a second runway at Gatwick.

Those that have bought houses beside airports in the Southeast can get over themselves.

Okay, thanks.

Geoffrey Collyer, Deutsche Bank.

If somebody has got a house that might get affected by a runway in the Thames, please build one at Stansted or --

Not a hope of a runway in the Stansted ever.

Two questions.

Can you tell us specifically what has caused you to lower traffic growth guidance from 3% in H2 to 1% or is the 4% in the press release a typo compared with the 5% in the slide?

And the second question?

The second question is could you just remind us what percentage of your business is the outward bound from Spain please?

Sorry, that didn't come through.

You said (multiple speakers)?

Can you just remind us what proportion of your business is outward bound traffic from Spain?

From Spain?

Yes.

Okay.

Certainly write that down.

Let me give you the first one, traffic guidance.

Yes, we have slightly cut back the traffic growth in the second half.

Again I think it's a response to the likelihood that we may take some additional capacity out of the Spanish market in response to the price increases at Spain, at Madrid and Barcelona.

Also the Canaries government has welshed on a five-year growth agreement with us, which -- and the Canaries are quite a big winter destination.

So we are cutting significant capacity in the Canaries.

We are not closing anything there but we are cutting significant capacity from the Canaries this winter.

We're also having some interesting discussions with the Moroccan government who -- there's a fairly interesting legal framework down there but -- who wants to withdraw our -- the license agreement from our handling agent at the Moroccan airports without notice in favor of imposing a state-approved handler who would of course handle our flight for something like a 100% price increase.

So tactically we are engaged in some discussions with those airports this winter that may result in a slightly cutback rate of traffic growth.

And I think originally we were heading for 80 million this year.

We have cut that back to 79 million now.

Some of that could be reversed depending on both what had the outcome of these discussions with those airports and also if anybody else goes bust.

Last week we saw OLT, which would be another smaller airline in the Polish market had closed, and we think there will be more of those this winter.

Like Malev closure in February this year, if there is other -- but not necessarily unforeseen -- but if there's other short-term opportunities by having the aircraft aground, sitting on the ground during the winter, we can exploit those as and when they arise.

Outbound out of Spain, and I would excluding in there for the domestic traffic within Spain, we would estimate outbound from Spain is about 7% to 8% of total traffic.

Okay, thanks very much.

(Operator Instructions).

Tim Marshall, Redburn.

Could you give us some idea of what the year-on-year change in fares in the first quarter was from your existing base?

I'm just trying to get an idea of (multiple speakers) --

Sorry, Tim, we can barely hear you.

Can you hear me now?

Just speak up.

You are quite faint on the line.

Can you give us some idea of what the year-on-year change in fares was in the first quarter, your existing bases just to get an idea of the impact of new routes and then the impact of the underlying softness in those fares?

Tim, we couldn't answer that question.

We don't break it down between what was existing bases because there's so much capacity reorganization even with an existing bases, we are chopping and changing routes at a base that would have been new bases last summer are being chopped and changed.

We are continuously -- I think in the last 12 months, we've opened something like nearly 400 new routes but we've also closed about 200 routes.

So we were -- we don't even analyze it ourselves internally between what is existing and what's new.

But I think it's safe to say that one of the kind of unique features of the last quarter has been we've opened up some new -- we've moved into places like Budapest in Hungary.

Last two weeks ago, we opened up in Warsaw, Modlin.

But the news I think in both of those airports is that Wizzair, which has kind of seen itself as being Central Europe's low fares airline has for the first time decided it wants to go toe to toe with us at those airports, so be it.

Everybody is entitled to make some stupid decisions, but it means that we are having some very low-fare competition with Wizzair over there that is resulting in very high load factors.

But our competitive position at both Warsaw and Budapest is our fares will be 50% cheaper than Wizzair's.

It means we are offering some routes in Poland from Warsaw at the moment at a fair of PLN1.

I don't know what that translates into in euros but it's (multiple speakers) EUR0.25 fares.

We also have some equally -- I think we are down to about HUF99, which is something similar.

That will continue until higher fare airlines like Wizzair realize that they can't compete with Ryanair on price.

And certainly given their lack of profitability in the history of Wizzair that they can't compete with us on -- they don't have a balance sheet or they wherewithal to compete with us on costs either.

So as long as that continues, it continues but it does translate into higher than expected load factors but significant lower yields.

We think some of that may well continue into the winter.

But it would result in us continuing to build.

I think we will add more routes at both Budapest and Warsaw this winter and for as long as Wizzair or anybody else wants to compete with us on price, we would -- I always welcome price competition.

It results in much better deal for consumers and it means the competition blow their brains out even faster than would normally be the case.

Great, thank you.

(Operator Instructions).

We have no further questions at this time.

Okay, thanks.

With no further questions, we will wrap it up there.

As I said, the results are on the website, Ryanair.com.

I would not get too upset of the Q1 numbers.

We did guide for profits to be down.

It is a function of an upward spike in fuel costs in the Q1 compared to a low prior-year comparable.

The yield growth has been modest.

We expect through the remainder of the year yield growth to be modest but there won't be the same fuel cost penalty -- cost penalty in Qs 2, 3 and 4.

Other than that if anybody has any further questions they want to ask, please feel free to route them back through Howard or the investor relations team here and we would be happy to take your call.

Okay, everybody, thank you very much for participating.

Look forward to talking to you again shortly.

Bye-bye.

That will conclude today's conference call.

Thank you for your participation.

You may now disconnect.