Ryanair Holdings PLC (RYAAY) 2013 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, ladies and gentlemen.

Welcome to the Ryanair Q3 conference call.

You will have seen on the website this morning on the red line we put up the results, the investor presentation, and also the detailed numbers.

So I propose to not read it out as is traditional.

We will just move on.

I think we will highlight eight key themes, and then Howard will add a couple of points, and then we will open it up for questions and answers.

So I will assume all of you have read our IMS, which was released some seven hours ago.

I think there are eight key themes I would like to draw your attention to as follows.

Firstly, Q3 was a very solid performance.

After-tax profits up 21% off a small base, and per passenger revenues grew 11% as passenger numbers jumped 3% to 17 million.

We have hit an all-time high in terms of customer satisfaction statistics.

93% of flights for the past nine months have been on time, lost bags are now running less than one per 3000 passengers carried, and we canceled less than four flights in every 1000 for the nine months to December.

In our last 20 years of our history, we have never performed as well.

Business passenger volumes continue to build strongly and now exceed 20% in most of our major markets.

The feature we have drawn attention to is a survey carried out recently in Spain where, bear in mind, Ryanair is, by some considerable distance, the number one airline, and 22% of passengers traveling with us in Spain were traveling on business.

The balance sheet remains the strongest of any airline in Europe.

We expect a net cash position by fiscal year-end at March, despite having paid out almost EUR500 million in a special dividend to shareholders in November.

We own outright over 70% of the fleet of 305 young Boeing 737 aircraft.

We welcome the sale of Stansted Airport to Manchester Airport Group.

We worked with MAG successfully to grow low-fare traffic at three of their existing airports, Manchester, East Midlands and Bournemouth.

Look forward to working with them to grow traffic, low-fare traffic rapidly at Stansted as and when they get control of it.

I understand that that process is likely to take until the end of calendar Q1, so we expect to be talking to them sometime in March/April.

We have, as you might imagine, no update on the Aer Lingus transaction, other than what we have publicly said, that dialogue with the European Commission competition authorities continues.

We submitted a radical remedies, an unprecedented remedies package, which involves a divestiture -- two multiple upfront buyers actually coming to Ireland, opening bases here in Ireland and providing competition and customer choice to a combined Ryanair/Aer Lingus.

We won't be answering any questions on the Aer Lingus situation because we are prevented from doing so by the takeover panel.

There's a couple of other smaller issues.

Firstly, there has been some speculation last week as there was obviously a lot of champagne being handed around at the Aviation Finance Conference here in Dublin that a Boeing order was imminent.

There isn't any imminent Boeing order.

We continue in dialogue with Boeing, which has been the case for many years now.

We've just taken delivery of the last of the existing order, and we issued a statement last week saying that there was no truth to any kind of imminent order speculation.

We are in dialogue with them, but I wouldn't expect anything probably before the end of calendar 2013 or maybe early 2014.

And that is about as far as we will go with Boeing.

Some people have got a bit concerned this morning about our comment on softness in bookings in the first two, three weeks of January.

I wouldn't get overly cautious about it, but as always, I would caution some of the analysts against the irrational exuberance.

We did have a very strong Q3.

Close-in bookings were strong.

In week two and three of January, at best they were a little bit weaker.

We were opening up some more cheap seats than we had been in November/December, and I wouldn't put it any more than that.

I would expect that bookings will settle down as we move into February, through February and March.

The first half of Easter will be in the Q4 numbers, so March should be okay.

But obviously, our guidance on yields for the fourth quarter depends heavily on the close-in bookings as we run into the first half of Easter at the end of March.

And so we're not able to really give you any further clarity on that at the moment, except there has been a little bit of softness in recent weeks.

I think it will be short term, but I think it will because Easter will be, we expect will be strong.

I think there is a longer gap between Easter and the summer peak, so April and May may be a little bit weaker.

But the underlying trend is still that we are -- there's a lot of capacity discipline in Europe.

There's still a lot of restructuring going on.

We're expecting to hear from IAG and Iberia significant capacity cuts at the end of January.

There will be more restructuring, we believe, in SAS in Alitalia.

Those markets, particularly in Central Europe, Italy, and Spain where Ryanair is large, we would continue to be beneficiaries of that.

Our own capacity growth will slow down this summer.

We have taken delivery of 14 aircraft from Boeing prior to Christmas.

Those are the last of the deliveries.

We expect, and I should caution everybody, that traffic in the fourth quarter will be negative for the first time because we are sitting slightly more aircraft on the ground this winter than last winter.

We expect to carry about 400,000 fewer passengers in Q4, a decline of about 3%.

That will be skewed to about 100,000 passengers in January, about 250,000 in February and about 100,000 in March.

So please everybody don't panic when you see the January traffic numbers will be below last January's numbers.

Having said that, again, I think the underlying expectation for the remainder of this year is reasonable.

So despite the softness in January, the bookings for the first nine months have facilitated a rise in the full-year profit guidance to a new figure of up to EUR540 million.

The previous range is EUR490 million to EUR520 million.

That is heavily qualified that it depends, and we don't yet have visibility of the close-in bookings for March, but we think it's a reasonable estimate where we will be at this stage.

I think the, again -- so, yes.

Before I open it up to questions, I'm going to ask Howard to make a couple of remarks at the end of my remarks.

Before we do the questions and answers, can I please, in the interest of sparing everybody a lot of time on the conference call, we won't be answering any questions on Aer Lingus today.

Also, this is the traditional annual conference call where everybody asks us about our yield and profit guidance for the next fiscal year.

We don't have any, and we won't be answering any of those questions.

We are still focused on this fiscal year.

Unlike other airlines, our year-end is March.

We're just -- we're still working on the budget for the next 12 months.

So whereas we can give you some guidance on fuel and currency for FY 2014, we are not answering questions, so please don't ask them on yields or profit guidance for Q1, Q2 or any of FY 2014.

And with that, that exhortation, I will now ask Howard to give you the next couple of comments as well.

Howard?

Thank you, Michael.

We are just going to deal with two matters.

First is in relation to currency.

If you look at our 8% increase in average fare in Q3, of that, the strengthening of sterling as to euro accounted for 2% of that.

Obviously, on the far side, we have a significant element of sterling cost.

So our total cost per passenger, excluding fuel, went up by 4%, and about 1% of that is due to sterling.

I will just turn to, then, one other matter, which is in relation to fuel.

Our fuel bill was higher than we would have expected.

We guided that the increase in Q3 would be just shy of EUR50 million.

It ended up at EUR80 million.

The reasons for that are three-fold.

Firstly, we traditionally only hedge 90% of requirements both for currency and jet fuel.

So obviously we had to buy the balance of the 10% unhedged during the quarter when prices were higher than what we had hedged already.

And also, it was the period when you will recall that the euro significantly weakened against the dollar and was a level of about EUR1.21 to the dollar.

So that additional fuel unhedged had to be purchased at a higher price.

The second part of that is in relation to the level of activity.

We had originally guided that passenger volume numbers would rise by about 1%.

We actually ended up 3%, higher than we expected, as we launched additional sectors to cope with the strong demand we saw in the run-up to the Christmas period.

This, I suppose, is one of the positive sides of having 80 aircraft grounded during that period.

We can take advantage of commercial opportunities as we see them.

However, obviously we had to buy more fuel at a higher price, and obviously, we had the weaker euro as well.

So the combination of those three factors meant that our fuel bill was about EUR30 million higher than we had originally anticipated.

Looking into the fourth quarter, our guidance we gave in November is still intact, and we think that fuel costs will be broadly flat for the year.

While I am talking about fuel, I might as well cover offset into next year.

We have a reference to it in the notes and also on the slides.

So some positive news insofar as we've had a 14% increase in fuel prices this year.

We expect that to moderate, and we expect the cost per passenger for fuel to rise by about 5% for our fiscal 2014 for the volumes and the currencies that we have hedged.

And we gave an indication that our average price for fuel was about $97 per barrel, and the currency will be $1.32 to the euro.

So with that, I will hand it back to Michael for general questions.

Thanks very much, Howard.

Okay, Sarah.

You can open up to questions, please.

(Operator Instructions).

Neil Glynn, Credit Suisse.

I just really wanted to focus on the new bases that you have launched over recent months.

Just interested in terms of whether you are seeing airports increasing the attractiveness of terms on offer as their own volumes disappoint and how that might shape your thinking in terms of root churn over the next year or so or even into the summer?

Thanks.

We are seeing increasingly competitive approaches from not just new bases, but also from existing airports and bases looking for further growth.

As you'll see, we've announced we have six new bases already announced for 2013, two in Morocco, Fez and Marrakesh; one in Greece; one in Croatia; one in Poland; and one in Holland, in Maastricht.

We're also seeing an improvement in terms being offered to us by existing airports with the notable exception of Spain where the charges -- it's run by a Spain government-owned monopoly, AENA, who are increasingly raising fees.

I think you will see a significant decline in traffic across the Spanish airports in the next 12 months, but that does -- and you will also see a higher rate of churn within Ryanair.

I think we will be much more disciplined at focusing on taking marginal capacity or marginally profitable capacity out of certain airport destination and base airports and switching it to new destination airports and new bases.

The focus for that will still be, for example, this winter we grounded up to 80 aircraft.

I expect next winter that that will be down around 40 and the following winter down around close to zero, allowing for maintenance adjustments.

That will, even with no more aircraft orders, allow us to grow at a clip of maybe about 3% a year for the next two fiscal years.

But that will involve us churning to or opening up new bases and new destinations during the winter and, then in order to maintain those operations into summer of 2014 and summer of 2015, churning a bit more of what we did in summer 2013.

So the deals are getting better with the exception of some of the statist airports in Spain.

Ireland will be included in that.

I think, for example, the purchase of Stansted by MAG will be positive there.

We believe there is significant traffic growth available at Stansted, but only when the price increases that were imposed by the BA monopoly in recent years are reversed.

And that we welcomed.

Obviously the "minded to" document issued by the CAA, which notably found that charges at Stansted were higher than the competitive market would allow or would sustain, and we think Manchester will be good at addressing those issues and particularly at stimulating growth.

We have a number of deals with the MAG group at both -- at Manchester, East Midlands and Bournemouth, all of which are targeted around traffic growth and better airport cost deals.

So I think the answer your question is two-fold.

Yes, there will be a higher rate of churn, and yes, the airport deals are getting better.

Great.

Thank you, Michael.

Thanks, Neil.

Tim Marshall, Redburn.

Can you give some color around the characteristics of the softness that we've seen in January?

And then I just wanted to ask about the reserve seating and just how much more we can expect from that as we move into the new year?

Yes.

Thanks, Tim.

It's hard to give you a lot more color.

We are giving you pretty much live information.

There is a danger -- if we go out as we've gone out this morning in our numbers here, that the average fares are up 8% in the fourth quarter, and ancillary revenues are up 15%, revenue per seat is up some 15% in the third quarter, significantly ahead of the competition, that you'd all go mad.

So I think it's not unhelpful that there's been a little bit of yield softness in the weeks two and three of January.

There is a bit of yield softness.

It's very hard to give you any more color than, look, we've had to open up some -- a bit more.

I think you'd characterize it in Q3, in the road to Christmas, we were closing off cheaper seats because of demand.

We were trying to get -- not limit demand, but we were responding to on a daily basis, the bookings were coming in a bit stronger than we had expected each day.

We're closing off, we're closing off, we're closing off.

Really in weeks two and three of January, the bookings were marginally weaker on a daily basis.

We were opening up a little bit.

We've seen competitors opening up a little bit.

Which markets would that be in?

Would it be in --?

Generally it is across the piece.

But it is certainly more pronounced in Italy and in Spain, in particular.

But we are a big operation that is spread across 28 countries.

So there is never one bad country market that stands out.

The UK has always also been a little bit weak immediately post-Christmas.

If you wanted my subjective view, and all I'd give you is my subjective view, I think there's a little bit of, everybody is a bit nervous after Christmas; everybody is broke in the first two weeks of January.

And I think it's been a bit softer through week two and three.

I think it will settle down as we move through February and with Easter coming in March.

We think Q4 will be fine.

I know I have been, just in commenting on it, I think on the piece that some of the research that came out this morning, Tim, I think the only thing I would disagree with in your analysis is, bear in mind we are coming off a very strong Q3.

So having a flat Q4 is partly a function of having a very strong Q3, and you just need to allow a little bit for that.

But it's hard to give you much more color than -- we had a very strong Q3.

This is the airline business.

It never continues to be very strong for long in this business.

I suspect we've had a little -- it's a bit softer in the middle of January.

I'd be cautious, no more than that, but I suspect things will settle down as we move through February and into March.

I then think there will be another period of weakness at the end of April, May because Easter this year is early and straddles Q4 and Q1.

The back end of April and May, which would normally be characterized by Easter, will be a little bit weaker again.

But a lot depends on how much more capacity gets taken out of the system by Iberia, by Alitalia.

We know we don't have a lot of capacity growth this year.

I think coming into the summer, most of the low-fare airlines aren't taking a lot of new aircraft deliveries that aren't already up and running.

So I think the underlying trend of demand and fares probably on balance is upwards.

But I wouldn't -- I'd be cautious, but I wouldn't get too upset about the yield weakness in the first two weeks of January.

In terms of the reserve seating, we continue to be impressed by the reserve seating service, had very positive feedback from passengers about -- particularly on the longer routes, although, funnily enough, it is spreading now into some of the shorter routes at Dublin Gatwick, some of Dublin Stansted, the businessy-type groups seem to appreciate, and the domestics in Spain as well.

What has been interesting for us, as you know, we have been slightly different from easyJet, for example.

Because we do 25-minute turnarounds and the punctuality is our focus, we continue to operate with priority boarding, and then we put in reserve seating as kind of a supplementary service on top.

Reserve seating was available on eight -- on four rows of the aircraft.

We've recently extended that from four to six rows by adding another two rows.

And as demand builds for that, I think we are prepared to look at extending it maybe to another two rows.

It might go from six to eight.

At that stage, I think -- but again, it's subjective -- that we will run out of demand or the number of people who will pay an extra premium for reserve seating -- you are selling the [outgoing] exits and the first, basically first four rows of seats on the aircraft, or maybe the first six rows of seats on the aircraft.

I am not sure there is much more demand for reserve seating other than that.

But if there is, we will keep -- the great thing -- the way we are managing priority boarding and reserve seating is it's ultimately a flexible product.

If there's more demand for it, we will keep rolling it back.

I think we are unlikely, certainly, in the medium term to go to entirely allocated seating.

We don't see any particular benefit to it, and I'm loath to go back to a situation whereby people knew they had a guaranteed seat, and all of a sudden they don't show up at the boarding gate and we are having to remove their bags, which is why we originally introduced free seating in the first place.

And if you look at the last nine months, where we have had 93% of all flights arriving on time, there is no question in my mind that the very strong growth in our business traffic is a function of an increasing size and scale across many of the major European countries, but also the realization all the time that we are always on time.

The greatest area of growth we have in passenger complaints is from people complaining about the on-time bugle music, and would we ever turn it off, that it is very irritating.

And I think, frankly, the more we can encourage that kind of flow of complaint letters, the better.

Understood.

Understood.

Can I just slip a quick one in for Howard?

Please, go.

With the arrival of the final aircraft from the current order, how quickly should we expect the cash tax rate to reach the income tax rate?

I see it was a liability in the recent quarter.

Well, certainly, obviously, as our program unwinds, the level of capital allowances will fall off.

We have significant allowances that we've obviously taken from purchasing 250 out of the 305 that we operate.

But if we don't do something in the next couple of years, your cash tax rates will inevitably rise.

It's certainly several years away.

Okay.

Thank you both very much.

Thanks, Tim.

Stephen Furlong, Davy Research.

You might just go back to Stansted.

I'm just interested in where you see the medium-term potential for Stansted.

I guess it depends on the price, et cetera, but obviously, volumes have come down a long way in that business.

And just generally going forward over the medium term, do you think that growth is going to come from more replacement growth with all these restructurings going on in Europe in terms of the network airlines?

I mean, some of them still have substantial point-to-point businesses in Europe, even with the latest restructurings.

And just the last one, I was just wondering in terms of were you surprised with the level of ATC cost increases in Italy or, indeed, the Spanish airport charge increases and presumably that influences what you do with the network and where you put the aircraft as we go forward into the summer and into next winter?

Yes, thanks, Stephen.

A couple of questions in that.

I think that the potential, just to summarize on Stansted, I've seen some criticism of the price that MAG paid of GBP1.5 billion.

We thought that is where the price would ultimately finish up.

And certainly if we had not been precluded from the bidding process, our numbers are based on that it would finish up at GBP1.5 billion, so we weren't surprised by the number.

I think there is a unique opportunity in Stansted for two reasons.

One, the traffic there has fallen by nearly 25% from nearly 24 million passengers to 17.5 million passengers in the last five years, during which the BAA monopoly doubled the airport charges on justified via Stansted.

I think there is a significant opportunity to Stansted to get that traffic back or return traffic to 24 million, but it will have to be done in the context of significantly lower costs than are presently available at Stansted.

So one issue kind of that militates against that return to growth is obviously UK APD, and particularly there was a large slug of that traffic was UK domestic routes -- Belfast, Edinburgh, Glasgow -- which is really hammered by APD GBP12 both ways.

So it will be a little bit harder to build that growth back.

We think it will come largely by airlines like Ryanair significantly adding capacity.

I would say it's 50% of additional flights on existing routes, additional frequencies, and about 50% will be new routes and new destinations.

And obviously to incentivize an airline like Ryanair to significantly lower yields, we have to have lower airport costs.

I think the MAG group understand that, and we look forward to discussing it with them.

I think the big opportunity that exists for MAG and Stansted, though, is that Ryanair accounts for about 70% -- 75% of the traffic there now -- sorry, 70%.

easyJet accounts for about 10%.

So between us, I think we are about 80%.

The low cost of processing a Ryanair passenger now because we require so little check-in space, because we require so little baggage hold space, because we require so little waiting on a rival carousel space, and because all of our passengers are routinely disciplined into one carry-on bag, security processing is a much lower-cost and faster process.

I think there is an opportunity -- historically, it was assumed that the capacity, the terminal capacity at Stansted was about 30 million passengers per annum NPPA.

We estimate now that it's about 40 million NPPA without spending basically a $0.01 either on the runway or on the terminal building at Stansted to effectively almost double its traffic.

And I think there is a bill upside for a sensible airport operator like MAG to look at Stansted and say, I think we can get to 25 million, 30 million passengers here in the next five to 10 years pretty readily by working with the existing airlines.

I mean, clearly you have been trying to track some of easyJet's business back from Southend.

But I think the difficulty for that is easyJet don't generally length to compete with Ryanair head-to-head at our airports because they can't match us on price.

But, you know, we wouldn't be exclusive about -- we would welcome all comers to Stansted, and the more, the better.

So I think Stansted has a very significant near-term growth opportunity, and we think MAG is probably as good an operator as you are going to get in looking at that.

We have been surprised by the increase in Italian ATC costs, which are outrageous, and Spanish airport costs, which they doubled the charges at the two main airports, Madrid and Barcelona.

It's going to bring about -- the AENA airport in Spain last year lost 10% of their traffic.

We think this year that will accelerate to about 15% of their traffic, and the declines will continue until eventually they get the message.

I noted that AENA last week reported a 23% increase in profitability, and the Spanish government claiming credit for it -- it's very easy to increase your profits by 23% when your local government gives you a -- doubles your pricing in a monopoly situation.

I think in a country where you are 50% youth unemployment, a Spanish government in the not-too-distant future will realize that tourism, which is one of their biggest industries and one the industry is capable of creating entry-level talks, it's more important than fattening up AENA for a sale or the profitability of being for sale.

But I think it will continue to be an issue for us.

And I wouldn't underestimate the extent to which the Spaniards and the Italians, in particular, would take these near-term what they think are price increasing opportunities.

I think, though, that that will help us with our rates of churn.

If you look at what has happened in Madrid, easyJet has closed the Madrid base.

We are now running number two airline to Iberia.

Iberia looks like they're going to announce significant capacity reductions at the end of this week.

And I think that will happen and maybe transfer some of the short haul stuff to [Buwailing].

And it will simply help us to churn.

I think there's never been a better time for us in the next year or two where we don't have additional aircraft.

If airports in Italy and Spain are significantly increasing costs, we will simply churn a little bit more.

We will still keep a presence there; we won't close the airports, but I think you will see that reflected in the yield performance over the next year or two as well.

That's great, Michael.

Thanks, Stephen.

Who's next?

Jarrod Castle, UBS London.

Two, if I may.

One, just you did make a mention that in some of your smaller areas or cities such as Budapest and Warsaw you are doing well, but I guess you're saying you have very low prices.

Can you just talk a little bit about what's going on in terms of the competition, and also if you annualize things now, where are you?

Where do you see things in terms of profitability in Hungary and Poland?

Secondly, clearly you are doing quite nicely or you are doing very well on your business passengers, but you don't really seem to do any marketing, or are there any initiatives, I guess is the question, to drive that further?

Or is it just passengers who are naturally drawn to you?

Thanks.

Thanks, Jarrod.

Budapest and Warsaw again, I think they are growing strongly.

They would not be our two most profitable bases, although we don't lose money at either of them.

And we have cut back significantly in Budapest where we announced cutbacks this winter.

We would expect both of them to be operating at breakeven.

I think until we can interest the authorities in Budapest in low-fare routes growth initiatives, I think it's unlikely that we'd grow further in Budapest in the moment.

Warsaw, we are very keen to continue to grow strongly at.

We have our individual problem with the runway in Mauldin Airport on 23 December.

There's a problem with the concrete on the turn-off areas, so they can't guarantee or they closed effectively closed the airport originally until the end of January.

It now looks like there's a problem with the concrete in the turn-off area that can't be addressed until probably, I suspect, April or May.

They have to wait for the temperatures to rise over there before they can pour concrete and address this issue.

So it looks like we will be operating to and from Chopin, I'd say certainly until the end of March, maybe the end of April, end of May.

We have a meeting coming up the middle of this week with the authorities in Warsaw and with Maudlin to assess how we handle that.

But we are now Poland's number one airline.

I think in most markets in Central Europe, we are significantly larger now than [Laz] or Wizz in Poland.

We'd be running with the costs.

We were number one in Budapest last year, but with some of the capacity cuts announced for this summer, we will be running number two behind Wizz Air.

But I think that's about the only market I can think of in Central Europe where we are not number one in head-to-had competition, where ever we run into competition, it is usually with Wizz Air.

On the business traffic, I think it's important to understand some people tend to forget the scale of what we do.

We are carrying 80 million passengers.

We tend to be the number one or number two airline in almost every market or airport we serve with a big spread of routes and frequencies.

I think it's a very -- particularly in the current economic downturn, our combination of a lowest fares, brand-new aircraft, terrific and very reliable punctuality.

Allied to some of the more recent initiatives we have taken, such as the reserved seating, the priority boarding, it makes a compelling business case.

We don't, unlike other airlines, make a big song and dance about catering to business people because they -- the sensible business people find us on their own without being pandered to.

We won't be opening up business lounges.

We certainly won't be going back onto, while I live and breathe, GDSs.

Because we believe in passing on the business traveler directly to savings, not passing them on to some intermediate travel management company, which seems to be estimate to the low-fare model.

But I think if you look at airlines like Southwest in the States who over time have built a very large business travel function, it has been built through a combination of low fares and exceptional passenger service.

And the passenger service consists of high frequency on-time flights; don't lose the bag; and minimize the cancellations.

And we are very much delivering that.

I think the communications from us in recent years, which have always been about price, price, price, price, was apt and appropriate when we were growing very strongly at double-digit rates per annum.

I think increasingly for the next year or two when we're not going to be growing rapidly, we're not going to be opening up a lot of new airports, I think we need to communicate a more sophisticated message.

And that is actually that we have a very high, 20%-plus business percent business traffic composition.

And to put that in context, it means we are carrying more than 15 million business people every year, far more than any other European airline.

And we see that as a business segment that will continue to grow.

But we won't -- whereas we will be communicating with them, we won't be pandering to it, if that makes any sense.

Thank you very much.

And the other thing we get feedback is business travelers like to sit at the front of the plane on the Wizz Air seating.

But they also like the airports because, in many cases, flying into a secondary airport means that they can get to the airport very, very quickly and get on with their onward journey.

So that combination of the package, as Michael outlined, seems to be translating very, very well.

Thanks.

Thanks, Jarrod.

Next question please.

Jim Parker, Raymond James.

You may have covered this, but I want to make sure if we look at your competing capacity in city payers, actually, it has been declining for four years in a row.

There doesn't seem to be much different in recent quarters.

So are you suggesting that your average fair has gone up because of the greater mix in business traffic?

And if that is the case, you are 20% now, what was it the same time a year ago?

You broke up at the first part of that question, Jim.

There was something about city payers?

We've done the analysis before.

It appears that for four years in a row, competing seats have come out against Ryanair.

So there doesn't seem to be anything new there.

So I'm curious about your average there.

Has it risen because of the greater proportion of the traffic that comes from business passengers, and what were business passengers saying a year ago as a percentage of the total?

I think the honest answer to all of this is the greatest driver of our fair performance in Q3 has been price increases by the competition to compensate for significantly higher oil prices and capacity reductions in some of the larger markets.

You have markets like, for example, say Liverpool in the UK where easyJet are increasingly switching capacity into Manchester and away from head-to-head competition with us.

You've capacity cuts by Alitalia and Iberia in Spain and Italy.

We charge significantly greater on the ground than they have yet announced.

We are looking, for example, now at more flights in Italy down to the islands Sicily, Sardinia, in Spain to the Canaries, although Spain has been certainly stunted by the airport cost increase of the last year.

So I think the biggest driver of the fare increase, average fare increase has been the competitive environment and the higher cost of fuel.

But I think there is undoubtedly -- and I think there is a great similarity if you look at what the easyJet communication last week and ours this week -- there is undoubtedly a shift on short-haul traffic.

This is something, by the way, that happened, as you know, Jim in the States, 20 years ago.

There is a shift of short haul business traffic and late-booking traffic away from the traditional carriers who tend to be high-fare, strike-ridden at frequent cancellations.

And an increasing shift across to the low fare, strike-free, tend to be more efficient and more punctual operations of Ryanair and easyJet certainly.

I don't know whether the same numbers are affected in the smaller guys, the Norwegians and the Wizzes, but I'm not sure they're punctuality to be quite as good as ours.

But I think you are seeing that seat change that took place in the States 20 years ago when people increasing the business traffic were moving onto Southwest.

Are we -- we are not marketing ourselves to that market, but there is an unbeatable combination, as Howard said, of that convenience of the local airport, the ease at which now a business passenger with a carry-on bag can check in on the website, show up at the airport just 40 minutes before departure.

As long as he is pretty sure he can get through security in 10 minutes, which at most of our airports with the notable exception of Dublin recently, they are pretty certain you will get through security in 10 minutes.

You really no longer need to spend more than 40 minutes at an airport prior to a Ryanair flight departure.

You can get a front-row seat on Ryanair, and you are pretty much guaranteed to be on time.

And I think what we're seeing is an increasing tendency of people to book slightly later but pay slightly higher fares, and that is a function of the higher business.

From survey evidence, we think it has grown over the last -- I wouldn't put in 12 months.

But over the last two, three years it has certainly grown from -- it was running at about 17% to 18%.

It seems to be currently in the low 20s, 22%, 23% and still growing.

And I think the one -- the one thing that has been a key catalyst in that has been the reserve seating function.

The ability of people now in terms of just having priority boarding and joining a priority boarding queue, the ability and I have seen this myself at Dublin Airport when I'm boarding flights.

The reserve seating passenger is now staying in the seats, not boarding until last.

They know the front row, the first two rows or the over-the-wing exits are kept for them.

And that, I think, is a very attractive business product.

And it seems to be -- what's been interesting about the reserve seating is that it has largely been incremental to the priority boarding.

Our concern originally when we launched the reserve seating is that we just cannibalized priority boarding if it was the same group of passengers.

Priority boarding was running at about 7% to 8% of passengers.

The combination of priority boarding and reserve seating is now running at close to 14%, 15% of passengers, and it's a compelling offer to the business community who book later and pay more.

Michael, you mentioned that ancillaries are strong.

One of the reasons is the change in mix.

Can you elaborate on that exactly what changed in the mix?

There hasn't been much of a change in mix, but we are continuing to manage the penetration.

I mean the key one in the quarter was obviously was continued to be driven by strong performance and a combination of reserve seating and priority boarding.

We are targeting -- we are still increasing the penetration on car.

Travel insurance finally is still doing well for -- I know easyJet, on kind of a related basis, negative about that last week, but we haven't seen that.

The travel insurance takeup is still strong.

Obviously, the admin fee and the on-board sales continue to build.

We launched the Getaway Cafe, which has certainly increased the spend per passenger in the last month, but that could well be the run into Christmas.

Okay.

Thank you.

Thanks, Jim.

Next question, please.

Alexia Dogani, Liberum Capital.

I had a couple of questions.

Just firstly, can you describe to us what kind of cost headwinds we should expect in Q4, and what sort of the unit costs, the fuel costs and currency you expect for the quarter?

And then my other question is about what you did in Q3 and the additional sectors you added because of last-minute demand?

And was the demand driven because competitors were cutting capacity on the routes, or what led you to add those incremental flights?

And what was the lead time that you put them on sale?

Was it two to three weeks?

And leading on from that, could we see that happen again pre-Easter if demand was strong?

And then just a follow-up on the previous question on priority boarding, are volumes actually going up for the take-up of the priority boarding?

So maybe I'll just deal with the last one first.

Priority boarding is stable.

As Michael said earlier on, we had some concerns that the introduction of reserve seating would cannibalize priority boarding.

And remarkably, priority boarding has stayed at the levels it has been at for the last year or so.

So that was somewhat of a surprise to us.

And priority seating continued to grow through the year.

Obviously, it's higher in the summer, falls off a little bit into the winter, but certainly adding those extra 12 seats has proved to be very good, and we expect it to even increase this year.

I think there's a certain amount of consumers learning about the product, seeing about it when they are bored.

And I expect penetration rates on reserve seating to rise into next summer.

Dealing down about the additional flights, we certainly have the ability with 80 aircraft on the ground over the winter to respond.

In some cases, we launched typically four to six weeks before they flew.

In some cases, I think the record was three weeks.

So we were able to react quickly when we saw flights filling up and add additional capacity.

In terms of the fourth quarter, as I highlighted earlier on, fuel costs in total will be flat.

We still have the headwinds in terms of the air-traffic control costs in Italy and higher airport charges in Spain.

That will continue to -- they were introduced on 1 July.

So you will continue to see that ripple into Q1 of FY 2014.

We will have some more higher costs associated.

We've got some more aircraft deliveries, so you can expect depreciation and aircraft rentals to be slightly higher.

So overall, what I would see is a broadly similar outlook for our Q4 as for Q3 in terms of unit costs per passenger up by about 4%.

Okay, great.

And actually, can I just ask -- so when the flights you added on, was it just on natural demand being stronger because competitors remove capacity, and therefore, you chose to replace with your own metal?

Largely it was a bit more opportunistic than that.

Where competitors reduced, I mean a lot of it came around the buildup to Christmas.

It is not that we are a flight full sales, so we add an extra one.

But additional capacity was taken out.

We also got some additional, particularly in Italy, some incentives from the airports to add some additional flights through November and December.

But mostly it was responding to the bank holiday weekend, football matches, the run into Christmas, and post-Christmas.

We had the aircraft sitting on the ground to be able to do that.

Okay.

Great.

Thank you.

Thank you, Alexia.

Next question, please.

Penny Butcher, Morgan Stanley.

Two questions from my side, Michael, Howard.

The first is just a clarification point on the fuel guidance that you mentioned in the release for next year, the increase at around 5% versus the 14% that you faced this year.

In your slide presentation, though, you do show that your hedging positions are down around 2% to 3% in pricing terms.

And I appreciate FX is running against that, but I'm not sure quite how you are getting to a 5% inflation rate per passenger.

Can you just help with anything I might be missing?

Currency is on the other side of that given where we were, and we were looking at hedges of EUR136 to EUR148.

So we would expect to see that go the opposite way with EUR132.

And so that is why we are calling it around 5%.

What that means obviously is that it is standstill.

Average fare has to rise by about 2%, and that's the first year in quite a few years where we've had such a small rise in fuel costs per passenger and only required a fairly modest 2% increase in average fares to offset that.

Okay.

That's great.

My second question is a bit more of the medium-term nature.

I think given all the speculation around potential update in aircraft order, could you just clarify for us what you would be thinking in terms of the annual planning, sort of roughly how many aircraft per year or perhaps maybe just more a CapEx size that you are prepared to spend?

Because I think there is a level of concern in the market that you will be returning to EUR1 billion type levels of CapEx, similar to the previous order.

If you can give any guidance on what your parameters are, that you are thinking about for the new order?

It's very early days yet.

I think it's important, as well, to understand we continue to be opportunistic in terms of the aircraft order.

We are very happy where we are at the moment, 305 aircraft in the fleet.

We would like to see some new aircraft being delivered to us, but probably over the period, so the summer of 2015, 2016, 2017, 2018, I think a reasonable assumption would be that we would be taking delivery of something between, say, 30 to 40 aircraft a year over that period, so about 10% to 15% capacity growth.

Half of that would be replacement; half of that would be for underlying growth.

So I think what you are looking at is by not grounding as many aircraft in the next two winters, I think you are looking at 3% growth for the next two years, then sort of 4%-ish, 5% growth a year for the following three to four years.

Now if we could do do an incentive from the aircraft manufacturer in terms of pricing, we would obviously speed up that rate of growth, but that would have a downward impact on yield going forward.

And if there isn't an incentive to accelerate that growth, then we might take that growth of slightly less than that, in which case they would be more of an upward trend in yield and cash.

Because I don't foresee anybody else over that period of time -- well, nobody in Europe has significant aircraft orders over that period.

And I think you are going to continue to see medium-term capacity stability in Europe, which should be a function of some aircraft delivery to the low-fare carriers and continuing significantly retrenchment and consolidation within the flags.

I mean the one market where we really see that very strongly over the past 12 months has been in Germany where Air Berlin continues to take out very meaningful quantums of short-haul capacity.

And Germany, which is a market, if you will remember, as recently as 18 months ago, we are seeing German traffic -- no more growth in Germany.

We're not growing to that edge.

Now the airport deals have improved so much that we will have, I think, it is seven bases in Germany next summer, including new bases in Nuremberg -- no, Nuremberg is not a base, but (multiple speakers) -- no, [Neiderin] is already a base.

But there has been significant new route development in Germany on the back of incentives coming to us are from airports who previously wouldn't have talked to us.

So in airports like Cologne and airports like that.

The only airport that we are not actively negotiating with traffic growth in Germany at the moment is the main Berlin airport where there's a high degree of uncertainty.

So I think I'd be -- if I'd be -- the back of the envelope on capacity traffic growth would be for the next number of years 3%, 3%, 5%, 5% would be reasonable, and it could be a bit faster and could be a bit slower than that.

But, again, I would caution that there is no basis for this current speculation that an order is imminent or close.

It isn't.

And, therefore, really I think we will continue at the dialogue with Boeing, and [Comack] we are working actively with -- Comack really aren't in the -- won't be a credible supplier of aircraft, I think, until the end of this decade.

In which case then I think they will be a very significant supplier.

And there are no talks, obviously, going on with Airbus.

In terms of CapEx, we would see the benefit of having a young fleet, average age just four years.

We expect very modest capital expenditure in the runup to any order, if you're talking about 2015 scale, if you'd be talking about less than EUR100 million per annum, mainly on maintenance CapEx, typically engine overhaul.

Okay.

That's very helpful, thanks.

Okay.

And just before the next question comes, obviously there isn't going to be another special dividend until we do resolve the aircraft orders situation.

So please don't anybody ask for one.

Next question, please.

Robin Byde, Cantor Fitzgerald.

Just two from me.

Just on short-run CapEx issues, now your final deliveries have been made, is that pretty much it for the year?

So, in other words, should we assume CapEx of less than EUR300 million all-in?

And then just secondly, on sector lengths and thinking about fuel, you said you just noticed in your statement that you said these are now shortening.

Can you just talk us through some of the moving parts there, please?

I missed the second part of that, Robin.

What was the reference of something shortening?

Yes, in the statement, you said that your sector lengths are now shortening.

I think on your last call you said they were lengthening, so I'm just trying to model my fuel usage.

And second, just comment on what the moving parts are there, please.

Yes, briefly, outside any new aircraft order, the CapEx will continue to be very modest.

I think it's reasonable to accept not more than EUR100 million, and we operate at a base of kind of EUR100 million a year.

Maximum.

I really struggle to tell how we spend EUR100 million a year.

I mean the big ones would still be -- there is some infrastructure spend on maintenance facilities, some spare engine acquisition, and that kind of stuff.

But it is relatively small.

I mean it's not materially in our numbers.

Sector length is something that's very hard to give you any guidance on because it continues to be opportunistic.

It depends on who comes up with the best deals and where that would be.

We are guiding in Q4, sector length will be down 2%, down 3% for the year.

That is a function of the buildup, though, of a lot of domestic routes in Italy, and also an increasing number of routes to and from the German airports to places like Italy, France, and northern Spain.

I don't see any reason why that would change.

For example, if you look at the new bases we've announced for next year, Morocco, the two Moroccan bases are largely caps and serving destinations in Spain and France where there's a high proportion of [VFR] business traffic.

The one Greece space, the Greece space is again largely serving Germany, Italy, where we are trying to keep the sector length down.

And the bases in Crotia, Poland, and Holland are pretty similar to what we already do.

So really --

I would have to say flattish.

I think flattish is reasonable, but if it is up 2% in one half year and it is down 2% in another half year, it's just us being opportunistic.

Great.

Thanks very much.

Thanks, Robin.

The next question, please.

[David Grua], RBC.

Just one quick one.

Could you talk us through the criteria which you would change the degree of aircraft grounded in winter?

Is there a particular yield or profitability requirement you'd have to get out of those?

And then as a follow-on to that, if you are flying more of the fleet in the winter, how would that change the way you approach maintenance, and what would that do to maintenance costs?

We will do the second one first.

It wouldn't have any effect on the winter maintenance.

I mean we have a core requirement to ground to between 15 and 20 aircraft on a rolling basis through the winter.

So we are grounding about 80 aircraft.

There is about 60, 65 aircraft grounded that could be flying.

Obviously, we would not go below that 15 to 20 aircraft.

Accomplishing all the maintenance is a key part -- during the winter is a key part of both our reliability and our cost management.

I think the dynamic going forward into next winter is clearly we don't have a lot of capacity built in the summer.

We have an awful lot of airports who are still very enthused, or very anxious, I'd say, to make up traffic that they are losing through competitor retrenchments.

It's certainly a feature in Italy; it's certainly a feature in Germany; not much of a feature in Spain at the moment, although the airports in the Canary Islands are lobbying hard for a reversal in the fees and tax increases to get a special Canary Islands concession.

We expect MAG when they get their feet under the table at Stansted will be looking for a significant commitment to grow.

Obviously a lot of that -- so I think what we'd be looking to do would be next winter ground up to maybe 40 aircraft, focus on those kind of airports though, where we can build a decent bill of business on new routes business in the winter that will sustain itself through the following summer, and then come up with the aircraft for the summer by it being -- to increase churn over the summer 2013 schedule.

That means we also then will be much more tougher or aggressive with existing airports, too.

You'll be losing some of your existing routes and aircraft unless you can come up with competitive cost reductions to match the kind of cost proposals we will have on the table from airports who are looking to either reverse traffic losses from others or who are looking to grow.

And I think that's going to be a feature of the business for the next FY 2014 and FY 2015 will be winter growth and summer churn.

And I think we have demonstrated an ability to be very disciplined in our approach to airport and handling costs and also government taxes and using churn as a way of at least influencing that process.

Okay.

Thank you.

And I assume that means you'll look closely at Rome given the 58% price increases announced there?

Again, Rome?

In Rome, yes.

Yes, that was at Fiumicino as opposed to Ciampino, although that's not to say there won't be some increases at Ciampino.

But, again, I think a lot of that will accelerate the retrenchment of Alitalia, particularly Alitalia short haul.

And we've seen that already from a number of of the regional, particularly the southern Italian airports who are all over us like a rash looking for growth of domestic services, especially to Rome and Milan.

Our problem at Rome is we are constrained by artificial noise and flight constraints at Ciampino, which we would like to see raised.

But I think certainly the Italian airports are very, very concerned about the extent of the cutbacks that will be necessary in Alitalia.

Meridiana, who would be the number two Italian airline in Italy, although significantly smaller than Ryanair, are -- continues to struggle with their financial position.

They've gone to a temporary operating license there; are also cutting flights, particularly on the domestic routes.

I think the [Iacan] has had to pump in or talking about pumping in another [100 million] in there.

Not that that would make any difference, but so those opportunities continue to present themselves.

And I think we see the early warning signs of that is how aggressive the airports have been in trying to grow there.

Okay.

Understood.

Thank you very much.

Thanks.

Next question.

(Operator Instructions).

Donal O'Neill, Goodbody.

Most of my questions have been answered, but just a couple of short ones, again, on the airport side of things.

I do look forward and you talk about more and more offers from new airports, better offers from new airports.

How many of those would be more primary airports?

And I guess I'm thinking just in terms of the retrenchment of the legacy carriers -- would you see your share of primary airports increasing over the next 12, 24 months?

And secondly, just again on Stansted, assuming you get the deal you want out of MAG, how quickly could you put another 5 million passengers into Stansted, let's say?

Well, in terms of primary airports, well, I think we been quite surprised by the amount of offers we've got from airports.

Michael referred to earlier on there, the weakening -- the weakness of Air Berlin, the retrenchment of Lufthansa into one larger German wings.

And what we are seeing is that a number of the primary German airports are now approaching us with very attractive offers for additional growth.

So that is symptomatic of what is going on.

As the flight carriers retrench, I think you can take a broad look across Europe, be it Siberia, be it Alitalia, SAS in Scandinavia, Air Berlin in Germany, and Air France came in going through a major restructuring process.

This whole set of circumstances is creating demand from those airports for additional capacity, and they are coming to us with some very, very attractive offers.

And --

Stansted.

Stansted, I think Stansted is -- given that we have 70% of the capacity there, the ability to increase volumes would, as we referred to earlier on, we would have to look at some route churn.

We have limited capacity in the next two years.

We could certainly allocate some of that toward Stansted.

But we'd be looking to continue the process we've done over the last number of years, which is looking at our total route network and pulling out those weaker, underperforming routes -- they may still be profitable, but not as profitable as some of the other routes we operate -- and reallocating their capacity to Stansted.

So when you've got those 80 million-plus passengers, significant capacity sat on the ground during the winter, certainly churning 1 million passengers and growing that over a five-year period is certainly possible.

But obviously, that will be held significantly if we had another order in 2015 or somewhat beyond that.

Yes, I think it is fair to say, too, I think we are likely to get -- our relations with MAG over the years is we are very unlikely to get the kind of cost base we want from MAG.

MAG is very unlikely to get the kind of growth that they want from us until there's some kind of a compromise reached.

I think the difficulty for MAG at Stansted is that we -- not just that Ryanair operates 70% of the traffic there, but that we operate so much of the route network.

It will be very difficult to get other airlines added, and there is an increasing unwillingness of airlines to come to Stansted to compete with us from a like-for-like basis.

There are certainly opportunities, I think, for long-haul and medium-haul airlines to go to Stansted by all means, and we would work to encourage them.

But I mean -- it's an unusual situation in that we certainly want to grow at Stansted and reverse the declines of recent years, but we are happy to do so on the basis of a reduced airport fee.

I think the upside for someone like Manchester is that even the BA's own figures at the moment shows that that airport with 70% of Ryanair traffic has a profit per passenger from commercial activity of GBP4, and that is profit.

That's not revenues.

So there is a myth out there that Ryanair carries all of these impoverished peasants who spend nothing at airports.

And the Stansted numbers show actually that our passengers -- probably the spend is higher certainly for short-haul passengers, and they make a profit of GBP4 per passenger.

Now you don't have to be a genius to work out, and Manchester are pretty good at working this out -- if the profit per passenger is GBP4 and you add another 5 million passengers there, with no CapEx, it's a pretty easy decision.

But to be fair to Manchester, they are robust partners of ours.

I think they would be eagerly -- describe them as being equally robust.

They are still the only airport that ever impounded one of our aircraft.

Although to be fair to them, they did have to apologize subsequently.

So I think they will -- put it this way, if they come up with a very attractive cost offer, we could grow very quickly.

But I think the general proposition that we will be putting to them is we can sustain readily growth of -- incremental growth of 1 million passengers a year over a five-year period.

It would be 5 million incremental passengers.

Now if you want to grow faster than that or slower than that, yes, we can handle all that, and we can do that relatively readily even through churn ourselves.

The other thing we would see as an opportunity, particularly as the BAA Stansted costs bases has been stuffed out by intercompany charges from BAA head office somewhere near Heathrow.

I think certainly looking at the way we operate in Stansted, not having any CapEx, but also working with them to eliminate all of the overcharging that is going on, means that not only can they generate additional revenues from ancillary spend, but they can also make significant cost savings in working with us.

So I think there's a tremendous opportunity there.

Okay.

That's great.

Thanks a million, guys.

Okay.

Thanks.

Who's next?

[Anil Bates], Deutsche Bank.

Just a very quick one.

You are saying that the business mix has been shifting over time.

Is that an indication that is geographically linked, and is that linked to perhaps what certain legacies are doing in those specific countries, or is it just across-the-board?

Thanks.

Generally it's across the board.

I think it is certainly influenced by those -- I think where it's influenced by what legacy decisions is where we build a very large position in the market like Spain where we are -- I mean last year in Spain we carried 29 million passengers; Iberia carried, I think, 80 million passengers.

We are not just number one, we are number one by a distance with the big domestic operations, the same in Italy.

That undoubtedly has helped to build.

But really without being too -- some of this is subjective -- I think an awful lot of it is the increasing realization of what we do, we do very well.

The punctuality is excellent.

The business people can now have reserved seating.

They can now arrive at the airport later and later where they have a fair guarantee of getting through security.

And it becomes the kind of ultimate business product -- show up late at a short-haul airport; get on the plane quickly; be on time; arrive on time; don't hang around waiting at check-in desks and all the rest of it.

And then once you use it, our rate of return is incredibly high.

There is and remains an issue over whether some business -- the bigger companies want to use in travel, inflow travel companies or travel management companies.

I'm not sure in time that we won't find some facility to work in.

When we see a lot of those travel management actually booking Ryanair flights themselves anyway, even though we don't pay them any -- but it is because the business people are actually traveling to a destination airport that suits their needs.

If you live, for example, in Oxford, you're not going to travel pass Stansted to get to Gatwick.

And that continues to be the case.

So I think it will build.

One of the issues we are working on at the moment and that is historically we haven't accepted AmEx for a number of years.

We are in talks with AmEx now about the possibility we may began to take AmEx again.

And that may come in the next -- over the period of the next year.

But, again, more because I think there's been -- ourselves and AmEx want to work together rather than, oh (expletive), let's target the business community, let's get AmEx.

The business community are coming to us in ever-increasing numbers.

And I think to be clear, it's not just confined to Ryanair.

I think that came through in the easyJet presentation last week.

I think it's much more as -- Jim Parker who is the expert on this, there was a period of time in the 80s, 90s where Southwest became the airline of choice for business people, as well as non-businesspeople in the States because they had the frequency, the route network, the airport network, the punctuality that actually became -- it was a very simple decision-making process.

And I think the low fare airlines or certainly ourselves and easyJet, the two major low-fare airlines in Europe, are at that tipping point now, and it's certainly accentuated by the very aggressive capacity cuts and restructuring within the flag carriers.

I think it is not announced by the fact that many of the restructuring to flag carriers is mainly in their hub-and-spoke type operations.

So they're trying to push more and more volume into their hubs, which means increasingly -- I was looking to do a journey up to Scandinavia from Italy, and we were the only alternative.

Why?

Because there was nobody serving that market anymore.

And if you want to get from point A to point B, the only way you could do that quickly and efficiently at the right price is take a direct flight with a low-fare carrier either ourselves or, indeed, easyJet.

So I think this whole sway to the market is being given up by the legacy carriers.

And, again, I'd also -- I have been no different to any -- we should not lose a lot of our sales of business passengers either.

They are 22% of our -- they are north of 20%.

But the leisure passengers are still -- our leisure VFR is still 75%, 80%.

That will continue to be the mix, but I think there is certainly a -- there's a certain -- there is a yield benefit under that, but there is a mix of passengers coming to us now who are booking later and paying us more than we have seen in the past.

And I'm sorry to keep banging on about the same point, could you give an idea of what the average yield uplift might be from a leisure to a business traveler?

No.

Okay.

Fair enough today.

Thanks, guys.

Still our highest yielding passengers are leisure passengers going to funerals.

At the last minute, they are entirely price insensitive.

Honestly, you have as many businesspeople who are very price sensitive and know, for example, you are salespeople who need to being at work, traveling on a Monday, back on a Wednesday for the next eight weeks.

They will go in and just book the flights.

We have lots of people -- I mean I know even we have lots of people in Spain, in Portugal, who are working in Paris who fly with us Mondays, Fridays, every single week.

You have Irish people commuting to the UK.

We have this immigration phobia here in Ireland that they are all leaving on potato ships and never be seen again.

Where actually there is a huge portion of the business leaves on a Monday morning and returns on a Friday evening.

And it's just the television cameras are out there every weekend to record the return.

So there's all of that kind of what you described as leisure or business.

But they are able to book well six, eight, 12 weeks in advance.

They get the very low fares.

And if they don't travel for some reason or change in their circumstances, it costs them very little, anyway.

So you've got to be very careful against prescribing business goods, expensive -- leisure, bad, cheap.

There is very much a different mix of profiles in both segments.

And I think the answer is, we need all of it.

The more -- and, obviously, the more funerals, the better.

But we need all of it, and it all goes into the mix.

And I'm just really sorry.

This is a yes or no one.

It is very, very quick.

Am I right in thinking that you would never go and approach companies to look for deals, but if they were big enough and they came to you, you would spend a bit of time looking at that?

I am always looking to answer questions like, you would never.

Never is a long time, and there is no policy or principle we have here that we wouldn't sell in a heartbeat if it meant a bit more money somewhere.

So I think it's logical to assume that we will -- if we felt that there was a way that we could easily manage the process -- for large companies, even for medium companies, there's lots of ways that you could see that developing.

I think the way the Internet is -- you could logically have a business-type website, a Ryanair business-type website that would do a lot of that travel fulfillment, as the websites get more flexibility, as apps keep being written.

A lot of companies want this travel management service so they have a record of who flew at what fair data they have now.

Now our in-house website, which is of American origin and is clunky, doesn't allow that kind of flexibility.

But the way apps are being written that allow that kind of interrogation to happen, I think it would be -- I think it is an inevitable development over the short -- over the medium term.

It will happen whether we go out aggressively -- where we put people on the road specific to target business, companies, I'm not sure.

But I certainly think where we think we can tailor or create an app that will allow companies, even companies with two or three people, to have a manage-my-travel function or manage-my-business function, but it would have to be like an app that adds on top of a clunky-ish website at the moment.

Because the website has to service 28 different countries, international travel, domestic travel, different rates of taxes, all the rest of it.

It's a very complex system.

So I think the answer to, would we never do it, would be no because never it is always too long.

But I suspect it's something that increasingly -- I think there will be a meeting between Ryanair and big business.

We will move in the direction of business over the next couple of years, and I think business will increasingly move in the direction of Ryanair's fares and cost savings.

Okay, that's interesting.

Thank you.

Thanks there a much.

Next question, please.

Edward Stanford, Oriel Securities.

Just one question, if I may.

I think, if memory serves, just last quarter you were expressing some caution about the level of incentives you might have to do to the new bases.

Can you just give us a flavor for what the experience has been and how you see that going forward in terms of yield and incentives and so on?

Is this discounts on new fares?

Yes and I think you were a little bit concerned about the impact on the overall group yield of the startup of the new bases, and I was just wondering how that was progressing.

More so in Budapest.

Well, I think what we are trying to communicate is the last quarter and traffic growth is very strong.

We had very strong traffic growth particularly in Warsaw and Budapest, but then there is a fair war going on over there with Wizz.

At that stage, we are squaring up toward -- we are going to go toe-to-toe with Ryanair.

There seems to be a change in their strategy at both airports.

Increasingly, they have announced some new routes there.

They've closed some routes where they competed with us into Italy and Spain.

There seem to be increasing European routes from both Budapest and Poland going to places like Romania, the Ukraine, and stuff like that.

So I think they are moving away from head-to-head competition with Ryanair at both of those two airports and developing routes that are focusing more eastwards, whereas we are still circling in Warsaw adding routes that are focusing westward.

Really they are not a bad competitor.

I just think that the market there -- we went into a market in Budapest last February in a vacuum when MAG went bust, so the fares were particularly poor.

The fares have have built over that 12 months, so the fares this year are ahead of where they were last year.

But they were very low last year because we were launching a four- -- a five-aircraft base out of nothing.

Warsaw continues to build, but it has undoubtedly been interrupted by the runway closure in Maudlin.

And, you know, we are moving everybody or busting everybody across the aircraft or traveling to and from Chopin with some people bussing across and back.

It's not ideal, but frankly, we have such a large position now in Warsaw and we are the number one airline in Poland, I think we just have to continue to manage it as best we can with Chopin while encouraging Maudlin to open up as quickly as possible.

But, again, I think what we always try to communicate with a degree of conservativism in all of these investor calls and in the communications -- fares were up 8% in the last quarter.

It's a bit weak in January.

Everybody -- yes, the average fares are doing well.

Yields are rising I think largely on the back of competitor pricing, restructurings, and oil price increases.

But there are also some weaker spots out there where we're still growing aggressively in places like Warsaw and Budapest.

So it's not uniform.

It is a little bit patchier.

I think it's always helpful to bear in mind that when you are looking at it, it's an airline, and therefore, whenever it's going well, you are just getting closer to the next (expletive) happens event, and we try to take some of the exuberance out of the coverage.

Thank you.

Thanks.

Next question, please.

[Darrell Cool], Espirito Santo.

Just a quick question on the exchange rate hedge.

In the presentation pack, you've given us the exchange rate for next year being $1.32.

I was wondering if you could give us an indication of the percentage cover for the year or by quarter, please?

We are at 90% hedged for Q1 and 85% for Q2 and 85% for Q3.

We have about 20% done for Q4.

So when you average that out, that's about 75% of the full year.

We've still a little bit to do in Q4 next year, but a good year's coverage in place.

Okay.

Thanks.

Thanks.

Next question, please.

Tim Marshall, Redburn.

Just a quick follow-up.

Are there any limits to your ability to churn routes?

Like do you have any deals with airports where you have committed for a certain amount of volume, or are you able to do whatever you like in terms of putting pressure on them that way?

No, generally we are at liberty.

There is almost -- none of our airports here.

We would have certain minimum volumes at a smaller number of our airports, but we would be so ahead of those minimum volumes, that you could easily churn the top end.

But that would account for less than -- I'd say less than 5% or 10% of our airport yields of any minimum volumes.

And we will be free to churn at will.

Great.

Thank you.

Thanks, Tim.

Next question, please.

There are no further questions.

Great.

Well done.

Okay.

Thank you very much, everybody.

I said [John O'Brady] is here with me as is Neil Sorahan and Jimmy Dempsey.

If anybody has any follow-up questions, please feel free to communicate them.

We are here generally all week.

I would be happy to talk to anybody offline if that would help.

And, as I said, a degree of caution and temper the optimism and the euphoria, and all will be well.

We will no doubt see you and talk to you the next couple of weeks.

So thanks very much, everybody.

God bless.

Bye, bye.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.