Ryanair Holdings PLC (RYAAY) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Ryanair full year results 2013 analyst briefing conference call.

Today's conference is being recorded and at this time I would like to turn the conference over to your host today, Mr. Michael O'Leary.

Please go ahead sir.

Okay, good morning and good afternoon, everybody.

Welcome to the Ryanair full year results teleconference.

The details of the full-year results, the MD&A and the shareholder presentation is up on the website at www.ryanair.com, so we'll run briefly through it.

I'm joined by Jimmy Dempsey, I'm in New York, Jimmy Dempsey in Dublin and Howard is on his way to a home in London so he'll be joining us shortly.

As you'll see from this morning's numbers we announced strong profit growth, up 13% to EUR569m which is a record for Ryanair.

Revenues rose 13% to EUR4.88b.

Traffic grew 5% to 79.3m passengers.

Unit costs were up 8% mainly due to an 18% increase in fuel but excluding fuel, unit costs rose by just 3%, while average fares improved by 6%.

I think that a 13% increase in profit and 5% traffic growth, despite a market characterized by very high oil prices and a recession in Europe is testimony to the strength of Ryanair's ultra-low cost model.

As I've said fuel costs rose by over EUR290m and now represent 45% of our total costs.

Excluding fuel, units costs were up 3% due to excessive and unjustified increases in particularly Italian air traffic control charges, Eurocontrol and Spanish airport fees.

Ancillary revenues outpaced traffic growth rising 20% to just over EUR1b, or 22% of total revenue.

The growth opportunities continue to unfold in Europe.

This summer we opened seven new bases in Greece, Netherlands, Morocco, Poland and Croatia.

And we've added 200 new routes as we continue our strategy of growing Europe's largest passenger airline.

However, with just nine net additional aircraft and longer sectors, traffic growth this summer will be very modest, hovering typically between 1% and 2% month on month.

But by grounding fewer aircraft next winter we expect to deliver slightly faster monthly H2 growth which should mean that overall traffic growth for the full year will rise by more than 2m passengers to about 81.5m.

We're very pleased with the current rate of forward bookings on the new routes and bases; they're ahead of our expectations.

Yields at the moment are a little bit soft, as they were this time last year, the dip between Easter and the summer holidays and this year that period is longer because Easter was earlier which was reflected in our strong yearend figures, but will also be reflected in weaker Q1 figures.

However, we expect the growth opportunities for Ryanair to expand and improve.

Our new route teams continue to handle far more growth opportunities from airport than our current fleet expansion allows.

Significant growth opportunities are now emerging in countries like Germany, Scandinavia and Central Europe where many of our incumbent high-fare competitors like Air Berlin, SAS, LOT, Alitalia and Iberia are in significant trouble and their short-haul is subject to very substantial restructuring.

We are in active discussions, we've made a number of large air traffic growth offers to the new owners of Stansted Airport, to the new management at Dublin Airport and also to the AENA airport monopoly in Spain and while no agreements have yet been reached, we are offering one or other of them very significant traffic growth which would start as early as September 2013 subject to agreement.

We expect over the next five years to continue to expand, make meaningful market share gains across Europe.

In addition to already being the number one passenger airline in Ireland and in Spain, we have in the last year overtaken Alitalia in Italy and LOT in Poland to become number one in those markets.

We believe our unique low fare advantage and very lot unit costs, which no other competitor in Europe can match, provides an ideal platform for a sustained, controlled and very profitable growth over the next five years.

That clearly was the reason for the recent 175 aircraft order.

As you know, we've been negotiating with Boeing on and off for about six or seven years and we're pleased to have finally reached agreement on pricing with Boeing.

I think the pricing reflects both Boeing's need for a new aircraft order in the first half of this year, but also our desire to continue to add, in a controlled fashion, more aircraft over the next five years so that we can grow the fleet from 300 to over 400 aircraft and grow the traffic from 79m to over 100m.

And I think, and I can't stress enough, that the scale of the growth opportunity in Europe, where so many of the incumbents are cutting and restructuring and I think inevitably will be significantly reducing their short-haul offerings.

We were disappointed by the EU Commission's February 2013 decision to prohibit our offer for AerLingus.

We note the reason for that prohibition was their finding, as supported by evidence from AerLingus itself, the Irish government and the Dublin Airport monopoly, that competition had between Ryanair and AerLingus had significantly intensified over the past six and a half years since we took our minority stake.

That makes it all the more strange and surreal to be involved in a UK Competition Commission inquiry in the UK, where the UKCC are investigating that six-and-a-half-year old stake to see if it has resulted in reduced competition between Ryanair and AerLingus.

Under the EU treaty, the UKCC has a duty of sincere cooperation with the EU and cannot make alternative findings to those recently made by the EU Commission.

On that basis, we believe that the existing, the current CC investigation should be abandoned; however, we think it won't be, as we think UKCC would look stupid if they abandoned it and as happens with many of these regulatory issues we think they're continue with their investigation and we expect them to come up with some bizarre finding that in the future it may result in reduced competition and accordingly that they'll try to force us to sell down.

If they do, we intend to, well, firstly, we've already appealed the EU decision and that the UKCC must await the outcome of the EU appeal.

But if the UKCC comes up with a finding that's contrary to what the EU has found we'll also be appealing that decision in the UK because it will be in clear breach of the UKCC's duty of sincere cooperation.

However, nevertheless, our position with AerLingus remains, we continue to be a 29.9% shareholder.

We have sadly very little influence over the company as recently evidenced again by the election of Ireland's biggest trade union boss to the Board, despite Ryanair's opposition.

The government decided that he was a brilliant addition to the Board and voted him another three years of service.

In terms of our own ongoing earnings, as I said, we see terrific growth opportunities across Europe, this was the reason for -- that together with aircraft pricing was the reason for the recent order with Boeing for 175 aircraft, they'll come to us over 2014 to 2019.

No other airline in Europe has that kind of scale of aircraft deliveries coming over the next five years, not Norwegian, not EasyJET, nobody else.

And the challenge I think for all those other airlines is going to be, how do we grow in a market across Europe where Ryanair's going to be expanding aggressively in the next five years.

Fuel hedging, again, we remain somewhat on the slightly optimistic.

We have extended also our fuel hedging into the first half of FY15, slightly less than FY14.

We're currently 90% hedged for FY14 at the equivalent of $98 per barrel.

We're hedging into FY15 currently at $93 per barrel.

We have 25% of our H1 requirements hedged and the exchange rate if pretty similar.

So we hope that we'll continue to see a kind of a 5% plus decline in our oil cost but it could be out into FY15.

FY14 we're largely hedged at $98 per barrel and because the currency has slightly moved against us, our unit oil costs will be up slightly in FY14.

The balance sheet remains one of the strongest in the industry.

Despite having completed another share buyback and a second special dividend of nearly EUR490m in November, we still finished yearend with a net cash position up -- a net cash EUR61m.

And we would expect over the 12 months, despite that fact that we'll be making aggressive aircraft deposits payments, that our net cash position should rise appropriately to something of the order between EUR500m and EUR600m.

In terms of outlook, again and I know it's difficult for the market and for ourselves at this time of year because we have such little visibility over H2, we are confident that traffic will grow this year by some 3% to 81.5m.

That growth will be markedly slower in the first half at around 2% month on month, but rise to about 5% month on month in the second half as we ground fewer aircraft.

Unit costs will increased in FY14 primarily due to rising oil prices, a 3% growth in sector length and further unjustified higher Eurocontrol and Spanish airport charges.

However, and I want to highlight it for people, due to the lower yields and higher fuel costs and the movement of the first half of Easter into Q4, we expect Q1 net profit next year will be lower than the Q1 last year, again due to the timing of Easter and some of it moving into the prior year, into the Q4.

With almost zero yield visibility into H2 and the EU wide recession, we expect that there will continue to be downward pressure on yields, particularly next winter as we're growing slightly faster during the winter period, and overall we expect that will dampen full year profit growth.

Nevertheless we are still guiding for modest yield and traffic growth for the full year being partly offset by higher oil and Eurocontrol costs resulting in another year of profit growth in FY14 which, heavily qualified by the winter yield outturns which could be up, could be down, should see our profits rise modestly to a range between EUR570m to EUR600m.

Howard, are you on the line at the moment?

Yes, we are, Michael, apologies we got caught in London traffic so we made it in shortly after you started.

Do a quick -- take us through the MD&A.

Sure yes.

I'll just read through the summary MD&A which is included in the notes to the financial statement we sent around.

So profit after tax increased by 13% to EUR569.3m compared to EUR502.6m.

The EUR502.6m excluded the exceptional item of EUR57.8m which related to a change in the accounting methods arising from enhancements to our revenue accounting system.

The increase in profits was primarily due to a 6% increase in average fares and strong ancillary revenues, offset by an 18% increase in fuel costs.

Total operating revenues increased by 13% to EUR4.884b as average fare rose by 6%.

Ancillary revenues grew by 20%, faster than the 5% growth in passenger numbers, to EUR1.064b due to a combination of an improved product mix and the roll out of reserved seating across the network.

Total revenue per passenger, as a result, increased by 8% whilst load factor remained flat at 82% compared to the previous year.

Total operating expenses increased by 12% to EUR4.165b, primarily due to an increase in fuel prices, the higher level of activity and operating costs associated with the growth of the airline and the strength of sterling to the euro.

Fuel, which now represents 45% of total operating costs compared to 43% in the prior year, increased by 18% to EUR1.885b due to the higher price per gallon paid and the increased level of activity in the period.

Unit costs excluding fuel increased by 3% and including fuel unit costs rose by 8%.

Operating margin increased by 1 point to 15% whilst operating profit increased by 16% to EUR718.2m.

Net margin remained flat at 12%, compared to the previous year.

Basic earnings per share for the period were EUR0.3945 per share compared EUR0.341 per share, an increase of 16%.

Balance sheet.

Gross cash increased by EUR43.4m to EUR3.559b and gross debt fell by EUR127m to EUR3.498b.

The Group generated cash from operating activities of just over EUR1b, EUR1.0234b, which funded the net capital expenditure of EUR311m, a dividend payment at the end of last year of EUR492m, a debt repayment and a EUR68m share buyback program which we did in April of 2012.

As a result, the Group has moved to a net cash position of EUR61m at the end of the financial.

After that, I'll hand you back to Michael.

Okay thanks, Howard.

Okay, if you could open up to questions and answers please.

Thank you sir.

(Operator Instructions).

We will take our first questions from Jarrod Castle from UBS.

Please go ahead.

Good afternoon, gentlemen, two questions if I may.

Just one, you mentioned Germany potentially as a market which you look to do more in, can you comment whether or not you've seen any change in the competitive position given Lufthansa's restructuring, especially Germanwings.

And, indeed, has there been any increase in competition from the flags across markets where they've tried to restructure, i.e.

Iberia in Spain, Air France, etc.?

Then secondly, can you maybe just quantify what the benefit was in March given the change in Easter and what's the impact going into 2014?

And then, if I may just lastly, anything that you can say in terms of Eastern European expansion.

Thanks you.

Okay, thanks, Jarrod.

The German market, what we're trying to communicate today is that it's difficult, don't get caught up in the geography, but we're dealing with more growth opportunity than we can possibly handle.

I think one of the key changes in the last 12 months and this year has been our opening up of new routes at some of the bigger German airports which previously wouldn't even talk to us.

So we're now opening routes at Cologne, Nuremberg, Dortmund, which were always very substantial German airports that were always able to rely on, particularly the domestic business from Lufthansa and Air Berlin.

Air Berlin are going through a very painful restructuring mainly focusing on very meaningful cuts in their short-haul capacity, they're down by a kind of high-single-digit figure this year which means, Lufthansa also, the 55th restructuring of Lufthansa's short-haul, now moving some of their short-haul right from the Lufthansa brand into Germanwings.

We don't notice too much competition, certainly on price, from either Air Berlin or Germanwings but what the German airports are seeing is meaningful cuts in Lufthansa's and Air Berlin's short-haul capacity and traffic.

They're beginning to see traffic declines in some of these bigger airports that haven't seen a traffic decline for 10 and 20 years and they're recognizing that the only real player, third other player in the German market is Ryanair.

So this summer you've seen us open new routes at those, what I'd call, secondary but very large German cities and we expect that, which despite the impact of the German travel tax, are coming up with very attractive growth offers in order to encourage us to put more capacity or to link their cities up to so many of the international destinations we already fly to.

We don't really, to be honest, notice much competition from the flag carriers, whether they dress it up as a restructure at Alitalia or SAS or as a redesigned, rebranded Germanwings in Germany or a kind of HOP, God help us, which seems to stand for Higher Operating Prices, and in Spain you have the Vueling and the Iberia Express.

It really masks really deep and meaningful cuts in the flag carriers short-haul capacity and I think when you get to the stage where Air France admit that their short-haul operations are losing EUR700m, I think CityJet was reputed, I've seen somewhere was reputed to have lost more than EUR50m last year, like EUR1m a week, these are simply unsustainable losses, particularly as those flag carriers are now waking up to the, or realizing the enormous threat to both their long haul and connecting traffic by the Gulf carriers.

And I think rightly they're focusing on the competitive threat to the Gulf carriers and their solution to the short-haul market will be to increasingly cut back their capacity in traffic in short-haul markets.

That puts enormous downward pressure on traffic at many of these other city airports and they're turning to Ryanair looking for that kind of, looking for a solution, or to at least staunch these traffic losses.

It's very difficult to quantify, Jarrod, on the second part of the question, how much of it is due to the movement of Easter, but there's certainly, in my view, if you look at our EUR569m today there's certainly, maybe up to EUR20m of that Q1 profitability has moved from Q1 back into Q4, it could be slightly higher, it could be slightly less.

It's not an exact science but there will be a meaningful dip in the Q1 profits when we get to Q1 of something of that magnitude.

Growth in Eastern Europe, yes, we're continuing and, again, it kind of reflects where we are.

We're looking at very meaningful growth opportunities in countries like Poland, the Baltic States in particular, the Czech Republic, Slovakia and, again, we have more growth opportunities that we can handle which is, if we're trying to communicate anything today it is that there's an enormous opportunities for us and for our shareholders I think over the medium term to expand Ryanair off a unique cost platform that no other airline in Europe can touch.

But we have made the same kind of traffic growth offers today to a number of the German airports, a number of the Spanish airports, to Stansted and to Dublin, if all of those airports were to agree the terms of our proposal today, we wouldn't be able to handle that growth for about three or four years, so whoever kind of steps up first will likely win the, get the immediate traffic growth and the others will simply have to wait in line.

Okay, thank you very much, Michael.

Thanks Jarrod.

Next question please.

We'll take our next question from Stephen Furlong from Davy.

Please go ahead.

Stephen, hi.

Hi, Michael.

Just, first of all, in terms of the growth for the summer winter, I see obviously you're growing faster in the winter ungrounding aircraft.

Can you go through maybe the decision on that, of ungrounding aircraft, given fuel prices are high?

Presumably you see growth potential there and you're also signaling the sector length going up so maybe if you can just talk about some of the routes where you think that maybe the seasonality can be balanced out a bit in terms of the route profile.

And the second question just on, more maybe for Howard in terms of aircraft financing.

Have you thought more about the how the deliveries will be financed or is it going to be through pre-delivery, through cash or through other sale-and-leasebacks, etc.

Thanks.

Thanks Stephen, let's deal with the first one.

Winter growth, look we don't have any alternative this summer because we have very little summer capacity growth, we have very little alternative other than to deliver most of our headline traffic growth in the winter.

I would however point to the fact though that we have been constraining and therefore cutting traffic and capacity at expensive airports like Dublin and Stansted in recent years.

The kinds of airports we're talking to, whether it's Dublin or Stansted or AENA Spanish airports, or Polish airports or even German airports, are airports who are currently suffering a meaningful decline in particularly their short-haul traffic.

If you look at the total AENA airports over the last six years in Spain now, mainly because they've doubled the airport charges in a mad kind of political decision to fatten up AENA for privatization.

Those are airports that would very much lend themselves to winter traffic, they're not seasonal, they're not summer operations.

We can and will, we are not going to kind of suddenly unground all 80 or 100 aircraft, we're just going to ground fewer aircraft this winter, something between 50 and 70 whereas last year (technical difficulty) 100.

That helps though to pave the way for some continuing modest traffic growth, it helps us to address the concerns of certain airports where they say, well, if we give you this deal can you really deliver growth?

And we will deliver that growth.

There will be a higher rate of churn within the route network over the next 12 months as we pave the way for the resumption of fairly meaningful growth from winter 2014 onwards when we start into the next cycle of deliveries of the 175 aircraft.

So we'll be growing in the winter, yes, the oil prices are high but they're meaningfully lower than they were two winters ago when the first spiked up to $120 per barrel and we'll be expanding into markets where there's been meaningful capacity reduction in the last number of years so we think it's the sensible way to grow.

The route sector length will significantly -- well, not, they'll be up 3% this year again.

That's partly a churn away from say Spanish domestic routes in the last 12 months where AENA has doubled the airport charges, particularly at the two big airports, Madrid and Barcelona.

We've closed a lot of those short-haul domestic routes because we're not going to pay those kinds of airport charges.

It also reflects we're going to have a big expansion this winter of, we've announced 12 routes from Scandinavia down to the Canary Islands where there is a uniquely counter-seasonal market for the Scandinavians, they all head to the Canary Islands, but those are five and 5.5-hour routes.

We're going to change the crew integration for the winter to enable us all to do that and that will pose a real competitive challenge to Norwegian which has had that market to itself for the last number of years.

We're also adding two bases in Morocco this year, Fez and Marrakech, so there's been a slight jump in the route profile but it's by virtue of culling short-haul routes where airports or governments are overtaxing short-haul flights and expansion to some of the longer markets where for the last number of years other higher unit cost and higher fare competitors like Norwegian have had that market to themselves.

We want to offer people lower fares between Scandinavia and the Canaries for the winter.

Howard, do you want to deal with the aircraft financing?

Yes.

Stephen, yes, we pretty much plan to finance the pre-delivery payments from our cash given we've got such strong cash flow over the coming years.

In terms of the debt financing we had traditionally used US government export credit financing, we did our bond last September which we did at 1.6%.

The fees associated with getting that credit guarantee have gone up and that means, although it's still available to us we would probably see it as a backstop-type financing.

So I expect for the coming deliveries we'll probably look at a range of products.

Firstly, we're very interesting in the EETC market, there've been some developments there, the first of the non-US-based carriers have commenced financing there and we think there are a few attractive options in terms of EETC.

Given the prices we pay for the aircraft and the structure of that, we think we'd see some very attractive pricing.

We could look at some straightforward debt.

The other instrument we would look at closely is JOLCOs, Japanese Operating Leases, which we have done some before, we have a strong presence in that market.

And also uniquely they will finance us in euros, which is clearly very attractive to us.

And then one of the other alternatives then would be sale-and-leaseback type transactions and that will be largely dependent upon the appetite of the leasing companies, whether they're competitive with the other sources of finance.

And finally, which is something we may consider as well, perhaps using some cash to fund aircraft ourselves.

One of the things we're looking at in terms of the EETC structure is whether we need to get a rating or not and having certainly unencumbered assets on the balance sheet would certainly enhance our rating.

So we've got about four or five moving parts there in terms of the financing of the future deliveries and we'll probably start to put some of that in place between September and December of this year.

Okay, that's great, Howard and Michael, thanks for that.

Cheers.

Thanks, Stephen.

Next question please.

We will take our next question from Alexia Dogani from Liberum Capital.

Please go ahead.

Hi, good morning.

I have three questions please.

Just firstly on the unit cost ex fuel up 3%, can you describe what's happening with the Eurocontrol charges given you said that the sector length is going up by 3%?

And then my second question is I wonder if you could give us some feel as to the fuel cost increase quarter on quarter and whether the EUR200m increase is evenly spread?

And then my final question relates to, I think you were quoted Michael as saying that you were interested to bid for the Gatwick slots of Flybe, and I just wondered what your thoughts were when you are in an airport and you're quite a small player, do you think you can still extract the natural yield available from that airport or does it hinder you because you are a small player with a small market share?

Thanks.

Thanks Alexia, I'll deal with the last one first and then I'll ask Howard to do the unit costs and the fuel costs answers.

Just touching on Gatwick, I think Gatwick is a kind of a unique situation.

We're not particularly small in Gatwick, I think we're about the fourth or fifth largest airline in Gatwick despite the fact we don't have a base there.

The point is, I think what's attractive about the Flybe slots is that they're generally for arrival slots, they're for aircraft that are not based in Gatwick, Gatwick is chock-a-block first thing in the morning.

We have 57 bases all over Europe.

We've submitted a bid for Flybe (inaudible).

I think there'll be a material opportunity for us there, now it's relatively small in our overall universe but we could connect Gatwick to a number of our European airports if our offer is successful, but we're not going to pay through the roof for them either, we don't have to own slots at Gatwick.

If we get them at the price we've offered we'd be very happy to take them and I think we'd make a very profitable use of them.

Remember the opportunity in Gatwick arises because you're competing with two airlines, British Airways whose average short-haul fare is north of EUR200, and EasyJET whose average short-haul fare is almost double that of Ryanair and they're 60% higher on their average short-haul fare, our average short-haul fare is about EUR48, we calculate EasyJET's is about EUR82 and their unit costs are almost double Ryanair's as well.

So even allowing for the slightly more expensive cost of operating in Gatwick airport we think we would, one, provide a real competition to BA and EasyJET at Gatwick, and two, we could connect Gatwick to a number of our other European bases.

However, I caution that the primary focus of our growth in London I think for the next number of years will be in Stansted.

I think the arrival of MAG has been something of a breath of fresh air over there, at least to have somebody you can talk to who want to grow the business whereas Ferrovial for the last number of years hasn't wanted to grow the business at all.

That doesn't mean we'll necessarily reach agreement on the current discussions but at least we're talking to people who know how to run an airport and who seem to really want to grow the airport.

Howard, will you be able to take the unit costs and the fuel costs questions please?

Yes, in terms of, I'll deal with the last one first in terms of fuel.

Overall we're forecasting a EUR200m increase in fuel costs, that's spread EUR40m in Q1 and Q2 and about EUR60m in Q3 and Q4.

So EUR80m in the first half of the year with EUR120m in the back half of the year.

In terms of unit costs, there are three real key drivers in terms of unit costs.

Some of it obviously is to do with stage length and, within that, we have route charges.

Of the increase, which we would estimate at about just under EUR1 per passenger at EUR0.90, about nearly half of that is coming from Eurocontrol charges.

That reflects longer stage length but also the mix and structure of our routes this year.

And also Eurocontrol increased charges, as well, so there's three moving parts to that.

And the other smaller elements then, less than half are we have a slightly higher salary cost; you'll recall that we've got a 2% increase in salary cost.

And the other one is we've got higher airport charges in places like Spain where airport charges will increase by about 8%.

So they're the three moving parts to the increase in the non-fuel unit costs.

Great.

Thank you.

To give you a flavor, Alex, for example, the Italian ATC charges quadrupled last year which -- there's no justification for it but you very much have these European countries out there doing this fiscal grab, and if they're not imposing an airport -- a passenger tax on air travel, they're out there -- the Italians just quadrupled out of nowhere the Spanish ATC fees.

AENA in Spain has more -- has increased their airport charges by an average of 300% over the last five years.

Now it's resulted in huge declines in their traffic base but it does far more damage to the likes of Alitalia in Italy than it does from Ryanair -- or the likes of Iberia in Spain than it does to Ryanair in many ways.

I think it speeds up the growth opportunity that exists for us, which is why we need the new aircraft [order].

Great.

Thank you very much.

(Multiple speakers).

We will now take our next question from Geoffrey Collyer from Deutsche Bank.

Please go ahead.

Yes, hi, guys.

Two quick questions, if possible.

Can you split out the proportion of the ancillary growth that's come from reserved seating and just remind us where you are in terms of share of the plane that that's available for now?

And then just a quick follow-up on the hedging front, how much of FY15 fuel do you think you'll be able to hedge over the next 12 months?

Geoffrey, we cannot get into splitting out the individual ancillary revenues so I won't give you an answer to this please, how much was it accounted for by the reserved seating.

However, reserved seating and the other feature, which is priority boarding, are both growing strongly, which is why we've been expanding the reserved seating cabin.

It's now gone, originally it was three rows, it then moved to six rows and now it's up to eight rows for the summer peak period.

What's been interesting about the rollout of reserved seating is -- those people who can book the front two rows and the front -- or three front rows, the three over-wing exits and now the two rear rows is -- our concern originally was it was going to simply cannibalize priority boarding, that these were all the people who were buying priority boarding.

And what's been very interesting is it hasn't.

There has been some decline in priority boarding but, generally speaking, reserved seating where people pay a EUR10 for -- to pre-reserve their seat is more expensive than priority boarding.

There's still a reasonable slug of passengers who don't want to reserve the seat but do want the priority boarding service so that they can board in advance of all the other passengers and that there's a meaningful combination of the two.

In terms of hedging out to FY15, tell me what'll happen to oil prices over the next six months to 12 months and then I'll tell you how we expect to do.

I think it's reasonable but, over the medium term, the next two or three years, to view that oil prices will moderate and hopefully decline.

You have US energy independence being forecast, stocks are at all-time highs but any time everybody's tried to forecast it we've been wrong.

I think what the numbers this morning show is that we can still be very profitable with oil averaging about $100 a barrel.

And I think it's reasonable to assume -- I would be disappointed if we don't get to the half-year numbers in November and don't have most of FY2015 hedged out at about $95 a barrel or lower but you'd be able to -- you'd have to take your own view on where oil is going and where our yields are going out in the second half of this year.

Okay.

Thanks very much.

Thanks, Geoffrey.

We will take our next question from Damian Brewer from RBC.

Please go ahead.

Yes, good afternoon.

Thanks for taking the question.

Damian, hi.

Good afternoon.

How are you?

Two questions.

First of all, I want to get a feeling if we do see even fuel prices where they've moderated but still relatively high increasing distress in some of the weaker second tier European carriers, how much flexibility do you have to flex the return of the existing 737-800 fleet?

What's the cost of that and is that the limit of the capacity of the business or is there a personnel and training issue that limits the growth there, and how do you balance those?

And then the second question, and I guess this might have some technical ETOPS questions around it but Scandinavia Canaries is almost six-hour sectors which is almost the same and in some cases slightly longer than the extreme US Northeast to Ireland; are you still intent on staying a European and near European carrier or is that a market you would look at?

Yes, thanks, Damian.

I think what's interesting the play in many respects, even if fuel prices moderate in something like the low or mid-90s, most of your flags and the second tier carriers are just losing so much money where you take LOT, SAS, Alitalia.

The real issue -- there's real reasonable speculation that some of those airlines may disappear.

I don't think they'll disappear, personally.

I think governments will continue to find ways to provide enough state aid to keep them alive.

But they'll keep them alive with a much lower short haul -- much smaller short-haul operation; that will be the focus of the restructurings.

I think what's interesting, if you look at what Willie has done in IAG by taking a majority control of Vueling, it gives IAG now the -- an opportunity to transfer a lot of Iberia's short-haul flying effectively into Vueling by allowing Vueling to open a place in Madrid.

And I think there'll be that kind of -- those kind of restructurings but it will materially reduce the scale of Iberia's short-haul operations in Spain, and we will continue to be the beneficiary of those kinds of restructuring.

The same in Germany, Air Berlin increasingly looking towards feeding into the hub in the Middle East but cutting out the short-haul (inaudible) we're doing both intra-Germany and intra-Europe.

Up in Scandinavia, SAS is a complete basket case.

And I don't see -- I can't see SAS disappearing but I think they're going to be meaningfully smaller in the short-haul market space, both intra-Scandinavian and from Scandinavia to Europe in the next number of years.

And that's a market that we intend to grow very aggressively in Norway, Sweden and in Denmark where we are in advanced discussions with a number of the airports up there for really meaningful cost reductions.

Our ability to grow in those markets will not -- really we're pretty flexible with all aircraft coming off lease.

Yes, we can extend the leases but that's relatively small in terms of total capacity.

I think the opportunist will still be if you take our 175 aircraft orders, net-net if we don't sell any aircraft ourselves and just return the existing leases, the fleet, over the next five years, will grow to about 450 aircraft.

Remember that the more distress that there is in Europe, and I think to an extent in North America, the more you'll see secondhand aircraft.

You fly to Dublin airport at the moment, there's a bundle of airbuses still sitting there, all of which have been returned to lessors from India, Eastern Europe carriers and those kind of guys.

So I think the more distress there will be, the more --.

We may also add some short-term leasing opportunities where the lease rates are cheap and we can negotiate sensible redelivery conditions.

But the growth -- our growth from 80m to 100m passengers, 110m or 120m passengers over the next five to seven years really won't depend on whether we can extend the existing leases.

It'll fundamentally be by -- by lining up the new aircraft order and the outcome of our ongoing discussions with Boeing.

We have a high level team working on another order where the focus is much more on the MAX.

And whereas we've set that team a target of reporting back to us by before the end of this year, I think there's the potential, but I wouldn't put it any stronger than that, for a follow-on order with Boeing if Boeing needs that kind of business from us for an order that might be a mix of more NGs and MAXs.

But we'd be opportunistic about it; only where we can have reached sensible schemes with Boeing.

Okay, I've got it.

On the transatlantic, by the way, (inaudible) always better off in Ryanair whereas I talk a lot about a transatlantic opportunity it will never be in Ryanair.

Ryanair will not be going across the Atlantic because the first people who want to be on the planes would be all the pilots and the cabin crew so they could be arsing around here for three and four days like their high fare, loss-making competitors.

If we -- I think there is an opportunity to do a European US transatlantic low-cost, but the more you look at the backlog of Boeing and Airbus deliveries in long haul and the crazy scale of the order book they have, primarily for the Middle Eastern carriers, I think for the moment I don't see there being an opportunity to pick up a fleet at a reasonable pricing but then bubbles burst and bubbles explode and if an opportunity cropped up because one or others of the Gulf carriers didn't make it over the next 100 years, then that might emerge.

But really it's wrong to ever -- to do that as Ryanair.

I said if we did it, it would be some kind of sister company or some related company but it would never ever be Ryanair.

Okay, that's great.

Thank you very much.

Thanks, Damian.

We will take our --.

Sorry, the reason for that is because the growth opportunities in Continental Europe across Europe are so extraordinary at the moment, in my view, for the next five years where we have the aircraft orders and the competition are blowing their brains out.

And our -- that nearly all of them, including right up to easyJET, admit that they can't compete with us, which is why they dress it up -- I smile at the number of European airlines whose first statement to the market is, well, we don't really operate in the same space as Ryanair, which is really a translation of we can't compete with Ryanair so, trust me, we won't try.

Okay.

Thank you.

Thanks, Damian.

We will take our next question from Jim Parker from Raymond James.

Please go ahead.

Good afternoon, Michael and Howard.

Jim, hi.

Good afternoon, Jim.

Just a couple of questions here.

One regarding maintenance, it appears that it was up pretty sharply in the fourth quarter year over year.

I'm not sure of my numbers but since you don't break out the fourth quarter in your report, (inaudible) breaking it out, was there something unusual about maintenance in the fourth quarter?

Jim, yes, we did some handbacks so we're getting ready for the handbacks.

We've some overhauls during the period so there's a net settlement at the end of that period.

It was an adjustment related to those handbacks.

(Multiple speaker).

And how much of that might be one time fourth quarter that doesn't recur?

(Multiple speakers).

Give me a moment.

You should be expecting it, Jim, in the coming year to rise at about 6%.

That would be in line with the growth in the activity and a longer sector length so typically that will track about 6%.

Howard, if you have a 3% increase in sector length, how much additional fuel per passenger?

Is it 2% or how much is it, that fuel (multiple speakers)?

We expect out unit cost for -- fuel cost per passenger this year was EUR23.8 per passenger.

I would expect that to rise by about 7% per passenger next year to about EUR25.4 per passenger, an increase of 1.7%.

The 7% has a couple of different components.

Firstly, obviously, we've got the longer sector lengths, which is about 3%.

On top of that, we have the movement -- the exchange rate movement between the dollar and the euro and that's probably about 7% adverse so our average rate was just over 1.38% and this year it's just under 1.31%.

That's giving us about 7% so if you took the total of those together, that's 10%.

However, our costs per barrel is slightly cheaper, it's about 3% less, so the net of those three is about 7% on a per passenger basis.

Okay.

Michael, you talk about all of the market opportunities available to you and you're up -- historically, you've expanded on the basis of where you could get the best airport deal.

Have you shifted that thinking more to let's go where the market is best or are you still looking primarily at costs?

No, looking to continually, primarily at cost, Jim.

We would readily hand over any geographic strategy if a cost opportunity came up.

But I think what we're trying to communicate, particularly as we go on the road show, is the scale of the opportunities that are currently unfolding in Germany, in Scandinavia, in Dublin, in Stansted, in Spain.

Really, we have far more -- and what drives those opportunities is active negotiations with airports.

Airports were really fiercely worried about their existing short-haul traffic, which is declining, and how they can reverse that.

And I think their analysis has generally led them to[view Ryanair as the only show in town.

There's no point in talking to flags about short haul, they don't have any growth.

And not a lot of point in talking to easyJET or Norwegian either, they seem to be focused on obtaining slots at the expense of airports where they can be 25% cheaper than a flag but they're still 40% and 50% more expensive than Ryanair so I think there's a real opportunity there and we see opportunity in the scale and the pace of airport negotiations that are ongoing at the moment.

Thanks.

Thanks, Jim.

We will take our next question from Tim Marshall from Redburn.

Please go ahead.

Tim, hi.

Hi there, Michael.

Just a couple of questions.

The fuel price is one thing but is there anything that you can do in order to reduce your overall fuel burn?

Is there some sort of strategy that you can put together which can just reduce the amount you use?

And then the second question perhaps to you, Howard.

Was there an FX impact on yields in the March quarter?

I guess if we look at the progression of yields through the quarter with Easter in March, I might have expected for the yields to be slightly stronger than they were.

Thank you.

Thanks, Tim.

I think as head of our fuel management department, Howard should answer both parts of that question.

Howard?

Thank you very much, Michael.

In terms of fuel, yes, we have been -- we have a fuel management team now that's been in place for about 15 months or 16 months and one of the things we have started when we started this at the back end of last year was to look at flying the aircraft slightly slower so by reducing speed you saved fuel.

We've also had a couple of other measures which I don't particularly want to go into in depth with you.

But a lot of them involve the tactical planning of how we operate our flights (technical difficulty).

Hello.

Hello.

Pardon the interruption.

Mr. Dempsey has disconnected from the call at this time.

Sorry, I think Michael O'Leary has been cut off from the call as well, as far as I can tell.

Hello.

We currently have Mr. Michael O'Leary and Mr. Howard Millar connected to the conference.

Yes, but I'm not hearing the conference.

Hello, Sammy?

Bear with me just one moment, sir.

I'm just investigating for you.

Thank you.

Hello.

Please go ahead, sir.

Sorry about that.

For some reason we got cut off from the conference.

I'm not quite sure why.

Howard, are you still there?

Hello, Howard?

Mr. Millar has just disconnected, sir.

Okay.

I'll keep going then.

Sorry, Tim, there was some kind of technical interruption there.

Did you get -- was that question answered to your satisfaction?

A little bit, I guess, on the fuel burn, less so on the yields in the March quarter so maybe if we turn to that and the FX impact.

Just give me the question again there.

Sorry, Tim.

I was looking at -- if you look at either the year-on-year or the quarter-on-quarter movement in average fares, you might have been slightly disappointed with the March quarter given that half of Easter, at least, fell in that period so I was just asking if there was an FX impact on that quarter from the weakness of sterling.

Not a material one but, to the best of my knowledge -- that's a question you might put to Howard offline separately, if that's okay.

Okay, that's great.

Thanks a lot.

Okay.

We'll go to the next question, Sammy, please.

We will now take our next question from Robin Byde from Cantor Fitzgerald.

Please go ahead.

Hi there.

Good afternoon.

Just two from me, actually.

Robin, hi.

Hi there.

Just on the UK CC enquiry into the AerLingus stake, when are you expecting a ruling on that?

And, then secondly, just to help with -- hello?

Secondly, just to help with our modeling with cash, can you guide on debt repayments for FY14?

Should we assume a similar level to FY13, in other words, about EUR370m?

Yes.

Let's do the CC first.

The timeline as I understand it, we expect the UK CC to come up with their paper on initial thinking before the end of May so it could be some time later this week or the early part of next week.

We think then they'll be further hearings scheduled.

We think, by the way, they'll come up with some scatty idea that we should be required to part-sell -- I can't imagine they're required to sell all of the stake but they'll be some partial sell-down.

I think that will expose them to a lot of different legal issues that we've covered in our press release; I won't go over them here.

My understanding is the timeframe move towards some time at the end of July they'll make a final decision but it seems -- it appears to be the legal advice that they can't make the final decision while our appeal of the EU Commission decision is pending.

That's not to say they won't breach -- that they won't do something different to our legal advice but they're in the difficult situation given the duty on fair cooperation.

You can -- I can understand how the EU would say there's been clearly competition has intensified in the last six and a half years.

We think what the CC will try and do is ignore the last six and a half years to be able try and come up with some forward-looking finding, despite the fact that unusually in this case there has been six and a half years of evidence and that they'll come up with some kind of model forward-looking thing.

We don't know really what happens after that.

We're the grey area of while we're appealing the EU decision, we believe they can't make a finding or if they make a finding it's not implementable until the EU appeal process has run its course.

But we should have some kind of initial thinking by the end of May, final thinking by the end of July.

And thereafter, then the lawyers will have a field day in terms of appealing both these -- any CC decisions and the EU decision.

In terms of debt, well, debt, sorry?.

Yes, sorry, understood, yes, on that point.

Fine.

Into FY14 we expect a gross CapEx in FY14, mainly aircraft deposits and stuff of about -- something between EUR500m and EUR600m.

And in terms of our debt repayment, we think it will be slightly higher than last year; I don't have the figures here to hand.

Howard, are you still on the line?

Yes, we got cut off there, Michael.

We had phone trouble there so we're back on here.

Weren't we expecting debt repayment in FY14 would be slightly higher than debt repayment of FY13?

I think it would be lower, Michael, because we'd be running down the CapEx program and would be only starting up at the back end of '14.

I think our repayments are about EUR340m so that should fall by another EUR340m plus whatever we take on for the -- I think there's 11 deliveries coming in that year.

And how much was debt down this year?

Debt was down about EUR120m.

So it'll be slightly higher next year then if it's EUR340m, isn't it?

No, because we've just got the advance payments this year, which we're funding from cash so we came down another EUR300m of debt this year.

Okay.

Okay.

Sorry, just to clarify on the CapEx, so that's gross EUR500m to EUR600m.

Yes.

Before disposals or any lease -- sale and leaseback transactions, so we're guiding EUR500m for FY14, EUR600m for FY15 and about EUR1b then for three years, with the final year then in FY19 at something like EUR700m to EUR800m, and that's all gross before either disposals or lease returns -- or sale and leaseback transactions.

Great.

Thanks very much.

Okay, cheers.

Thanks, Robin.

We will take our next question from Andrew Light from Citigroup.

Please go ahead.

Andrew, hi.

Hi there.

Just a few questions.

First of all, on the CapEx, I notice there's a, I think, eight aircraft slip from FY15 to '16; I just wondered if that was material, at all.

And, secondly, how do you think about pricing power now you've slowed the capacity growth quite considerably?

And I think that was one of the arguments used in the past that, even though you were slowing growth, you could optimize the network and boost yields and profitability.

Obviously, you're not seeing that in Q1 but is that something you could see perhaps from Q2 onwards?

And I'm thinking in particular as the fuel costs start to come down, I suppose from next year, do you have a rule of thumb as to what proportion you would expect to keep versus passing on to customers?

I don't think it's anything as simple as a rule of thumb, Andrew.

I think over the medium term again, we'll resume meaningful growth we expect in a market where, overall in Europe, there'd be no net capacity additions because of flag carrier restructurings that pricing power has returned -- or will return to the model and you'll see that reflected over the full year next year and into the next number of years.

You look at it in the last year, despite the fact that there's been a deep recession in Europe, our average fares improved by 6% during a year in which we still grew the traffic by 5%.

As you know, we're predicting 5% capacity or traffic growth each year for the next five years once the aircraft deliveries resume and if we can add a meaningful growth in revenues of some double-digit 13%, 14% and see profits rise at that, then we should continue to do very well.

But there isn't a formulaic pricing power issue there.

Some of it depends, too, on what happens with competitors.

There was a meaningful jump in pricing, particularly in some UK markets last year when BMI Baby closed down, when (inaudible) airline closures.

And Malev in Hungary, for example, we [didn't] rush into the Hungarian market because there was a vacuum there we needed to take up.

We can see growth there at meaningful pricing but what tends to happen over a year or two as we keep adding capacity pricing softens again.

Howard, you'll deal with the CapEx issue?

Yes.

Andrew, I think the original schedule we published around the time of the Boeing order, I think there was 19 originally in FY15.

That's right.

And there were 27, I think, in FY16.

It was just -- it was as simple as a typo.

It should have been read 11 and 35.

The CapEx number was correctly calculated but on one of the schedules in whatever the process, there was a typo, so the correct numbers are the ones you have in the slide and the [age] doesn't affect the gross CapEx because it was correctly calculated.

Okay.

Can I just ask on assigned seating, you're rolling that out from, I think, 33 seats to 45 seats for plane.

How far do you think you can take it and are you considering going right across the entire plane?

Would that be value maximizing, as I think easyJET's finding, for example?

I suspect not.

I think what we'll do is we'll continue to extend the number of seats in our model where we think there's an opportunity to do so.

There's clearly a growing slug of the marketplace willing to pay a premium for a pre-reserved seat.

They appear to focus, primarily, on the front rows, the over-wing exit, particularly on longer flights down to holiday destinations.

And, increasingly, we are now targeting the rear couple of seats where, if you remember, we load and offload front and rear so if we can get off quickly -- first and get off quickly.

We'll continue to expand -- clearly, if you've got 30 rows you'd then go completely all reserved seating but it is such a key part of our punctuality and our quick turnaround, the free seating has people down there at the boarding gate ready to board when the aircraft arrives in, I'd be very loathe to go back to all reserved seating.

I know easyJET do that but, remember, easyJET operate now in a lot of airports where they're factoring in 35 and 40-minute turnarounds.

There is a degree of operation inefficiency built into that model by virtue of the fact that they're operating it with the slot-controlled airports where they're chasing higher yields.

That's really not our business model.

But we'll be opportunistic.

If there's demand -- if we think demands for reserved seating will roll -- will increase above the 45 seats we currently have allocated, then we can add another row of seats, another row of seats.

I suspect that we'll find a level there and I'd surprised if we're not pretty close to that level.

Okay, great.

Thank you very much.

Thanks, Andrew.

We will take our next question from Donal O'Neill from Goodbody.

Please go ahead.

Donal.

Hi guys, good afternoon.

Three questions, first one again on salaries there has been some speculation and chat around WiFi on board and that kind of things, you guys are investing in that.

Can you give us an update there?

Maybe a follow on from Andrew's question what sort of slack is there in the system, let's say hypothetically, in the summertime to absorb any slippage in turnaround times given the roll out of allocated seating?

Second question could you maybe quantify the kind of weakness you're seeing, particularly in April I guess on yields and what that might be in Q1?

And the last question is on MAX order.

I understand that Boeing have found a way to get 200 seats on the aircraft.

How does that play to your view of placing an order there?

And secondly, how do you balance out the higher weight charges given that I think it's three or four times heavier versus the NG.

Does that mean you'll have to take out one of the stairs or how do you view that?

Thanks, Donal.

Let's run through them quickly.

Ancillaries, yes we have been, we have a team working on in-flight WiFi which I am very committed to for about the last four or five years.

I think one of the great new territories for in-flight revenue will be WiFi entertainment access.

However, we are really not that close to it at all in so far as the cost, the CapEx cost on the aircraft which is, it's not huge but it's meaningful across a fleet of 300 aircraft.

The big issue for us in Europe is still the roaming charges.

And the problem is unlike the States where you have one big market, one big domestic market, in Europe you're still flying across 24, 25, 26 different international countries roaming charges and therefore the comms costs are prohibitively expensive.

I expect at some point in time in the next one, three, five years that somebody will invent some piece of kit that transforms all those what are now high roaming charges and will make WiFi on board WiFi a relatively low cost service -- a service that we can provide at relatively low cost to most of our passengers.

As I said if I think we can get it we think we'll get 50%, 70% of our passengers willing to pay $1, or EUR1 or EUR2 an hour for the use of the service but we have to be able to bring that at $0.10 or $0.20, $0.50 in terms of provision to make it work.

And frankly while working actively and closely on it we are nowhere close to those kind of comm costs yet.

So I think it's a transformational communication transformation away yet.

Slippage in terms of turnaround times, we are not going to tolerate any slippage in turnaround times.

We don't do allocated seating but any of the movements we've made in terms of the reserve seating, priority boarding, all of that provisioning takes place prior to boarding, it doesn't affect the turnaround times.

What we do is we basically have stratified our passenger base into those that are willing to pay a premium for reserve seating, a modest premium for a priority boarding and everybody else.

The key to having the free seating still on board for everybody is to have everybody down at the boarding gate.

And that's -- having everybody at the boarding gate means we identify the passenger who don't show at minus 10.

If they have a bag we have the bag off, we have them off, we go with an on-time departure.

And I would be loathe to hand that over, but it's really -- I don't think we would allocate [seating] at a risk to that, so where I think we'll make it to move to all allocated seating.

Q1 yield, it's too early to say yet.

The key for the Q1 yield is it's heavily dependent upon the close in remaining bookings for the remaining months obviously of May and June.

We think that they will be lower than Q1 yields last year.

A lot of that will be the movement of the first half of Easter out into this year's Q4 and I think that's had a meaningful impact on the Q4 and the full-year numbers.

But more than that we wouldn't say.

I think the best thing we need to do in terms of guidance here is to say the Q1 numbers will be down and the Q1 yields will be modestly down.

Boeing, as with everything with Boeing we are looking at a MAX order.

We are also talking to Boeing about some more of their end of line NGs.

Boeing haven't yet firmed up themselves when they will kind of -- or how fast this MAX production will be, when they'll cut over from all -- from NG production to MAX production to all MAX production, how they'll wind out the NG.

So that's the debate, that's the thing that we are both of us are studying at the moment.

And everything else whether it's can they -- we've been pushing for a number of years to increase the seating there via -- we think, one of my great ones has been to take out the two rear toilets and stick six extra seats that would get you from 189 to 195.

Boeing are looking at a number of different alternatives.

But you know it's very early days at this stage.

And whether it's additional seats or whether it's weight or whether it's fuel saving, everything depends on price.

So we would tolerate any waste penalty as long as it was reflected in the purchase price of the aircraft.

And we'd also look at any other revenue-enhancing measures like more seats on the aircraft as long as it's reflected in the competitive aircraft pricing.

And so I think we tend not to get too distracted by the technological revolutions or any of the other bells and whistles that aircraft manufacturers like to talk about, we are much more focused on what's the per seat cost, is that per seat cost at higher/lower than our last aircraft order and will placing this order now be enhancing to our shareholders.

And that's what drives the decision making.

Remember we walked away from Boeing in 2009; we walked away again in 2010.

We've finally got a deal going in the spring of 2013 which demonstrates the extent to which we are very disciplined with our aircraft orders.

We will wait until we can find not necessarily the (technical difficulty) that we get the cheapest price ever, as I said the last -- when we announced the deal in New York the pricing of this order was not dissimilar to the previous order or that Boeing had got a slightly higher price, but it's right in the ball park for what we want to achieve.

That's great, thank you very much.

However, I would add to that, Michael, if I might that the -- one of the issues with the onboard WiFi is the antenna that sits on top of the aircraft.

In the kind of studies that we've done, and I've got my Head of Field Committee role on here, is that there's significant drag, potentially up to 2% additional drag for putting the antenna on.

So our view is that, as Michael said, the technology needs to change and the way the antenna sits on top of the plane has to be made smaller so that you can reduce the drag.

A 2% drag for us just to put it in perspective would be potentially EUR40m a year of a hit and that's not something we would be interested in doing.

Super, thank you very much.

Okay.

Cheers, Donal.

Yes, thanks, Donal.

We will take our next question from Anand Date from Deutsche Bank.

Please go ahead.

Afternoon, everyone.

Sorry I know it's been running on a bit, a couple of questions.

What stops you from yield managing reserve seating?

Are there any barriers there that make it uneconomical?

Second one, should we be thinking about the strategy now as you're moving more and more into tier two airports, so moving into kind of more core flag carrier airports.

And three, I know it's a long way out but you're talking about a secondary market for planes and all this sort of stuff, is there anything on residual value risk you can comment on?

And is there any way you've thought about potentially mitigating that based on the current order for when that comes in?

Thanks.

Thanks.

Yield, I suppose we probably do in a sense yield manage reserve seating, I don't want to be overly -- we spend most of our time in Ryanair is spent maximizing load factors not managing yield because quickly we hit our passenger targets.

So I always feel a bit nervous when people start talking to me about yield managing anything, it usually means you put the prices up and that's -- and that kind of negates demand.

We do price the reserve seating differently on some of the longer routes on some of those routes where we know we have a higher demand for the reserve seating down to the Canaries, down to Spain during the summer or during the peak period.

I wouldn't like to go any further than that.

I think if we can continue to keep it a -- it's a relatively modest service when you consider you can book a reserve seat for EUR10.

I'd be more inclined to increase the number of seats allocated to reserve seating and therefore yield manage the premium by extending it to more seats rather than trying to extract the last $11 or $22 or $55 out of whoever it is wants to sit in the front row seat.

So I think we will manage it carefully but in a way that continues to feed the cake of both reserve seating and priority boarding continue to grow.

tier two airport, I think it vindicates what we've been saying to the market for 20 years.

The market had this view of us when we first [arrived] in 1997, we were all flying to some out of the way airport, ha ha, in the middle of nowhere.

And we don't in actual fact.

Most of our airports, (inaudible) airport in Madrid, Barcelona el Prat, Rome's Ciampino is closer than Fiumicino to the center of the city.

So there is undoubtedly a, I don't know what your description of tier two is, but if you take away one being the big congested expensive hub airports who have absolute pricing control like Heathrow, Frankfurt, Charles de Gaulle, etc., we are now into all of the other airports, are potentially into all of the other airports in Europe.

And again I look to the German airports, the Nurembergs the Hamburgs, the Dortmunds and the Colognes who two or three years ago wouldn't even talk to us, now have seen their traffic implode with restructurings in Air Berlin, Lufthansa, Germanwings and are now talking to us about, and aggressively talking to us about connecting their airport and giving them meaningful traffic growth.

I would describe those as tier one airports, but they are now tier one airports that recognize that we have a low cost growth strategy as well as just serving what has for 50 years been the high fare, high cost incumbent.

And that's very much on the table up in Scandinavia it's same down in Italy and across Spain.

So I think by waiting and demonstrating that you have the discipline to wait, and by always having 40 other airports where we can go if you last don't want us, eventually they work it out themselves and are now coming back to us.

The secondary market for airplanes, look it's a cyclical capital intensive business there will continue to be cycles.

The key thing is to only place your aircraft orders at a time when the aircraft manufacturer needs the order rather than running out like AerLingus and BA do historically and always buy your aircraft at the top of the cycle when every aegis is buying or ordering aircraft.

I think again we've demonstrated over 20 years we do have that discipline.

I am less concerned about the secondary market for aircraft.

If you take a minute there is no doubt we've done a terrific deal with Boeing on our 175 NGs.

But it's an order for what will ultimately become end-of-line aircraft.

Boeing are undoubtedly moving to the MAX, the MAX will become their replacement short-haul aircraft.

We will finish up with a fleet of 400 NGs.

I have absolutely no doubt that over the next 20 years the value of those second-hand aircraft will rise and fall on a cyclical basis every five years.

And we will continue to, as we have done in the past, exploit those and ride that cycle.

We tend to sell on our second-hand aircraft during periods of crazy demand as we have sold the gut of probably 40 or 50 aircraft in the last five or six years namely to place in Asia and Russia.

We haven't sold any aircraft for the last two years, and we will -- but I have equally no doubt that we would be very happy to be an end user of these aircraft for another 20 years.

These are very cheap, very efficient, very income-producing aircraft and I think our numbers today demonstrate that we know how to operate them efficiently, safely and profitably.

Okay.

Sorry can I just ask a follow up?

Yes.

I should just go and find it, but in terms of your depreciation policy do you get them down to zero or what's the residual value you carry (multiple speakers)?

Will I answer that, Michael?

Yes please.

Yes, we take a 15% value, market value so that's about $5m or so -- EUR5m about $7m so it's quite an aggressive view of it.

As we know, for example, towards the end of life the engines are probably worth more than the actual total aircraft.

I think one of the big things we would see in terms of residual value risk is that one that we've got such a significant discount to the market price that we are effectively not impacted by long-term residual value risk.

It's really those people who are engaged in, I suppose like the leasing companies, who make their gains or losses depending on how they pitched the residual value risk in their calculation of their lease rates.

As Michael said, we would expect to be running these aircraft out for quite a considerable period.

So we take a 15% value and we depreciate the aircraft over 23 years.

Okay, fine.

That's great.

And that's 15% of our net purchase price, Howard.

It's 15% of our cost price, yes, our net purchase price.

Yes, absolutely.

We depreciate down 15% of our net -- of our purchase price which is probably one of the lowest purchase prices in the market so it's not based on values.

Yes, it's not based on this.

It's highly conservative and it's very prudent.

Thanks, guys.

But the proof of that pudding was when we sold on the aircraft that we actually realized a gain on selling them, so very conservatively managed in terms of depreciation.

Right, thanks guys.

Cheers.

Okay, thanks.

Next question?

There are currently no more questions in the queue at this time.

(Operator Instructions).

Okay, I think since we are starting to run late into our investor show we'll cut it off there if that's alright with everybody.

We have extended some road shows on the road all week.

I am in the States, Michael Cawley is on the West Coast, I'm on the East Coast.

Howard (inaudible) covering the UK, we have Jimmy Dempsey, Neil Sornaham and others then in Continental Europe.

So if anybody wants a meeting please make contact with us through Citi or through Davy's.

I would be happy to have a one-on-one with you.

And if -- other than that all I can say is business is growing well.

We have a unique opportunity to grow the market, our business in the next four or five years.

We think the -- we can at last point to the aircraft order, 175 aircraft order to address the growth issue with investors over the coming week.

And not insignificant is we expect to continue to generate very strong cash flows, so we expect a resumption of returns to shareholders some time before the end of FY March '15.

Okay, everybody, thank you very much for you time and I hope we'll see you all at some point in time over the next week.

Thanks folks.

Bye.

Bye.

Cheers.

That will conclude today's conference call, ladies and gentlemen.

Thank you for your participation.

You may now disconnect.