Ryanair Holdings PLC (RYAAY) 2014 Q4 法說會逐字稿

Good day, and welcome to the Ryanair full-year results call.

Today's conference is being recorded.

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

Please go ahead, sir.

Thank you, Kelly.

Good morning, ladies and gentlemen.

Welcome to the full-year results conference call.

I'm with David O'Brien here in New York.

Howard Millar and the team are joining us from London and from Dublin.

You'll have seen the results which were issued this morning, full-year net profit down 8% to EUR523m, slightly ahead of our previous guidance.

Traffic was up 3% to [80m] passengers.

Revenue per passenger was flat, thanks to strong ancillary sales.

And excluding fuel, sector length adjusted unit costs fell by 3 percentage points.

I think we've achieved a number of significant milestones over the year, not least of which has been the significant improvement in the customer experience which we've delivered over the past six months and are continuing to roll out, led not least by a dramatically new and improved website, in particular with a fare finder facility which enables most of our passengers to find the lowest fares and move day or date to suit themselves.

We've launched 121 new routes, eight new bases in Athens, Thessaloniki, Brussels, Lisbon, Rome Fiumicino, Catania, Lamezia, Palermo.

We increased the aircraft order from 175 to 180, to take advantage of five relatively early deliveries in 2015 which Boeing were able to spring out to us.

And we've been extending our distribution platforms with hosting our flights and low fares on Google Flight Search and on our first GDS deal with Travelport, who operate the Galileo and Worldspan GDSs.

And we completed almost EUR500m in share buybacks.

The key driver of the results this year has obviously been the softer fare environment which we identified last September.

The H2 fares fell by an average of 8%.

We responded and we acted quickly to that at the end of August, last September, by extending a range of lower fares and beginning to eliminate a number of things there, features of Ryanair's service that passengers didn't like.

The response to that has been dramatic over the last six months.

We've seen a significant increase in forward bookings.

We've seen our load factors begin to rise, and we expect those to be two key trends for the next six months, through summer 2014.

On the customer experience side, we've moved to allocated seating, a much simpler, easier-to-use website with a fare finder facility which customers are really responding very favorably to.

Second small carry-on bag, lower boarding card and airport bag fees, a new service to groups and corporate travelers which has taken on very quickly and very well, and in the next number of months we'll be rolling out a new family product, as well as a new business service.

And later on this year, we expect to be doing more GDS -- announcing more distribution agreements with GDSs.

On the digital and distribution side, we've really transformed the business in the last six months.

Our website, which was worst in class, is now moving very rapidly to becoming best in class.

You can now get through it very quickly to make a booking.

The fare finder facility is unique and something that passengers are responding very favorably to.

In fact, we know one of our competitors, EasyJet, recently announced their plans to copy our fare finder, but they won't have it for a number of months yet.

The My Ryanair registration service, which stores all customers' details, is building very quickly.

We were up over 2m passengers.

And in early -- by mid-July, we expect to roll out a new, specially developed mobile app, as well as tailoring our website for apps, phones and smartphones.

We're rolling out an extensive TV and outdoor advertising campaign to support these customer experience improvements and the new digital platform, and again, I think the byproducts are the results we're already beginning to see.

And I think the two key takeouts this morning is that forward bookings for the summer period, from April through to September, are running about 5 percentage points ahead of where they were this time last year, even with a big event like the World Cup in the middle of the summer.

So we're much more strongly booked further out.

We expect, obviously, to give away some of that, because we need to sell less seats as we move through the summer period.

But at this point in time, and we have reasonable visibility over the first half of the year, we expect load factors to rise by about 2 percentage points month on month over last year.

Fuel is 90% hedged at about $96 per barrel for the remainder of the year.

That should kick in about a EUR70m cost saving over last year's number.

The saving itself is slightly higher, but we expect to give back some on deicing, where we had a very mild winter last year.

Balance sheet remains very strong.

Over the year, we generated nearly EUR1b -- just over EUR1b in free cash flows.

We completed almost EUR500m in share buybacks.

CapEx was just over EUR500m, and yet we finished the year in a small net cash position.

So during a year when we're not taking many aircraft, we really are generating a lot of cash.

The outlook for FY 2015 is characterized by we expect traffic to grow by 4%.

We expect the load factors to rise 2 percentage points, which should get us very close to 85m passengers.

We're expecting a strong first half.

Some of that I hasten to add is the impact of Easter, which was in April this year but not in the prior year comparable, and we expect April has an impact of typically EUR20m to EUR30m on net profits.

The traffic growth in the first half will be modest because of the aircraft capacity issues.

We're trying to smooth out some of those capacity issues by leasing in seven aircraft this summer.

We'll be leasing those aircraft from a number of sources, but they help us to maintain reasonable or modest capacity growth during the first half of the year.

We're much more cautious on H2.

In H2, we expect to roll out, as I said, the business product.

We're going to be fleshing out our frequencies and schedules on a range of business routes, particularly from Dublin and Stansted, where we'll have increased capacity.

We expect capacity in the second half of the year to be up 6%, which is a big jump off our base.

We will be opening new bases in exciting cities like Cologne, Warsaw and Gdansk, and we expect those to perform strongly but have weaker yields.

We are also conscious of the fact that last year we didn't foresee the price weakness as we moved into the winter period, and therefore we're nervous about pricing into the winter and our own capacity growth.

And accordingly, we're guiding yields down 6 to 8 percentage points for the second half of the year, which would mean that overall for the year, full year, yields should be up about 2%.

Ancillaries will be -- per customer will be broadly flat.

The unit costs will be broadly flat, characterized by EUR70m savings in oil but some small rises in unit costs, particularly around the charges at primary airports, and we're adding airports like Rome Fiumicino, Lisbon and Athens; increased sales and marketing spending that will go up by approximately EUR25m this year, or something less than EUR0.50 per passenger.

We'll also have the winter ownership of 11 aircraft, which we start taking deliveries in September of the new aircraft order.

We will have the ownership of those aircraft for six months, but very little revenue arising from them, and we won't have had the ownership cost, because we didn't take any deliveries last year, in the prior-year comparable.

However, I think again, the overall message that unit costs broadly will be flat is strong, where yields will be rising.

And accordingly, we're guiding for a significant jump in full-year profitability from last year's figure of EUR523m.

We're now guiding that this year, subject obviously to H2 yields, will fall in a range between EUR580m and EUR620m.

Howard, would you like to add any comments to that?

No, Michael.

I think we should say that the business is in a very, very strong position.

We've got the S&P rating, as you said, and Fitch with BBB+.

We now have a platform which will enable us to finance the aircraft.

We're in the process of looking at a Eurobond, which will -- for at least a minimum of EUR500m for that type of a tranche.

So we have a lot of the building blocks in place to finance our long-term fleet delivery program.

Okay, Kelly, you can open it up for questions, please.

(Operator Instructions).

Edward Stanford, Lazarus.

Good morning, everybody.

A very quick point of clarification, if I may.

When you're talking about the fuel cost saving for the current year, am I right in saying you've adjusted that for an estimated increase in deicing cost, so that's net of the increase?

That's correct, yes.

Thank you.

Okay, we have a question here.

So, Jarrod, would you like to introduce yourself?

Thanks, Howard.

It's Jarrod Castle from UBS.

Three, if I may.

Can you maybe just give a bit of color on industry capacity, some of your competitors have been talking about that, and especially on your routes going into the summer?

Secondly, just on the growth, can you maybe split it up between increased frequency and a little bit on new routes, especially given the launch of the business product?

And then, just lastly, just in terms of the special dividend, any reason for pushing it into Q4 rather than paying it a bit sooner?

Thanks.

Very good.

Yes, on industry capacity, there's been some small capacity additions around the network this summer, some of it in airports.

I think Rome Fiumicino is one where we've added a significant amount of domestic capacity to take advantage of the Alitalia situation.

We've been followed in by EasyJet and Vueling adding their capacity.

But, frankly, there's a bit of a replay of that in Brussels Zaventem.

Thus far, because we added the capacity first, we're in there earlier than anybody else.

We're characterized by very strong load factors, plus 90% in the first couple of months in Fiumicino and Zaventem.

The others tend to follow in, but at higher prices, so I'm not sure we notice that much what the competitors are doing.

I think there's going to be more downward pressure on fares this winter, though, where we'll be adding significant daily frequencies to routes, business routes out of London Stansted, and targeting not just the outbound business market that lives up around the Stansted, Cambridge, Norfolk, Suffolk area, but also inbound business coming back into London.

If you look at places like Lisbon, at the moment, the only choice they have, and it's relatively high fare, is EasyJet back into Gatwick.

We think we'll switch a lot of those business passengers where Stansted is perfectly acceptable, particularly if you're traveling to the city of London.

In fact, it's more convenient than Gatwick.

That will be replicated in routes were we have -- where we're building frequencies between places like Brussels to Rome, Brussels-Lisbon, Lisbon-Dublin.

Out of Dublin, for example, this winter, we're going double daily.

We used to be daily last year.

We're going double daily on Madrid, Barcelona, Rome, Milan and a lot of those cities, and we think we'll provide a really good business schedule for Irish business people traveling to European cities.

Where the only competitor, which is Aer Lingus, generally just provides a daily service, we'll be providing double dailies, lower fares, fast track through security and a number of other features which will make the business product very exciting.

But that, I think, the capacity load difference will put a downward pressure on fares and yields, and that's why we're so cautious this winter.

The split on growth between new markets and increased frequencies, in the winter schedule it will be about 50/50.

We'll have new routes in -- first, we'll be in the first winter in a lot of new bases.

Athens will be the first winter, the new ones, Cologne, Warsaw, which I think will grow quite strongly, Gdansk, which is also -- is a Wizz base.

We see a lot of potential growth there in those markets, where you have operators like Wizz or EasyJet or Vueling, who are pricing typically about -- on average, between 60% and 90% higher than Ryanair's prices.

And the Q4 dividend, no reason.

At this point in time, we just felt it was better to pay it in the Q4.

There was some interest from particularly Irish individual shareholders that the dividend we paid in -- it's a new tax year, in calendar 2015.

And it more or less suited us from a cash management point of view to pay it in Q4 this year.

(Inaudible) in a period where our cash flows are at the strongest.

Q4, particularly, as we get back after the Christmas period into the New Year, a lot are making -- people are making their summer travel plans, so we felt it was probably -- it fit best with our cash flow generation.

Thanks, Jarrod.

We have another question here, from Stephen Furlong.

Hi.

Stephen Furlong from Davy.

So can you just talk about the effect, if what you see -- actually, releasing the schedules early, both summer and winter, how does that help you?

Maybe just talk about as well the kind of business product that you're looking at in terms of where you're thinking there will be fast track through airports.

And then just on the costs, I just want to get a feeling where you would see sector length going over the coming 12 months or so.

Thanks.

Thanks.

The impact of releasing the schedules has been pretty dramatic.

I think one -- it's been a byproduct of the fact, actually, that we haven't had much capacity growth this year.

But historically we would kind of release the schedules pretty late, mainly because we were engaged in 11th hour negotiations with multiple airports or multiple potential bases, and you got the best deal by delaying and delaying and delaying and delaying.

But I think it undermined confidence in our schedules, particularly with some of the regular passengers, where we'd be having a lot of schedule changes in March for the month of April and May.

And passengers, particularly when we were cutting capacities in Stansted and Dublin in recent years, some of our frequencies went back down from four or five to two flights a day.

And it's been, I think, an important -- I think that was unsettling for particularly our business customers out of Ireland and out of UK, where we have a large percentage of business travelers, couldn't rely on the schedules.

And also, we found ourselves with the website, which is a bit -- our old website, which is very clunky and dysfunctional.

Competitor airlines, who have typically their average fares are 60% to 80% higher than ours, were able to use a better website to price down on top of us six months out, because our yield curve was a bit like a Nike swoosh.

It started high, dipped down in the middle and then turned back up.

They were able to price down further out, because they had a bit more flexibility and a better website than we had.

And so they were able to close -- what was kind of apparent to us, there was only a EUR10 or EUR20 difference between us.

What's happening now is we actually launched the summer schedule early.

Our winter schedule was out before EasyJet, Norwegian, anybody else.

And there's a much more credible and less volatile schedules on key business markets, which has meant that in the summer one of the key reasons why we're 5% more -- why we have 5% stronger forward bookings is in part because of our lower fares, but also because actually we got the schedules out.

They're typically three months earlier than heretofore.

At this time -- on this date last year, we hadn't loaded about half of our winter schedule, and the number of bookings that we had taken was less than 100,000.

This time, this year, the winter schedule has been finalized out there for a period of over -- about three or four weeks now, and forward bookings into the winter, which is a quiet period, are now over 0.5m.

On the other point, the business product, we've enunciated some of the features.

We will be rolling it out towards the end of August, as we move into the winter schedule.

It'll be backed up with heavyweight advertising in media and business press.

But what it consists of is obviously, still, far lower fares than any other airline, a fast track through -- lower fares than any other airline, a premium, however, compared to our normal fares.

The service will consist of a changeable ticket, flexi tickets out and back, fast track through security at most of our major airports, free reserved seating, free priority boarding, a free check-in bag if you want to check in out and back.

And we will generally -- if you're traveling on one of our flexi fares and there's an issue, we will resolve that issue in your favor.

So we're not going to be arguing -- if you're one of our flexi passengers, we're not going to be arguing with you if your bag is one kilo over the extra.

We'll be identifying you as a premium customer and trying to look after you as a premium customer.

And on costs, we envisage still that sector length will be relatively stable over the next 12 months.

There's a lot of shorter domestic flying in some of the winter schedules, and I think we're planning on sector length, it may be up 1% for the full year, but it's flat to up 1%.

Okay.

We have a few questions.

Neil?

Neil Glynn from Credit Suisse.

If I can ask two, please.

First of all, on the cost base for this year, more thinking beyond FY 2015, how sticky should some of those increases in unit costs prove?

And you obviously talked at the investor day last year about keeping unit costs flat over the medium term.

Is that still the best way to think about things?

And then, second question, if I look back to when your last batch of aircraft were delivering, you were growing double digits annually, obviously, and I guess the rule of thumb back there was usually average fare down, unit costs down.

Into your next financial year, FY 2016, you'll obviously be growing by 8% per year, as we can see on the slide there.

How do you steer the business while you're growing high single digits?

Is average fare down, ex-fuel unit cost down still an appropriate way to think about that?

Okay.

Well, in terms of unit cost outlook, we would expect something like a 5% increase in non-fuel cost.

Some of that is a one-time step up associated with the increased marketing costs.

When we look at the other breakup of the unit cost increase, about 40% is that.

The 5% is equivalent to about EUR100m of an increased cost.

About 40% to 45% of that is related to airport charges.

The balance then, about EUR25m, is what Michael talked about earlier on, the winter aircraft deliveries, and also the fact that we have seven more aircraft delivering across this summer, and the balance of about EUR25m or so is from airport charges.

Hopefully, the summer leasing cost won't occur again, so that's non-recurring, as it were.

The marketing costs, we stepped it up to a level -- I'm sure Kenny would like to have another EUR100m in his marketing budget, but unfortunately it's not going to happen.

So I think that's a one-time step up which increases our cost base.

Airport charges, what's going to happen there is as we increase our route network, particularly as 25% of our future growth is coming out of Stansted, that's going to come at a lower unit cost at Stansted.

So if I give it to you simply, the more we grow with Stansted, the more our unit costs fall.

And if we look at where we're going to grow out of Stansted, that will be to some primary but some secondary airports, as well.

So, overall, you'll see unit costs up EUR1 this year, but as we push out with load factor increases, this year we're going to go from 83% to 85%.

If we grow more, and we would hope to increase that by another 1% or 2%, that would have a positive impact on unit cost per passenger, because you'll have obviously more passengers to spread that cost across.

So if we kind of took a medium-term look at the business, you see aircraft and ownership costs falling, because we're going to get more and more of those 737 800s.

We talked last year about having a not dissimilar price, but in euro terms, each one of those aircraft is going to be cheaper than deliveries we got in 1999.

So as we get more and more of those aircraft, unit costs per passenger should fall.

So you'll have a balance within the network.

You'll have a rising load factor, which is helpful for unit costs.

You'll have ownership costs going down.

Sales and marketing is a one time, so that shouldn't change.

So the only thing that might change is airport costs, obviously, but there's a match in that between the benefit we've got at Stansted, the other secondary airport deals that we do.

So, broadly, we would expect the cost base, as we've said previously, to not be significantly different from what it is at the moment.

Did I miss anything?

I would echo that.

I think the two key drivers, and moving to the second point of the question, Neil, which was in the old days, volumes up, fares down, unit costs down.

I suspect what happens going forward, as volumes rise, passenger growth would be stronger, because we think there's room for us to expand our load factors.

EasyJet, for example, have about a 6% load factor gain on us, and we're going to move into that space.

The aircraft will be the compelling unit cost driver for the next five years, so we're taking in aircraft that are going to be dramatically lower cost in euro terms because of the weak dollar.

The pricing was pretty much like for like in dollar terms.

But I would imagine that what you're going to see, therefore, is significantly lower aircraft costs, reasonable staff.

The one uptick could be airports, but to the extent that we are allocating aircraft assets to more expensive primary airports, what we're seeing in places like Athens, Fiumicino, Lisbon and Brussels Zaventem is higher yields.

Remember, we're pricing in typically about a 50% discount to the local flag carrier, which could be SN Brussels, Olympic-Aegean, TAP, but a dramatic uptake by passengers, stronger forward bookings but at higher yields.

Now, I don't expect that higher yields and higher unit costs will survive over the longer term, but we are clearly going to move into the space currently occupied by the likes of EasyJet, Norwegian, Vueling to an extent, and then also the kind of TAPs, Alitalias, Aegean-Olympics.

And so I would imagine that you'll see unit cost stability going forward, lower aircraft cost, maybe slightly higher airport fees, but stronger yield performance.

And remember, our yields currently are typically -- well, the next closest to us, which is a group of airlines around EasyJet, Vueling, Norwegian, their average fares are between 80% to 90% higher than ours.

So we have a lot of headroom here, but with much better unit cost discipline than any of those other airlines.

Great.

Thank you.

Thanks, Neil.

Okay.

There's another question here.

Hi.

It's Oliver Sleath from Barclays.

Just three questions, please.

Firstly, on the primary airports, it sounds like from the statement that they're doing a little bit better than you expected.

So could you talk about what's driving that?

How have the competition been reacting?

So, for instance, in Rome, how's Alitalia been responding?

How's Vueling been responding?

Have you seen them maybe not responding quite as aggressively as you'd expected?

Secondly, could you just talk about on the business passenger initiative, it all sounds quite exciting, but it's taken EasyJet five years of this strategy to even get to 20% share of business passengers.

So how do you see that you can push that more quickly than they can and what advantages you have over them to drive your share?

And finally, just on reflection, looking back, do you have any more thoughts on what happened last winter?

Thank you.

I'm going to ask David O'Brien, who's our new Chief Commercial Officer, to answer the first half of that, Oliver.

David?

Okay.

In terms of Rome, Brussels, we don't actually see much of a response at all.

We don't notice a response there.

Our load factors are excellent.

We do notice that their pricing is low for them, which is having no effect on us.

In the case of Athens and Aegean, we see them in retreat.

They've reduced capacity within months on their main route, which is Athens-Thessalonica.

So, on balance, no real meaningful competitive response at this time.

And on the passenger initiatives, Oliver, I think the difference between us and EasyJet -- what's at least understood about our business at the moment is we already have about 20% of our passengers traveling on business.

In fact, it's slightly higher than that, but we expect that to grow.

What we don't have is a big percentage of business passengers at an airport like Stansted or at Dublin, where we haven't focused on those business schedules, or frankly, city airports in recent years.

Why I think we'll build our business market much faster than EasyJet have done will be, A, we have much lower fares; B, we have actually access into far more airports than EasyJet does.

They have a relatively narrow operation, focused largely across a couple of airports like Gatwick and the Paris airports.

And in markets where we come up against EasyJet, they tend to retreat from competition with us, and we have many examples of that, where they moved from Stansted to South End, Liverpool to Manchester, withdrew from Ireland all together.

EasyJet are a very good airline, and they've clearly shown us some areas where we can improve our business on the customer experience side, driving up the load factors, but what they haven't shown us is how to offer low fares.

We have a huge headroom in terms of unit cost leadership over EasyJet.

We have a ginormous headroom in price advantage over them.

And we can move into, whether it's their markets or Vueling's markets or Norwegian's markets or anybody else's markets.

But what we've seen in the last 12, 18 months has been a sea change in attitude by the primary airports across Europe.

So you have airports like Lisbon, like Athens, who even 18 months ago wouldn't talk to us, now recognize that we are the only future they have, otherwise Olympic-Aegean are going to keep cutting capacity.

Rome Fiumicino couldn't have been more helpful to us, opening up a base in Fiumicino, recognizing that there was a real question mark over Alitalia's survival.

And even if Alitalia do survive, the medicine may be very deep cuts in Alitalia's domestic and short haul European operations, where they lose the most amount of money.

So I think we expect to build a business clientele very quickly.

I think the product we have is a very exciting one.

We have the cost base and the unit cost advantage to be able to build frequency very quickly, and I suspect that that's where you'll see that.

We're seeing the first elements of that already, as we move into this summer.

Now, the first half of the year is somewhat -- I'd caution, is somewhat distorted by Easter.

But for an airline of our size, with our load factors, to be running into the first half of the year with 5% more seats already sold than we were at this time last year, I think is a real indication that the improvement in the customer experience and the digital is working and customers are really responding very rapidly to the changes we've been making.

On the last issue, we still can't quite explain the price weakness of last winter.

It was mirrored by many of our competitors, except that they only mirrored it after we identified the issue.

We responded very quickly with lower fares and the range and the customer service improvements.

And as you can see, with the 1% growth in load factor through the winter, in fact it was almost 2% growth in March and April, it's working in our case.

But the difference in our case is we've always had the lowest fares.

There's a perception out there that we haven't had a very good service or that our service is a little bit narrowly focused on low price, on-time flights and not losing your bags, and we're making real and meaningful improvements now in the customer experience and customers seem to like what we're doing.

Michael, I have Kenny with me here, so I might just get Kenny to add.

Is there anything to add on the business product?

Yes.

Just to expand on a few of those points that Michael has made.

So for the business group of passengers, we've got the lowest fares; we've already got a good network of routes.

That's going to get better with more primary airports.

The GDS, so we're now -- we have our Travelport partnership.

There'll be another partnership announced later this year, so that will make the Ryanair product more available to the corporate sector.

In addition, when we talk to business customers it's always about mobile, so that will be a big, big feature of the product, just being able to find a flight, book a flight, manage a booking and board the airplane actually with a mobile boarding pass, because business customers said just make it totally mobile, and that's what they're looking for.

And finally, we communicate with them.

We have just done our first big Pan-European advertising campaign, and we're very happy how that has worked out in terms of how it's caused people to visit the website, reappraise what Ryanair is about and how we're changing.

Once we also start to communicate with business passengers in the right way, with a bespoke product at the right time with all those other changes that Michael's outlined, that's a compelling offer.

That will allow us to move quite quickly.

Okay.

Thanks, Kenny.

We have another question here.

Olivia?

Hi.

It's Alexia Dogani from Goldman Sachs.

I have three questions, please, as well.

Just firstly, can you give us a view of the unit cost performance between H1 and H2, given the differences in capacity growth?

Then secondly, I think Michael said that the ancillary revenue per passenger should be flat for the full year.

Is that right?

And if so, have you changed your view of allocated seating overcompensating the changes in priority boarding?

And then finally, in terms of capacity growth medium term, we've been nudging now capacity growth plans to now 8%.

Do you think that's the right number medium term, or would you look to take opportunities of taking other aircraft from Boeing if they were to become available?

Thanks.

Okay.

So the first question was what's the split in costs between H1 and H2.

Well, in terms of the -- as much of the growth is focused on the increased capacity, it's growing -- about 60% of the full-year capacity is growing in H2, we'd expect unit costs to rise a little bit quicker in H2 and be a bit slower, obviously, in Q1 because all those deals were already done some time ago.

So, if we're looking at the 5%, slightly more in the second half, slightly less in the first half.

I'll maybe just talk then about the aircraft.

If you look at our delivery program, we are short on capacity for summer 2015.

That's why we took those additional four aircraft from Boeing.

If they can spring another five or six aircraft from Boeing for 2015, we'd be only too delighted to take them, but at this stage that's probably unlikely.

Once we get past summer 2015 into 2106, 2017 and 2018, you can see we've nearly got a net 40 aircraft in each year thereafter.

That's absolutely sufficient for us to grow over that period.

However, if somebody tied open a door with a price we couldn't refuse, clearly we'd have to think about that.

But that's pretty much the plan set out for the next couple of years.

In terms of ancillary revenues, there's a trade here.

We changed from 17 clicks to five clicks, you may recall, last November.

So all those products we used to offer during the booking process, the conversion rate on those has fallen.

We've also reduced the boarding card reissue fees, bag charges.

We've made a lot of change in terms of the point of contact with passengers.

They've had a negative effect on ancillary revenues.

However, there is a big positive here.

The big positive is we've really started to roll out allocated seating from April on.

We're happy with the way it's progressing.

There's a customer learning experience happening here.

And we expect for this year, the revenues we've lost from those other products, the new things we've changed on the website, will be offset by the rise in allocated seating.

And then, in the more medium term, as we start to move in, as we're past our first summer, as we get into next summer, we expect that to be a net positive.

I don't know if there's anything you want to add to that, Michael?

Yes.

Some context, Olivia, is that in the numbers we've reported today remember that ancillary revenues have increased by 17% in the last 12 months.

So, what we originally had thought was that we would immediately lose revenues from the loss of our cutting the bag fees, the airport fees and some of the Internet booking fees.

What actually happened was that the boarding and the allocated seatings grew more strongly than we had expected, but we expect that to stabilize as we roll out over the next 12 months.

It may continue to rise stronger.

Some of it also will be -- because it will be in the second half of the year, as we roll out the business product, it will actually finish up -- the ancillary revenues will finish up in the business fare, because many of these products will be included free of charge in the business fare.

So there'll be a little bit of a distribution away from ancillary revenues and into the underlying fare in the second half of the year, depending on the uptake of the business product.

But as Howard said, and then on aircraft, we'll be entirely opportunistic if there's cheap aircraft available out there.

And I wouldn't rule it out, because clearly the manufacturers have very large order books out there.

Boeing are working on the MAX program.

A lot depends on when they start to deliver the MAX and what the tail end of production on the NGs will be.

But if there are other opportunities on the NGs and Boeing wants us to take more aircraft from them at the dollar prices that we previously discussed, certainly where the euro is at the moment we'd be very happy to do so.

So I think it's important to say that ancillary revenues will grow in total around about 4%, but on a per passenger basis broadly flat.

Thank you.

Okay.

Thanks, Olivia.

Thank you.

Any other questions?

We don't have any from the room here, Michael.

Okay.

Turning to anything else on the phones?

Savi Syth, Raymond Jones.

Good morning.

Regarding your load factor strategy, you can adjust fares to fill up the aircraft, so I understand that.

I was just wondering, is there a load factor that you're targeting, and how that would trend over the year?

And how much of that load factor would depend on just generating more business traffic, especially in the wintertime?

Yes.

I think if you look at where did we expect, load factors last year were about 83%, or it was actually 82.5%, but say 83%.

EasyJet's load factors, however, were close to 90%, with higher fares than we have.

So we think there's probably another 5% of load factor, maybe 5 or 6 points of load factor.

Now, we could get there straightaway, but that would be over the year dilutionary.

We expect, though, to grow over the next three years, to see load factors rise by on average 2% a year.

So we expect to move from 83% last year, 85% this year, 87% next year, and then 89% in two years' time, even as we take more aircraft.

And I think some of that will also be our experience, that moving into primary airports, the one thing we have been impressed with about the primary airports is the price advantage we have over the incumbent carriers, including places like Rome Fiumicino, where you notionally have Vueling and EasyJet, our load factors are north of 90% almost straight out of the blocks at low prices.

Now, we have higher airport fees, but we expect that over time as we build a presence in those markets and begin to focus on families and a business product, that you'll see those load factors be maintained but with forward bookings and yields building.

So I think it's reasonable to expect, certainly the internal thing is we'll -- load factors will rise by about 2% a year for the next two or three years, and bring us into line with where EasyJet are or finish slightly ahead of EasyJet, which given that we have lower airfares, is probably where we should be.

That's helpful.

So would you expect your winter load factors, at least the difference between your summer load factors and winter load factors can narrow somewhat, given your change in focus?

No, we would expect the rise in load factors to be pretty consistent across the piece.

We expect the summer load factors to rise by -- in fact, this year, it's almost easier for the summer load factors to rise by 2 percentage points, because we don't have much capacity increase, whereas there'll be a big capacity increase in the winter and it might be a bit tough to maintain a large capacity increase, capacity to be up 8% in the winter -- 6% in the winter.

It might be tough to get that and build frequency and build load factor growth.

Now, what we've set out in the guidance is we'll get the load factor growth, but it may come in H2 at the expense of fares and yields, and if it does that's good ultimately for our business model.

We like periods of low fares.

Investors may not, but if you look at last winter, where we responded quickly with lower fares, we blew an awful lot of the competition out of the water, and you'll see that in the results being reported by some of them in recent weeks.

Some of them were dreadful, because they can't compete with our prices.

That makes sense.

All right.

Thanks, Michael.

Thank you very much.

Thanks, Savi.

Any other questions?

Gerard Moore, Investec.

Hi.

Good morning.

Just one follow-up question, please.

I was wondering if you could give us a bit of feedback on your experience with the GDSs so far.

I know it's early days, but can you see, for example, are you getting higher yields on GDS fares, once taking into account obviously the commission that the GDS systems are getting themselves?

So, maybe just your experience on that so far.

Thanks.

The experience so far, Gerard, is fairly limited.

We only have the results -- in effect, with Galileo and Worldspan, we only have the first month.

But what I would say, and I don't want to get into too much detail, is that the volumes in the first month were reasonably modest, but the average fares were a significant percentage above our system-wide average fares.

We would expect over the months -- and we need to do some work ourselves with that.

We certainly need a second and maybe a third GDS agreement.

We won't have those in place, I suspect, until we move into the winter schedule, but we would expect that it will be a trend that will build continuously throughout the next 12 months.

So the volumes in our overall would be relatively small, but they will be significantly higher yielding, and the average fares being paid by those passengers will more than cover the GDS costs.

Thank you.

Thanks, Gerard.

Penny Butcher, Morgan Stanley.

Hi, Penny.

Hi, Michael.

Hi, Howard.

Just two quick follow-ups from my side.

With regard to the unit cost guidance, you gave a very helpful breakdown by the cost line.

Could you just remind us where labor sits in that equation of inflation, or the deals that you have in place for fiscal 2015 and how that may contribute to the number?

And the second question is just a quick clarification on the growth CapEx that you're still planning for fiscal 2015.

Thanks.

Thanks, Penny.

Yes, labor will continue to be modest.

We've recently agreed a 2% pay increase on basic pay for most of the -- all the cabin crew, and that proportion of the pilots, those bases, there was about 12 bases which came up for renewal in March this year, and almost all of those have extended for a five-year period with a 2% pay increase.

But there will be some also, as we move into next year, labor -- we expect the labor cost, there'll be some headcount growth, particularly towards the second half of the year as we gear up for the increased fleet numbers into summer 2015.

We take delivery of -- it's a total of 11 aircraft between September and March 2015, but it's actually 21 aircraft in advance of the summer 2015 peak.

So between April and July we take another 10.

We'll need to gear up on those.

So the labor cost growth will be ahead of 2%, something of the order between 5% and 7% for the next 12 months.

CapEx growth this year, FY 2015, will be circa growth CapEx about EUR600m, about EUR1b then for FY 2016, FY 2017 and FY 2018, and then on the basis of the current deliveries will tail off to something between EUR700m and EUR800m in FY 2019.

That's great.

Thank you very much.

Thanks, Penny.

Anand Date, Deutsche Bank.

Yes.

Hi.

Morning, everyone.

Sorry, I just had a couple of question as well.

Just on winter, I just wanted to understand your full commitment to the investment.

You're saying fares could be down 7%, that's fine, off potentially a low base, but suppose fares for whatever reason were down 15%?

Does that lead you to go back to how you were, or are you committed to this better frequency, better network for the business passengers?

And then, also, if you could give your view on what happens with Europe investigating Etihad and what they're doing with Air Berlin, Alitalia.

And I guess if we had a situation like Malev, do you have the capacity, if you needed to, to jump in if there was radical restructuring there?

And then, just lastly, a quick one on fuel costs.

Does the EUR70m include any extra weight assumptions for bags, for the second bag that you can take on, for better loads, etc.?

Thanks.

Okay.

Thank you.

If the fares will -- no, we've published the winter schedule.

The capacity will be up between 6% and 8% this winter.

We are pretty conservative, given where we think we are on forward fare guidance, but with zero visibility down 6% to 8% off what was a weak winter pricing environment last winter.

If fares go down by 15%, we'll keep going.

It will mean that the full-year guidance will have to be revised downwards, but if something happens that our fares are down 15% or 16%, by 15%, and they're already some 60% cheaper than any other competitor, there'll be blood all over the walls among the competition and we will still take the traffic.

We're committed to the winter schedules.

We're going to execute.

We're going to deliver the business product and we're going to deliver a significantly improved customer experience for all of our customers, whether they're travelling on business or leisure.

Europe investing Etihad, look, frankly, we don't really care.

It's patently obvious that they now own and control Air Berlin.

What they were thinking to do with Alitalia would clearly be in breach of the EU ownership rules.

But Wizz Air, for example, have been in breach of the EU ownership rules for years.

They're owned and controlled by American investors, and Europe has turned a blind eye to it.

So I don't think it makes a lot of difference.

We compete with whoever happens to be there, whether it's Air Berlin or it's Alitalia.

What we wouldn't like to see, though, would be a repetition of the Malev experience.

We'd prefer to see airlines dwindle away slowly, like Alitalia or Aer Lingus or TAP or Olympic-Aegean.

When they blow up like Malev and there's a vacuum, we rushed down in there, became the number one airline in Budapest within two or three months, but we were paying the full airport charges, which we've since restructured but only by taking about 1m passengers out of the airport.

So we'll prefer situations that presently exist in places like Portugal, Italy, Greece, Stansted, Dublin, where we're being encouraged by those airports who have suffered a number of years of traffic declines to work with them on commercial terms to grow, and there are material incentives in place for us to grow there.

On fuel costs, sorry, I forgot the question on fuel costs.

Howard, do you want to take that?

It was about bags and weights, Michael.

So, no, there wasn't --

It's immaterial.

-- any impact on our fuel costs in terms of -- in fact, we would expect to carry less bags again this coming winter, particularly as we've got the second carry-on bag as well.

So, generally, bags won't impact fuel costs.

Okay.

Sorry, could I just have a follow-up as well?

Yes, sure.

Sorry.

Just in terms of the new deals you're thinking about with secondary and with primary airports, I think in the past you almost guaranteed capacity growth.

Are you thinking of changing the way you're going into those negotiations, particularly with primary airports, I guess?

Thanks.

No.

We have never guaranteed capacity, or very rarely have we guaranteed capacity growth in the past.

What we've generally done is we've negotiated.

This would be the feature of, say, the 10-year growth deal at Stansted, is there are certain incentive thresholds for us to grow faster, and the faster we grow the bigger the discounts get and the earlier and the longer we hold on to those discounts.

That's generally the feature of what we do.

In most cases, at the primary airports, the discussion tends to be along the lines of would you grow on new routes so that you don't trash the local incumbent, or we'll give you an impact for real or meaningful growth in existing routes.

But we can work around those kind of deals, but they don't want us to go in and just target the existing routes operated by the incumbent carrier.

We say, look, we can't be confined into new routes alone or growth on existing routes.

And so where we finish up, then, in those discussions depends on which airport we choose and where we go next.

So there's a discussion around the new airports desperately want us to come in.

Basically, a lot of them would give us free on new routes.

They want us to pay something for growth on existing routes, but then not take too much traffic away from the existing incumbent, which in our case is difficult because we'll show up at much lower airfares.

Yes, yes.

No, that's really interesting, actually.

We don't make guarantees.

We remain the ultimate flexible, opportunistic airline, so that if another Malev happened -- it's unlikely, but if Alitalia went bust, we would arrive down in places like Milan and Rome and some of our other Italian bases.

Remember, now, we're the number one airline in Italy by a distance.

We're the number one in Spain.

EasyJet wouldn't even be number three in either of those markets.

We would find 50 aircraft from somewhere, even if we had to take them out of other markets in the short term, and shovel them into Italy, simply because we're the number one carrier.

And if the number two carrier, which is Alitalia, blows up or stops operating for a period of time, we would feel duty bound to continue to serve the Italian market and those customers who depend on us in Italy.

Sorry.

Can I just ask one more, actually, as well?

I don't know how the dynamic works, but do you get a sense that an incumbent carrier can put pressure on an airport to try and help them out?

Because what you're saying is the airports are charging you more on existing routes because they don't want to hurt the airlines.

Is that the airport saying that, or do you think that's more the operators?

No, I think you misheard it.

What the airports try to do is to say they publish charges on existing routes not because they're trying to protect the existing carrier, but they're trying to incentivize us to grow new business for them.

Yes, to just grow footfall.

Yes.

So to be fair, it's not that they're trying to protect -- there are some airports out there who have an incumbent carrier who for a number of years has been trying to keep us out, and the incumbent carrier will be telling them, oh, if you let Ryanair in here we'll cut our capacity by 50%; we'll take away our toys.

But most of the airports have seen through that.

That was a very much a feature of LOT in Poland, for example, for the last number of years.

EasyJet has a couple of airports in the UK used to do the same thing.

Frankly, the airports have kind of lost -- they don't have much credibility with that any more.

In a lot of cases, EasyJet isn't growing at many of the UK regional airports, whereas we are.

The Greeks have given up on Olympic and Aegean.

So it used to a feature, I think, three and four years ago, but I think the real meaningful takeaways here at the moment are the primary airports are now crawling all over us, trying to get us to grow at their airports, because they're so worried either about the incumbent not surviving or, as is the case in Italy, the incumbent surviving but not actually paying their bills to the airport, which has also been a feature of the discussion with a number of the Italian airports, and we think that will continue.

The advantage of those kind of discussions means it also puts pressure on the secondary airports, who may have in the past thought, well, Ryanair will keep growing here, we'll keep getting the growth.

And I love Charleroi dearly, but it's not unhelpful to our negotiations with Charleroi that we now have a big base in Zaventem at the same time.

It does help to keep a bit of discipline on both airports, and both of them are now back talking to us about more growth for summer of 2015.

Now, I use that just as an example, but the same thing plays out in Barcelona, in Rome, between Ciampino and Fiumicino, and a number of other cities across Europe.

Okay.

Fab.

Sorry, I've taken up a lot of time, but thanks for that.

Not at all.

Next question, please.

[Orso Tamala], Oddo Securities.

Hello, everybody.

So, a quick one from me.

I'm wondering whether you have any guidance on traffic of a primary airport as a percentage of the total traffic in 2015, and maybe a medium-term target.

Thank you.

No, sorry.

We don't have any guidance on it.

Okay.

I'm not trying to be curt.

It's that we're still in the course of discussions with a number of primary airports for summer 2015 at this point in time, and we haven't yet allocated some of the aircraft for next year.

It depends.

Some people you talk to regard Stansted as not a primary airport, and some people regard Stansted as a primary airport.

But the new primary airports, if you take the Lisbons, the Rome Fiumicinos, the Brussels Zaventems, Cologne this winter, Athens, they'll still be a relatively small overall percentage of our total passenger base.

Now, if you include Dublin and Stansted, it becomes a much more significant part of our overall passenger base.

But it's not a helpful figure at this stage, and the reason I can't give it to you is because I don't know what the answer to the question is, and if I did I wouldn't tell you.

Thank you.

Thank you.

Next question, please.

Guys, I've got to go after that.

I've got to do some press stuff here in New York.

So we've got five more minutes, if that's okay.

There are no more questions at this time from the audio.

Thank you very much.

We have an extensive road show.

We have seven teams on the road for the remainder of this week.

If anybody wants a meeting who hasn't got one, please call us either through Citi or Davy's, who'll be happy to arrange a meeting.

Or call us directly through the investor relations, John and investor relations team, who will be based out of Dublin for the week.

Howard, anything else?

Anything you or Kenny want to add over there?

No, no.

We're happy that -- we're going to have a few more questions here from the analysts in the room, just to wrap up, so we'll let you off, Michael.

Okay.

Thanks very much, everybody.

We'll sign off here in New York.

God bless.

Bye-bye.