Ryanair Holdings PLC (RYAAY) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the Ryanair Q1 results conference call (Operator Instructions). Just to remind you this conference call is being recorded. Today I'm pleased to present Michael O'Leary, please begin your meeting.

Good afternoon, ladies and gentlemen, and welcome to the Ryanair Q1 conference call. I'm here in London with Howard Millar, Neil Sorahan. And I have the other members of the senior management team here, Michael Hickey, Juliusz Komorek, Kenny Jacobs, David O'Brien and Eddie Wilson.

We have this morning published the Q1 numbers. This, together with the investor slide presentation, are all available on the investor relations page of the ryanair.com website. Therefore, I don't propose to run through them, other than to give you some summary comments and then we'll open it up for Q&A.

As you've seen this morning, we announced a Q1 net profit increase of 152% over last year to EUR197 million. We would caution, however, that some of that result is distorted by the timing of what was a very strong Easter in this Q1 with no Easter holiday period in the prior year comparable.

Traffic has grown 4%. As load factors rose by 4 percentage points to 86%, average fares, again boosted by Easter, grew by 9%, while unit costs fell by 2%, excluding fuel, they rose by 1%.

As I say, the Q1 profits have been boosted by the strong Easter. Also the earlier launch of our summer schedule and actively raising our forward bookings, which has seen us continue to maintain higher load factors. Ancillary revenues rose by 4 percentage points (sic - see press release, "4%").

We've four new bases this summer in Athens, Brussels Zaventem, Lisbon and Rome, Fiumicino. They're performing strongly. We expect to release our summer 2015 schedule in mid-September, which will be about three months earlier than this time last year.

In this winter, we'll open four new bases in Cologne in Germany, Gdansk and Warsaw Modlin in Poland and Glasgow International, as well as significantly increasing new routes and frequencies from Dublin and Stansted, our two main bases, where we have a financial incentive or discount to grow traffic strongly.

We're presently overrun with growth offers from primary European airports, many of whom expect their incumbent flag-carrier or regional carrier to significantly cut capacity and traffic and are trying to actively encourage Ryanair to enter those markets, so they can maintain traffic and route growth.

In addition, these new airports, along with the 69 other bases, offer significant growth opportunities, as we begin in September to take delivery of the first of our 180 new aircraft deliveries from Boeing. I would again highlight the fact that we're taking these aircraft with the benefit of a much weaker US dollar, which will drive significant aircraft cost efficiencies over the next five years.

The next significant development over the last six months has been the customer experience improvement. The Always Getting Better program continues to deliver significant improvements to the customer experience on Ryanair. The most recent development was the release of our industry-leading mobile app, which includes mobile boarding passes, in July. It's been very positively reviewed by both independent commentators and by our customers and in the first 10 days since release has reached over 10 million -- over 1 million downloads in the 10 days since its release.

In September, we launch the Ryanair business service, which will include services specifically tailored to our business passengers. They currently account for some 25% of our traffic but they don't pay us any premium. And what we believe we will do is persuade a significant slug of that business to pay a premium in return for a package of services including same-day flight changes, bigger bag allowances, premium seat allocation and fast track through security.

And it's also then to cater for that business market, which is why we've been expanding our distribution with GDS Distribution in the Galileo and Worldspan platforms, leading the development of the Google price platform -- or price comparison platform, here in Europe.

Fuel, we're 90% hedged for FY15 at approximately $96 a barrel. We're also now hedged 55% of our H1 FY16 fuel costs at similar rates. But with the weaker dollar, we'll kick in about a 2% fall in unit costs next year if we can close out the rest of our fuel at the similar levels.

Recently issued our first bond, EUR850 million, on the back of a strong BBB+ rating. And we've secured EUR850 million Eurobond at a coupon of just 1.875% fixed for seven years. We think this will be a pivotal -- well, is a pivotal moment certainly in our -- the financing [arsenal]. And we would expect to do more of these over the next couple of years, as long as the rates remain that low and will, again, help us to fund low-cost aircraft additions over the next five years.

In terms of shareholder returns, as you know we're halfway through our two-year plan to return EUR1 billion to shareholders. We bought just over EUR480 million of shares back from shareholders last year. This year we intend to pay out a dividend in the fourth quarter of the year -- of the fiscal year or the first quarter of 2015. It will amount to about EUR520 million.

We're increasing the, what was the second special dividend, we paid EUR0.34 two years ago. We're raising that to EUR0.375. And subject to AGM approval, which we would hope to obtain in September, that'll be paid out in the January to March time period.

Based on what are clearly a strong set of Q1 results, although distorted by the presence of Easter in the Q1, and what continues to be strong bookings into Q2. We're on track to deliver a strong H1 during which traffic will grow by 3%, and average fares will rise by 6%, although that is subject to the strength of late-booking fares in August and September.

We would strongly caution against any irrational exuberance arising from this strong H1, as we continue to operate in a difficult economic environment and we have some Company-specific challenges in the second half.

We expect the second half to be characterized by a much softer pricing environment, in particular as many competitors are now lowering fares, partly we believe in response to Ryanair's strong forward bookings.

Added to this, Ryanair will aggressively raise our own capacity this winter by 7% in the third quarter, and 10% in the fourth quarter, to take advantage of growth discounts and build out business-friendly schedules, particularly for some of our primary airports in Dublin and Stansted.

We expect these initiatives will put downward pressure on fares. And mindful of last winter's weak pricing environment, we continue to expect that our second-half yields will fall by between 6% to 8%, which should result in the full-year yields rising by only 2%.

Unit costs for the full year will rise by approximately 4%, which is a little improvement on the 5% increase we originally guided. Much of that is due to the higher traffic volumes in the second half which will be positive for unit costs.

In summary, we now expect full-year traffic to grow by 5% to 86 million passengers. And this allows us to cautiously raise our full-year profit after tax guidance, which was previously in the range of EUR580 million to EUR620 million, to a range of EUR620 million to EUR650 million. However, this guidance, which is about a 21% increase over last year's net profit, is heavily reliant upon the final outturn of yields in the second half, over which, as you know, we currently have very little visibility.

Howard, do you want to add any comments or remarks before we open for questions?

No, I think that's a good summary there.

No, okay. There's a detailed Q&A on the Q1 on the investor page on the website. So with that we'll open it up to Q&A.

Thank you, sir. (Operator Instructions). Alexi Yannas, PIMCO.

Congratulations on your results. Two questions, please. How much further bond issuance do you foresee in the near future?

And, secondly, will your GS expansion include Amadeus, please?

In terms of our bonds, obviously we've just raised our first ever euro unsecured bond last month. We would expect that it's probably in the 12-month, perhaps 18-month, horizon that we'd expect to do the next financing. The EUR850 million pretty much takes care of us until next spring, early summer. So, depending obviously on market conditions, we think something like 12 months to 18 months is our next horizon.

In terms of the GDS, we are currently exploring proposals from a number of GDS. We haven't yet made up our minds but we would expect to announce one more for operation this November. And we'll update in due course on what we've selected.

Okay, Neil, do you want to add anything to that, to the GDS?

No, well, obviously we've obviously partnered with Travelport, which puts us on Worldspan and Galileo. So we'll be in conversations with the other two alternatives and, as Howard said, we'll announce that in due course.

All right. Thank you.

Stephen Furlong, Davy.

I just want to just go over again just on the cost side. Obviously you've improved your ex-fuel cost guidance to plus 4% from, previously, plus 5%. Maybe just talk about that in terms of volumes.

And maybe just going forward, in terms of the next couple of years, maybe the big items that are important, I'm thinking more about the aircraft deal and the financing and the dollar rates. Thank you.

Going to ask Neil Sorahan, who'll be taking over from Howard in October as CFO, to answer that, Stephen. Neil.

Stephen, thanks for the question. On the unit costs, we have slightly lowered our projection for unit costs, ex fuel, over the balance of this year. We had originally indicated that would be up about plus 5%, that's now plus 4%. A lot of that's been driven, to be honest, by the increase in passenger numbers where we're now growing by an extra 1.5 million passengers, 86 million passengers over the course of the year, which means we can spread the costs more evenly on a unit-cost basis.

Key drivers, not much different to what we really discussed at the full-year results. We still see our marketing spend going up by about approximately EUR25 million as we roll out there the customer experience and the digital initiatives that we have. We've got another marketing campaign coming over the winter. Our ownership costs will increase this winter as well, as we take delivery of 11 new aircraft. And indeed we've got eight [leasings] this summer, which accounts for about EUR10 million.

And then we've got our primary airports which we've rolled out, and we've a number of new primary bases rolling out this winter. That's offset, to a certain extent, by the Stansted deal that we've put in place, the low-cost deal there.

So it's broadly volume that's driving down the unit-cost projection from what we'd indicated five weeks or six weeks ago with the full year accounts.

And regards to the next couple of years on financing, and on other costs, we are, as Howard said, we're well financed for the current year. We have EUR850 million worth of finance in place. We believe that puts us in good scope out at least the spring of next year. If we can continue to get financing at the levels that we saw in the bonds last month, 1.875% or thereabouts, it's a market that we'd be interested in looking at.

On fuel, we're quite well hedged out into the summer of next year, giving us unit cost reductions. We've 55% of our fuel requirements hedged out into the second quarter of FY16, at levels that will give us about a 2% unit-cost reduction.

So, we think another important point is that we -- as we take delivery of the 180 aircraft over the next five years, we've already locked in a lot of the FX on that at levels that are very attractive to us. And which mean that we're taking delivery of lower-cost aircraft which helps keep the cost base under control over the next number of years.

Okay, thank you.

Savi Syth, Raymond James.

Just on the increase in traffic in the second half, I'm just wondering how much of that is just not parking as many aircraft versus higher load factor?

It's mostly higher load factor, we expect the load factors to maintain or run about 3 percentage points ahead of where they were this time last year. But we will also ground fewer aircraft -- last year -- if you take -- we on our weakest days were grounding up to 80 aircraft, we expect this year to be grounding up to about 50 aircraft. But most of the traffic growth in the second half will come from higher load factors.

Understood. And then just the airport cost -- they were up about 10% year over year on a per passenger basis, is that a good run rate for the rest of the year or was there something unique about the quarter?

Well, obviously we launched some of the newer routes earlier on this year, so the fourth quarter, it will start to annualize. So you will see a run up in costs as we roll out across Q2 and Q3 with an annualization in Q4.

Right, great. And then just my last question, I was just wondering if you could comment on the stage length in the first quarter and then maybe looking forward?

Well, the good news is that it was broadly flat in Q1 and we'd expect that trend to continue into the remainder of this year. We are pretty much all of our schedules done and we're now working on the schedule for next summer at this stage. So I think, good news is, it's a broadly flat stage length.

All right, perfect, very helpful. Thank you.

Johannes Braun; Commerzbank.

I have two. Firstly, on the unit cost and the yield performance, could you specify what the currency impact was?

And secondly, I realize that working capital worsened a little bit in Q1, I was just wondering what this is, if this already reflects the weaker yields in the forward bookings you are guiding for, is there anything else we should read into that? Thank you.

Okay, I'll deal with the second point first. In terms of the working capital report, you will have seen that the accruals and provisions is slightly lower than it was in the previous quarter. And the reason for that is obviously Easter fell in the first quarter, so you're comparing a movement between March and June, so we had a lot of the bookings, or almost all the bookings, in place at the end of June. So the starting number into this year was higher, as opposed to last year when you would have seen that Easter fell towards the end of March.

In terms of the first part of that question, then in terms of -- currency impact, well if you take the yield increase of 9%, 1% of that is due to the impact of sterling, which strengthened against the euro during the period. It has a broadly similar net impact on cost, obviously we do have a surplus sterling situation. If I was to net both out it would have been perhaps EUR12 million to EUR15 million of an impact on net income in Q1.

Okay, thank you.

(Operator Instructions). Gerard Moore, Investec.

Just wanted to pick up on one comment in your statement please. The comment that you're starting to see some of your competitors be more aggressive in terms of pricing and probably in response to your own forward bookings and how they're progressing. If you could maybe elaborate on that and tell us a bit more about, is this competition across the board, is it more in particular regions, or any more color you could give that would be appreciated? Thanks.

[Neil] here, Just on that comment, I suppose what we're indicating as we move into winter we believe we'll see a bit more pricing tension, we're already stepping into the market that easyJet enjoy the leisure and (technical difficulty) also growing rapidly out of Dublin this winter on the back of APD having been a repeal. So that's putting a lot of pressure on the likes of Aer Lingus.

So we think it's quite possible that as we move into the winter we could see more pricing tension coming in the form of reduced pricing from the likes of easyJet, the likes of Aer Lingus, and other airlines across the network.

Thanks a lot.

There appear to be no further questions, please continue.

Okay, ladies and gentlemen. As I said, all of the Q1 stuff is on the investor page of the website. We don't have anything further to add here.

I think the business is going well. The commitment to always getting better is real, it's delivering real and tangible improvements for customers at every phase of the interaction with the Company from when they first come on the website, check things on the mobile app, easier experience at the boarding gate, a much better experience onboard the aircraft with allocated seating, the new family product has been a terrific success.

The business product is coming in early September and we expect to continue to build on this momentum through the second half of the year with business-type schedules linking to -- from our bases to many more of the European capitals, while continuing to roll out a lot of exciting new route and new base activity where primary airports across Europe are very actively engaged with us, are trying to attract us to come to their airports.

As I said, we expect to deliver a strong half 1, we would be very cautionary though about the second half of the year. I realize we've a lot of headroom in our yield guidance, but I think on balance fares will fall rather than rise into the second half of the year. And we certainly intend to take the competition, or to be very competitive with an excellent product, good customer experience, and a fare that is significantly lower than any other airline in the industry.

Hopefully we'll see you all on the half-year results roadshow in early November, and if anybody wants to have a chat with us individually or come to Dublin and see how the business is going, you're more than welcome to come see us at any time.

Okay, thank you very much, we'll wrap it up there, thanks, bye-by.

This now concludes our conference call, thank you all for attending, you may now disconnect your lines.