Ryanair Holdings PLC (RYAAY) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen. You're all very welcome to the Ryanair full year results investor conference call. I hope all of you will have visited our new investor relations micro site this morning where you'll have seen a full briefing from myself and Neil Sorahan, our CFO, about the full year numbers, our investor presentation and a brief Q&A.

I hope that will shorten these conference calls, but let me take you through a couple of themes in today's numbers.

Clearly, we've had a very strong year of rising traffic, rising load factors and rising profits. We ascribe much of that performance to an extraordinarily successful first 18 months under the Always Getting Better program, under which passengers have seen a remarkable transformation in our service provision without compromising our low fares.

Last year, our Always Getting Better campaign was characterized with allocated seating, free carry-on bags, the business plus product, family extra service; our move into primary airports, spreading into GDS distribution; the successful rollout of Ryanair Labs which is transforming our digital and website experience.

We've also extended our placed a lead order for 200 new Boeing 737 Max 200 aircraft which I believe will transform our cost base over the coming years as they have much more efficient engines and more seats.

And we've raised another Eurobond, about EUR850 million, where we fixed eight year finance at rates that are less than 1.5% which, again, will continue to transform our cost base as we move forward.

The key features of current trading is that, despite having higher prior year comparables, our forward bookings through the peak summer months of June, July, August and September are running about 4 percentage points ahead of where they were this time last year.

I caution that will only give rise to a load factor increase of about 1% or 2% during the summer because of the very tight capacity situation we have and the higher prior year comparable load factors.

We continue to enjoy significant success as we spread the Ryanair banner into many more primary airports. In the last 12 months, you've seen our new services start in Athens, Brussels, Berlin, Copenhagen, Cologne, Rome and Lisbon.

In all of those markets we've seen very significant traffic growth, maybe by taking or creating new traffic, but also winning very significant market share from incumbent-type air carriers.

Our hedging position is currently strong. While we're 90% hedged on oil this year, about $92 a barrel, we would expect to close up the remaining 10% at a significant saving based on current spot rates.

We have very advantageous US dollar hedges in place both on OpEx for the next two years and on CapEx for the next three years.

In terms of the balance sheet, we continue to generate strong cash flows. We're using those cash flows over the last year to fund the third special dividend of EUR520 million which was paid in February. We've also rolled out, and we're midway through, another share buyback of EUR400 million. We're approximately half way through that and expect to complete it by the end of August.

Despite those significant returns to shareholders, though, our yearend net cash almost doubled to some EUR350 million (sic - see slide 9, EUR364 million).

We have very little to say, I'm afraid, on the IAG process with Aer Lingus, partly because we are in the dark. We understand, at least from newspaper reports, that the proposal is going to the Irish Cabinet today. So perhaps things may move quickly thereafter.

But at this point in time, all I can say is that we haven't received any formal offer from IAG but, if or when we do, that offer will be considered in due course by the Board of Ryanair on the merits of any offer. And I'm sure the Board of Ryanair will take whatever is the appropriate decision in the interests of Ryanair shareholders.

From a regulatory point of view, we continue to call for the urgent development of additional runways in the southeast of the UK. We believe that the best way to resolve this is to permit the development of three new runways, one each at Stansted, Gatwick and Heathrow, as it's the only way of keeping these competing airports honest, and encouraging the development of low cost, efficient additional runways instead of more high cost, gold-plated marble palaces.

One other point we'd draw your attention to is the ludicrous position of the UK CMA. This body in 2013 recommended that Ryanair be forced to sell down or divest its 30% minority stake in Aer Lingus, solely on the basis that no other airline would bid for, or merge with, Aer Lingus while Ryanair remained a minority shareholder.

Clearly, the IAG offer for Aer Lingus, which has the approval of Aer Lingus' own Board, has completely undermined that ruling. It was based on secret evidence submitted by Aer Lingus at the time which Ryanair was denied sight of. We've always thought the ruling was bizarre and we intend to continue to call on the CMA to reverse that ludicrous ruling so that the 2013 divestment decision be removed.

In terms of outlook, I think we've had a very good year but I would, again, caution everybody to be a little bit sensible, going forward. We clearly, at this time of year, have no visibility over what's going to happen in the second half of the year, being the December 2015 and March 2016 quarters.

We do see a return to some irrational pricing, probably this winter. In the last number of weeks we've seen, for example, the likes of some competitors add some capacity on the Stansted-Scotland routes, which is clearly an attempt to compete with us.

We've also seen Aer Lingus enter a new route from Dublin to Liverpool, where we think they are trying to feed their transatlantic operation. But it inevitably will mean irrational pricing on the short haul, that short haul market pricing which they can't sustain, because none of them have a cost base that can match Ryanair.

But as we see the airlines generally around Europe benefit from lower oil prices, as we move towards the end of calendar 2015, we think that's inevitably going to result in some kind of irrational pricing response for them as they try to, at least, prevent Ryanair from winning even more market share from them.

Ultimately, we think those efforts will be doomed to failure, because nobody has the cost base or the pricing that Ryanair has. And as the AGB year two continues to win many more millions of passengers to Ryanair, customers continue to be delighted by the changes in the experience, the improvements that they're seeing. And we're continuing to listen actively to those customers as they feed back more and more recommendations.

Accordingly, while our capacity growth this year and our traffic predictions will be reasonably accurate, our unit costs should be flat over the full year. Again, we think they will be reasonably accurate.

But we have very little visibility on pricing. We will remain actively load factor active, price passive; that is, we will fill our seats at whatever price it takes to fill them.

Again, we would caution that our yield and fare guidance for the first half of the year, through the summer peak, will be down about [less flat] to minus 2%. But during the winter, we expect things to be much tougher on pricing and we're currently guiding down between minus 4% to minus 8% for the second half of the year.

If that yield guidance, which is largely a guess at this time of the year, proves accurate, then we would, because of our lower unit costs and fuel cost savings, expect to see our full year net profits rise by approximately 10% to from EUR867 million this year to a new range of EUR940 million to EUR970 million.

Neil Sorahan, the CFO, have you any remarks you want to add before we open up for Q&A?

I think we've covered most of them. A very strong year last year, with profit up 66% to EUR867 million. And that was driven quite heavily by the 11% increase in passenger numbers and the 5 percentage point increase in load factor to 88%.

As Michael said, balance sheet in very good shape. Okay, Michael.

Thanks, Neil. Let's just open for questions and answers, please.

Okay. We've a room full of analysts here, but for Michael's convenience, if you give out your name and your company when you're asking a question, please.

Jarrod Castle, UBS. Two or three. Just in terms of the third half yield guidance, can you give some color between the quarters Q1 and Q2? I take it you've got quite good visibility on quarter 1.

Secondly, just on costs, I guess you're guiding for flattish per unit costs, but you are growing capacity quite a lot, so what is going on there on a per unit basis, ex-fuel you're not taking out costs? Actually, I'll just leave it at that, thanks.

We tend not to break down yields between Q1, between quarters. At this point in time, I think our guidance for the first half of the year is flat to minus 2% is a reasonably good guide. Clearly, we have most of Q1 is done.

Q1 we expect to be a little bit weaker, because the first half of Easter moved into last year's Q4, or it took place before the end of March. But the summer peak looks to be reasonably in line with last year. So we think the first half, that yield guidance should be reasonably accurate. Second half of the year, as usual we haven't a clue.

Unit costs ex-fuel, again I think it's characterized by -- the significant movements would still be, we've had a pay increase for our people. We've also the continuing move into primary airports. So a lot of growth this year coming from primary airports, where we have some more expensive airport and handling arrangements.

But I think the most impressive figure in our today's FY numbers is the fact that we made a significant move last year into primary airports. We made a significant drive forward in raising our load factors, and a significant increase in our marketing spend. And yet excluding fuel, the gain on fuel last year, our unit costs were flat.

(technical difficulty)-- of our competitors in the last 12 months and [for these shifts] through to Aer Lingus and almost all of them, excluding fuel saw unit costs rise. So we're maintaining our unique unit cost discipline.

There are some areas where costs are rising, there are other areas where costs efficiencies are being gained, and we expect that to continue to roll out over the next 12 months.

Okay. Thanks.

Oliver Sleath, Barclays. Three questions, please. Firstly, just on the primary airport basis; it's obviously been about a year now since you -- or even over a year since you moved into some of the airports like Fiumicino, Athens, Brussels. I wonder if you could just talk about how you're seeing the yields evolving there as you get more recognized in those markets. And are you seeing a clear yield premium emerging versus your historical more secondary airport network?

Second question on the winter. I noticed that the average fares in Q4 were minus 9% and I think you mentioned, Michael, at the analysts' dinner a month or two ago, that you may have slightly overegged it on a load factor a little bit versus the fare guidance. I wondered if there's some opportunity there for next winter, as you learn a little bit more how to price the network with the higher frequency routes to maybe rebalance that a bit?

And finally, one maybe for Neil, just on the sterling, perhaps you could quantify the impact of sterling on Q4? And also, as you look out into the summer how material is this to the average fares?

Thanks, Oliver. I'll take the first two and Neil will do the sterling question.

I think our experience over the last 12 months has been generally a good one at the primary airports. Clearly, the costs at the airports and the handling costs have been marginally higher than our average, but the yields have been marginally better. And that's reflected in the fact that our average fare for the last 12 month, despite enormous traffic and load factor growth, has been up 1%.

However, a lot of that was characterized by awful lot of capacity going into some of those primary airports, as we rolled out business schedules, business-type schedules, under the AGB banner. And I think that's why the business plus part has been so key to our successful entry into many of those primary airports.

Is that a clear yield premium? No, I don't think so. I don't think we can establish a clear yield premium at those primary airports until the rate and pace of our capacity growth slows down a bit. And currently, for this year, as we roll out the second year of our Always Getting Better improvement, we intend to continue to put very significant capacity into those primary airports.

This winter, for example, we launched our first German domestic route from Cologne to Berlin with five flights a day, both ways, or 10 daily flights with five rotations, which will obviously have a significant impact on yield.

But the reality is that most of those airports we're competing with airlines, whether it's TAP and easyJet in Lisbon, whether it's Aer Lingus out of Dublin, or whether it's Germanwings and Air Berlin in Germany who are charging three and four times our average fare, I wouldn't get too concerned about the yield performance. It was down minus 9% in Q4.

I think it was characterized by we pushed a little bit higher than we expected on load factors and on passenger numbers, which is why the outturn for the year finished up at 90.6 million passengers whereas we thought we'd be at 90.2 million. The yield was minus 9% in Q4 instead of our original guidance of minus 6% to minus 8%.

I don't regard it as being anything significant there; I think it's a reflection of our load factor and active yield [passive] policy continuing through. How will that reflect for next year? Honestly, we don't know. There will still be significant capacity expansion for most of the second half of the year.

We do expect to see some irrational pricing response from some competitors, whether it's Germanwings on Cologne-Berlin. Aer Lingus, for example, have added some capacity, reentering a Dublin-Liverpool route that they haven't operated for some 10 years. And we've seen easyJet, who had taken significant capacity out of the Stanstead-Glasgow and Edinburgh market, are now adding an extra daily flight in both of those markets this winter.

We've responded by adding yet another daily flight on both of those routes because it's a high fare area. And if easyJet want to have a price war with Ryanair, we think that's good for the market generally. It's certainly good for our presence in Scotland, because it establishes not only that Ryanair has the lowest prices but, increasingly, we're competing and beating easyJet on service, both in terms of frequency, punctuality, customer experience and going after that key business market segment.

Okay. Just on sterling, Oliver, clearly we operate a net position where we have a natural hedge on our costs and our revenues. But on a net-net basis it was approximately about EUR30 million.

Robin Byde, Cantor Fitzgerald. Just two from me, please. On the growth in forward bookings, are there any particular patterns by country or route or changing customer behavior you can point to?

And then, secondly, just on the balance sheet, I notice there's been a fairly big jump in accrued expenses. I think they were up 25% year on year, so could you just explain what that is, please?

I'm going to ask David O'Brien, who's our Chief Commercial Officer, to address the point on the growth in forward bookings and, Neil, maybe you'll answer the balance sheet question.

Yes, the answer on the differences between markets is fairly simple; in fact, it's universal across the piece. We're seeing the same response in each of the markets. I have to say the UK is particularly strong this year, largely, I'd say, due to the sterling incentive. But beyond that, no, we're achieving similar levels of demand and success across each of the markets.

Okay, Robin, on the accrued expenses, that's just a factor of the we're better booked than we were this time last year, 4% higher bookings. So that's clearly the future fly on the balance sheet. Okay?

James Hollins, Nomura. Three, please. The first one, very simple, what percentage are you sold for this summer?

And the second one is, can you quantify any impact of the ATC strikes in France?

And then, finally, staff pay last year, I think you had a 2% rise. I think you might have an agreement in place already; just let me know what it is for this year and maybe next, if there is an agreement. Thanks.

Thanks. Let me run those back in sequence. To staff, another 2% pay increase this year. Most of our staff, which is pilots and cabin crew, are operating on multiyear, generally five-year, rolling pay and productivity agreements under which we're committed, or have agreed in direct negotiations with them, to increase their basic pay by about 2% a year for the next -- it varies by base, but it would be typically three or four years. The other staff then we address on an annualized basis each summer.

The ATC strikes in France where, strangely enough, we operate the same number of flights as easyJet, for example, we think the cost of that, because there were so many flight cancellations, was probably something less than EUR5 million.

And the percentage of seats full for the summer, it's not something that we would break out at this point in time. I think it's sufficient to say at this stage that it's running at 4% ahead of where we were this time last year. As such, we are very strongly booked for the summer period.

Thanks.

Damian Brewer, Royal Bank of Canada. Three, please. First of all, just on the schedule where you have built out and thickened schedule, could you give us a feel for how many of those routes you're now either first out/last back or tick both those boxes, and what that would look like in terms of your winter schedule for next year?

Secondly, on the aircraft deliveries, how much room is there for flex on them? If things go very well, is there room to change that or is that now pretty fixed?

And then, very finally, just more prosaic, but on the cash tax that was up considerably. Is that just a reflection of the aircraft timing and deliveries and how could that change in future?

David, do you want to address the schedule?

Sure. Well, on all of our higher frequency routes and any route where we have two a day, we will always operate those on a first wave and last wave aircraft. Now, whether we're absolutely the first [stairs] or not I think is not particularly relevant but, generally, we are the first stairs with excellent timings.

I think what's different about us, if you take the UK, is compared to the likes of easyJet, much more of our higher frequency operations are from the continent into the UK, from our many more bases in Europe into the UK, which gives us the ability to have a first wave flight at both ends because of the time difference.

Thanks, David. On aircraft deliveries, we would not have much flexibility in the aircraft order although, clearly, if the business continued to grow very strongly, we could delay our planned second-hand aircraft sales or lease redeliveries. But I would take it that most of the upside for us in terms of the aircraft orders will be simply confirming the 100 [Max 200] with the 100 Max options we have over the period from FY2020 to FY2024.

That's currently an order for 100 firm and 100 options and, at this point in time, I would be expecting us to take up all of those options because of the lower cost and superior performance of those aircraft.

But could we speed it up any further than that in the interim? Not really. We're leasing in some short -- summer peak aircraft. We leased in seven aircraft last summer, six aircraft this summer, but in the context of an airline with 325 aircraft, it's pretty small.

And the last issue -- I didn't pick up the question correctly. So Neil, I don't know whether you want to answer the cash question? I think [he] said there was more of a cash outflow this year, was it?

Yes, there's more of a cash outflow and there's a number of reasons for that. Firstly, we haven't taken any significant number of aircraft deliveries for a few years, so the deferred tax is starting to unwind to a certain extent. Profits clearly up 66%, so you have to pay higher taxes on that.

But the effective tax rate is more or less in line with where it was last year, at 11.6% last year; it's 11.8% in the year just ended. So I think, Damian, does that give you a bit more color on where we're going there?

Okay.

Jack Diskin, Goodbody Stockbrokers. Two from me, please. Firstly, just on capacity growth for FY2016; if we look beyond what's been allocated into primary airports, is there any sort of skew in terms of where the rest of the growth is going into?

And then, secondly, just on ancillaries per pax, you had a good performance on FY2015. I'm just wondering if you could isolate how much allocated seating contributed towards that and how we should expect that to evolve for FY2016. Thank you.

David, do you want to take the capacity growth?

I do. The greater part of our capacity growth this year is into Germany, Copenhagen, Cologne, those headline airports that we've mentioned. We'll be adding about 12 aircraft between those three airports this coming winter.

Also notable, I think for the first time we've launched big into Bucharest with twice-daily flights from Rome, daily from Milan and four times weekly from Bologna, which is a market that Wizz Air largely had to itself until this year.

And, finally, we're going to leaven a little bit of the business activity with some renewed attention on winter sun this coming winter, where we will be flying new routes from Poland to the Canaries and new routes from Germany to the Canaries. Across the sectors, close to 90% of our growth this summer is on either city or domestic routes; hence, the renewed attention to leisure, as we move into the winter.

And on ancillaries, again, I think it's helpful to view ancillaries, our long-term objective is ancillaries would run at about 20% of total revenues. Currently, it's up higher than that at around 23% to 24%. But we don't see any significant new ancillary streams in the current calendar year.

I would look further out, and I think we have very exciting plans. I might ask Kenny just to touch briefly on them, the development of the digital platform, particularly how the Ryanair new mobile app, as we have it personalized by the end of the year, will give us many more opportunities, I think, to prompt ancillary spending with customers.

Allocated seating continues to perform strongly. We're beginning to yield manage it as well. We're changing the pricing band for the first row of seats and the over-wing exits. But most of our focus, again, for the remainder of this year, will be on significantly improving the mobile app, and then using that mobile app to be able to prompt customers to upgrade to things like reserved seating, the ancillary seating, fast-track products.

Kenny, do you want to give a quick brief on the plans for the ancillaries and how we might stimulate the ancillary sales through the mobile app?

Yes, Michael. So what we're doing this year in terms of the platform, what we've launched with this new native app, which will continue to get better over the course of the summer. That's native on Android and iOS, that's native to the hardware; it gives us much more opportunities. I would view this year as, really, the year where we're continuing to work on the digital conversion. So that's about we're great at driving visits to both the app and to the platform.

Between the app and the website that we're launching, we'll have a much more integrated view of is it the one customer who's coming to us. They get a much more responsive experience, so that it feels like one joined up Ryanair digital experience, whether you're on tablet, whether you're on mobile, or whether you're coming to us on desktop.

We know a lot more about our customers, so we have a wealth of information that we're now starting to mine, to understand the differences between customers in each of the markets; what type of opportunity they present. Come October, you'll see on the website and in the app we'll be giving customers the opportunity to tell us much more about themselves, their preferences. We will then use that information and the fact that we've got better a app, that we've got a better website, to better cross and upsell ancillaries to customers.

So this year, it's really about conversion with that app and with that website. That better platform, and all of that customer information that we then have going forward into next year, gives us a great opportunity to really sell ancillaries in a smarter, much more targeted way, as well as do promotions in a much more smarter and targeted way.

Neil Glynn, Credit Suisse. Two questions, please. I guess, first of all, for a significant proportion of your network, you are the market and you don't have a huge level of competition. Can you give us a bit of color in terms of how you're stimulating new volume through the better branding, as distinct from in other markets where, obviously, you're focusing on taking share from higher fare competitors?

And then the second question, can you give us a sense as to how many aircraft will be grounded this winter, based on the current plans? And what scope do you see to ramp up that focus on leisure passengers this winter and grow a little bit more, depending on the airport deals, I guess?

Thanks, Neil. The aircraft groundings this year, at the moment, we're still finalizing the winter schedules, but I think we would expect to ground something of the order of about 50 aircraft, something similar to last winter. We will be taking more new aircraft deliveries, however, this winter as well. But that figure is still subject to change. Clearly, as David has explained, we'll be opportunistic with some of the airports, so if there's a particular incentive offered to us by a particular airport to grow more this winter, we would have the aircraft to be able to do so.

I think, at this point in time, though, we should plan on the base of a similar number of groundings as last year, about 50. That would be higher mid-week, lower at weekends.

Market volumes; I think the last 12 months has been characterized on both new routes and on existing routes by a remarkable customer response to the Always Getting Better program. We've seen a real -- I think we've learned, too, from our competitors. Some of the things they've done well we have followed along behind, learning from what they've gotten right. But the Always Getting Better program has certainly elicited a huge customer response.

On existing routes, we've seen dramatically stronger load factors, particularly in the middle of the week, which is when the family extra products and the business plus products have a particular attraction. But across the piece, we've seen much stronger load factors. Some of that has been driven by a conscious decision on our part last year that we were going to be more aggressive with forward pricing, drive up the forward bookings.

But even we've been surprised at the extent to which customers have really responded very favorably to the experienced improvements in the first year of our Always Getting Better program. And I would again highlight that this is not a one-year kind of event. It's a multiyear program that will certainly run for three, if not four or five, years.

We continue to come up with new and innovative ways of delighting our passengers, and responding to them favorably when they feed back to us that they'd like to see more changes and more improvements.

Anand Date, Deutsche Bank. Two questions, please. We've got 10% traffic increase, and you've had strong traffic in the last six months. Now that you've got the CRM in place as well, is there anything or any data you can give us on the breakdown of that increased traffic? How many are brand new flyers? How many are incremental flights from some of the guys you've already got traveling with you? And maybe your best guess at how many are discretionary flights and maybe how many are more business flights?

And then, secondly, can you update on the progress of the price comparison rollout? Are you getting any pushback from the other carriers? What do you think they could do to try and stop you from publishing those prices? Thank you.

On the CRM, yes, we're building and assembling a huge volume of customer profiles and customer information. I wouldn't want to get into too much detail with it here, but, clearly, as we've entered a lot of primary airports and a lot of routes that we didn't serve before, an awful lot of those customers are new customers. But they're coming back to us very quickly, and the level of repeat business, particularly at those primary airports, has been very impressive in the last winter.

On the price comparison rollout, it's one of the features we expect to be able to add later this year, particularly once we've launched the personalized website sometime in mid-October. I don't foresee that there will be much kickback from other airlines. Yes, we'll have a price comparison website, but there's such a profusion of price comparison websites out there at the moment, third-party price comparison websites.

The one thing that will be different about the ryanair.com website is it'll be the only airline website that's willing to put up competitor prices and allow passengers to book those competitor prices, on the rare occasions when they're lower than Ryanair. No other airline would do that. But I think it's part of the way we expect to develop and roll out ryanair.com, not just as a booking platform but as a travel website, and Europe's largest travel website.

It will be just one of a myriad of features that Ryanair Labs are working on that will increasingly, I think, make ryanair.com everybody's first port of call for bookings in Europe.

[No one else] on the line. Okay, Michael, it looks like that's it.

Thank you, everybody, for joining on the conference call. As I said at the start, we have a new video on our investor relations micro site, on the ryanair.com website, with a presentation by both myself and Neil of the results, the investor presentation and everything else.

We have multiple teams on the road across the US, Europe and the UK and Ireland this week. So if you have a meeting penciled in, we look forward to meeting you. If you haven't got a meeting penciled in, please contact our investor relations team, headed by Justin McAleese in Dublin, or Davy's or Citigroup, and we will happily arrange a meeting with you.

We very much look forward to meeting everybody over the next week and. As I said, we have completed a very successful year, and we're cautiously optimistic if we continue to focus on the customer service and improve the customer experience, that we'll continue to deliver superior returns for our shareholders.

Thanks very much, everybody. See you later in the week. Bye-bye.