Ryanair Holdings PLC (RYAAY) 2017 Q2 法說會逐字稿

Hello and welcome to the Ryanair H1 FY17 results call.

(Operator Instructions).

As a reminder, this call is being recorded.

Today I am pleased to present Michael O'Leary.

Please begin your meeting.

Okay.

Thank you.

Good morning, ladies and gentlemen.

Apologies.

We've had some telephone difficulties here for the last five or 10 minutes, so apologies for the slightly delayed start.

As you will have seen this morning, we released our half 1 results.

I would advise you all, or guide you all towards the investor relations page on the ryanair.com website where we have a detailed presentation, both of the results, and a question and -- a pre-recorded question and answer session with myself and Neil Sorahan.

Therefore, we'll shoot through this presentation pretty quickly and assume you've all either seen it or will be able to look at that presentation.

You'll have seen this morning we raised our half-year numbers by 10% -- or raised half-year profit 7% to EUR1.2 billion on the back of 10% lower air fares.

This has been a creditable performance in a difficult six months where the business was hit by repeated air traffic control strikes, terror events in Europe, and the adverse economic impact of the Brexit vote in June.

We saw sterling weaken materially over the peak summer months.

As before, we've continued to respond to this environment by rolling out our Always Getting Better customer experience program, using our lower cost to stimulate stronger forward bookings with materially lower fares.

But for the first half of the year, traffic is up 12% to 65 million; average fares have fallen 10% to EUR50 a passenger.

Unit costs, however, have fallen 10%; one-half of that is fuel.

And we've opened 73 new routes and six new bases.

And this morning, the Board has approved, or we've announced the Board approval for another share buyback of EUR550 million which we expected to take place over the next four months.

So traffic growth is strong, it's spread right across Europe, and we're taking more deliveries of more new aircraft which should enable us to keep unit costs falling.

We are pivoting some growth away from the UK market post-Brexit.

In FY17, we expected to grow our capacity in the UK by about 12%.

We've trimmed that now to about 5%.

That is, however, giving us more capacity to allocate to other markets, Germany in particular, where there is continuing restructuring of the incumbent carriers; in Italy where the government has withdrawn or reversed the EUR2.50 increase in the municipal tax.

We're also growing strongly in Spain and Belgium where incumbents continue to restructure or cut back.

AGB, the customer experience program, continues to evolve.

In July, we became the first airline to carry over 11 million international customers.

Much of our focus in Always Getting Better this year will be more primary airports, more new aircraft, better interiors with the Boeing Sky interiors.

We're continuing to significantly upgrade the website and the digital platform thanks to the efforts of Ryanair Labs.

And punctuality, which did suffer in the first quarter with the repeated air traffic control strikes, improved significantly in the second quarter to just under 90%, 1% down on where we were the previous year.

As always, most of our focus is on cost and minimizing cost.

We delivered a 10% reduction in H1 in unit costs for the first half of the year.

As I said, one-half of that was on fuel, but also, we're continuing to see lower aircraft costs, lower airport costs, improved handling costs, cheaper financing.

We've taken -- cautiously, we've hedged our sterling exposure to the end of the fiscal year to March of 2017 because we don't want to have further profit warnings based on weaker sterling.

We spent a lot of time hedging out the fuel position, so we're now, as you are aware, 95% hedged to March 2017 at approximately $62 per barrel; but now 85% hedged to March 2017 at $49 per barrel.

Allowing for volume growth next year, that would be a saving of approximately EUR140 million over the full year, and we'll expect to pass on those savings in the form of lower air fares.

Brexit will remain a material uncertainty over the business.

The immediate outcome is weaker sterling and slower economic growth here in the UK and I think in the European Union.

And that's why we have pivoted some of our growth away from the UK next year.

Obviously, if there is a favorable outcome from these Brexit discussions, like the UK staying either in the single market or in Open Skies, we will then restore some -- we will pivot some of that growth back into the UK market.

But while the uncertainty prevails, I think it's judicious that we reallocate the capacity elsewhere in Europe where we're growing equally strongly.

Labs, we continue to invest heavily in Labs.

We'll be dealing with that on this week's road show.

It is materially reducing the cost of customer acquisition retention and significantly helping us to convert customers into buying more and more of the ancillary services.

With that in mind, we've raised the long-term proportion of ancillaries.

We expect it to grow from 20% of revenues to approximately 30% of revenues over the next four years.

Clearly, some of that will depend on also where fares and yields go over that period.

But I would caution that in the ancillaries, we're also discounting a lot of those ancillary services to build uptake and to build customer awareness, and I think that will continue to be a feature.

So ancillaries will grow strongly as a proportion of revenues, but I think the margins on ancillaries will come down as we aggressively price to build the platform.

The balance sheet remains strong.

It's one of the reasons why we're able to engage in further share buybacks.

At the end of September we had almost EUR100 million in net cash, despite having spent over EUR600 million CapEx, EUR200 million on debt repayments, and nearly EUR500 million on share buybacks during the half year.

The Board, as ever, has taken a view that we will return that surplus cash to shareholders, which is where we've got the EUR550 million share buyback to date.

We expect that will run over a four-month period from November through to the end of February.

We'd like to do about 50% of that in ADRs where the current premium is about 9%.

But if not, we'll do more ordinaries.

And we think it's judicious, given that the PE multiple currently is about [9%], its below our longer-term [15%]; and, therefore, it seems sensible for us to keep buying shares and retire those shares, and that ultimately that will return in -- will result in better returns to shareholders.

And you see that already in the EPS numbers day to day where profit after tax is up 7% but our -- the basic earning per share is up 15% in the half year.

Overall on outlook, I think we remain cautious for the remainder of FY17.

We have adjusted-down our full-year earnings.

The original range was about EUR 1.4 billion.

We've adjusted that down to a midpoint of EUR1.325 billion.

All of that adjustment was accounted for by the weakness of sterling post-Brexit.

There isn't a cost issue or a cost problem here, but fares have been a little bit weaker than we had expected.

We have delivered a strong first half, but for the second half, we've hedged fuel, we've hedged sterling, but still there's a risk to the downside in terms of pricing.

That risk may come from other terror events, unforeseen events, and more air traffic control disruption.

We'd also caution we don't have Easter in March this year where it was in the prior-year comparable.

So we've slightly raised the yield attrition for the second half of the year.

Originally we were forecasting minus 10[%] to minus 12%.

We've now moved that up to minus 12% to minus 15%, with a risk to the downside.

In total, therefore, we expect to carry just over 119 million passengers this year.

We think the outlook or the profitability will be about between a range of EUR1.3 billion and EUR1.35 billion for the full year.

And we are not on the back of these growing load factors and stronger forward bookings raising the longer-term traffic forecast from 180 million passengers by March 2024 to 200 million passengers at that time.

We will do that by not retiring as many aircraft as we had originally planned to retire when they come off lease; and we will probably take most, if not all of the new aircraft we have on order, including the options we have on the MAX 200s.

With that, Neil, [have you] any comments you want to -- color you want add to that before we open up for questions?

No.

I'll just echo your comments, Michael.

It was a solid performance in the first half of the year.

Costs performed very well, so unit cots ex-fuel down 5%.

And, indeed, our fuel bills are up by 8%, just under EUR1.1 billion.

Cost will slow down in the second half of the year to minus 3%.

Much of it's to do with the fact that we're not growing as rapidly as we did last year.

We would have grown by about 24% in Q4.

We're growing by about 13% this year but still delivering a very, very credible minus 3%.

On the share buyback, again, it's a testament to the balance sheet that we can do another EUR550 million.

This brings us to just over EUR1 billion in the current financial year.

And apart from that, Michael, I'll pass it back to you.

Great.

Thanks.

In order just to minimize some of the sillier questions that I'm going to ask David O'Brien, who's our -- the Chief Commercial Officer, just to give us his flavor, insight, on where he thinks yields and traffic will go over the next six to 12 months.

I'm then going to ask Kenny Jacobs just to give us his insight on labs and customer acquisition.

And then Mick Hickey, ask him just to give a couple of remarks on the operating environment.

He's our Director -- our Chief Operating Officer.

So starting with David O'Brien.

David.

In terms of yields, we've flagged that already.

The only way is down at the moment, not just for us but for everybody else.

I think that's despite easyJet's declared intention to worry less about load factor and traffic and to try to push put the fares up.

And that has a corollary effect for us which is the increasing attractiveness of Ryanair to primary airports around Europe where we for the first time have more primary than secondary airports in our network.

It was the most noteworthy announcement of recent times was our announcement of the base in Frankfurt am Main, which is the -- we're the first low-cost airline to have a base there, along with the opening of our bases in Nuremberg, Hamburg.

But not just Germany.

You see us now entering Bucharest, Sofia and several other airports, Vilnius, in that corner of Europe.

So we're spread across Europe with our growth, but increasingly more attracted to the primary airports.

Okay.

Kenny, what are you seeing on the labs and the -- on the commercial side?

Okay, Michael.

Good morning.

I'll refer to, for those of you who have seen the deck on the investor website, slide 14.

The key things I'd call out is the foundation that we've been building that we described back in August is continuing to strengthen.

So myRyanair, we're accelerating the rollout.

We had 11 million sign-ups back in August; we've now got 15 million.

We're moving to compulsory sign-up in Ireland, and that's just basically to help customers book faster, and we would look to do that in other markets pre-Christmas.

So that foundation of getting customers to sign in to make a booking, getting more data on those customers continues.

In addition, the app installation and usage has been bigger and better than we've expected, so we've gone to 15 million customers installing the app, and our mobile conversion year on year has doubled.

So that very strong.

And then the third part of the foundation is traffic.

So we've overtaken Southwest over the summer as the number 1 airline for web traffic.

That is a low-cost acquisition, or acquisition costs for traffic is lower than any competitor.

And with the app in myRyanair, it is protected in the future in terms of a -- from a cost point of view.

In terms of output, again referring to the slide in the deck, you've seen solid increase in conversion albeit we are discounting this -- [some of the] increase in conversion on things like seats, up 46%.

The Leisure Plus and Business Plus products up very strongly, over 500% September on September.

And priority boarding is also up over 100% September on September with more to come.

So it's good, solid improvements in conversion.

Retention remains very, very strong.

And our CRM activities and myRyanair will further help us to improve conversion.

Great.

Thanks, Kenny.

Michael Hickey [will] now talk a bit on the operating environment, particularly [in light of] aircraft to control strikes and ATC strikes, and how you expect operating at these airports like Frankfurt am Main.

Okay.

Thanks, Michael.

Yes.

I think as we said in the statement, a slow start to the year as a result of ATC and weather delays, particularly in June and July.

Recovered in August and September.

Looking forward, we expect more ATC disruption, particularly as the French introduce a new technology upgrade starting towards the back end of this month; November 19 to be exact, which -- and the impact of that will continue through 'til the end of March in 2017.

So that will have an impact on our operations.

Primary airports, yes.

That hasn't had a major impact on us at all.

We've experience now of operating now for the last year or more, and we don't expect anything significant out of Frankfurt with two aircraft based there.

Great.

Okay.

Let's open it up then to questions, please.

Now can we have questions that are not already covered by the Q&As that are on the website?

And we'll take it from there.

(Operator Instructions).

Duane Pfennigwerth, Evercore ISI.

Just with respect to your longer-term ancillary revenue growth targets, can you talk about your expectation for base fares or passenger revenue over that period of time?

In other words, how much of the mix gets offset by lower fares in your opinion?

It's impossible to know, but I think I would imagine, I expect that maybe one-half of that will be fares, underlying fares falling over the next four years; and one-half that may be made up by ancillary growth being stronger.

But it's a complete guess.

I think what's more likely to happen is that fares will be reasonably stable at these lower levels and our ancillary income will rise faster.

But we'll get to 30%.

How we get there, I'm not quite sure.

Thanks.

And at the risk of asking a stupid question, with respect to Frankfurt, can you help us understand how do the airport costs there compare to your average airport costs today and perhaps how they compare to what you could have gotten at Frankfurt two years to three years ago?

Thanks.

Thanks, Duane.

I'm afraid you're right.

That qualifies as a stupid question, not because it's not interesting, but we're just not going to disclose it.

We don't get into the detail of our airport agreements.

But I think the couple of things that are obvious, one, Frankfurt will be more expensive than Frankfurt-Hahn.

We do have an incentive scheme there so it's probably cheaper than the published tariff, but only if we deliver on reasonably challenging traffic in [their] growth incentives, incentives which Frankfurt are happy to provide to other airlines if they're willing to deliver similar growth to Ryanair.

So it's a little bit cheaper than the published rate, but it's not as cheap as Frankfurt and/or some of our secondary airports, but we think it forms a reasonable platform to allow us to grow at a reasonable rate in Frankfurt am Main.

But I think we shouldn't get too caught up on airports like Frankfurt am Main.

It's never going to be the -- it's not going to be the center of our growth activity in the German market for the next four years or five years, but it is indicative of the way the mindset of primary airports has changed in the last number of years; the fact that we're now flying to Schiphol, Frankfurt am Main, main airports in Madrid, in Rome, etc.

I think one of the more interesting statistics this morning is that of our 200 airports we're now flying to -- majority of those are now primary airports.

Whereas in the past, we would certainly have been characterized as flying from nowhere to nowhere, it's now clear we're flying from somewhere to somewhere, or in some cases somewhere to nowhere.

But there isn't an airport now that is not a potential Ryanair customer everywhere across Europe.

David, is that fair?

I'd exclude Heathrow from that in the medium term.

Sure.

But apart from that, no.

Thanks, Duane.

Next question, please.

Savi Syth, Raymond James.

Just two questions.

One is you've mentioned than more than 3% of your customers are buying the Business Plus and Leisure Plus.

I was wondering if you had any thoughts on where you'd like to get that level to.

And then secondly, with extending the leases of aircraft, I was wondering if you could help us think about what the benefit might be on the cost side.

I'm guessing you're extending the leases at lower levels but then maybe perhaps getting some offset from higher maintenance.

Thanks.

Thanks, Savi.

We've set out a plan on business called Business and Leisure Plus -- it's a kind of premium product -- to get that from 0% to 10% of total traffic over a five-year period.

So we're above 3% as we -- in our second year.

We're well on track.

And I think the Ryanair Lab will accelerate that trend over the next year or two.

So we would hope to have about 10% of traffic paying us a premium by the end of year 5.

Now I would caution that some of that growth is also -- obviously, we're yield managing it so we are discounting and try to incentivize people to take up those offers, so it may be a slightly lower premium than we would have had in the past.

But it's an area that's growing strongly and we would expect with Ryanair Labs that will continue.

On extending the aircraft leases, we have about 20% of the fleet on operating lease --

Sorry, Michael.

It's actually now down 11%, so it's --

Sorry.

11% of the fleet?

Yes.

Thank you.

On operating leases.

Typically over a seven-year period, we do have the option to extend for a second seven-year period to 14 years, from eight to 14 when they (inaudible) or those leases come up for a review.

I think we'll be opportunistic, but certainly at the moment, the lease rates are lower.

We do take a slightly higher maintenance cost on those aircraft for the second period of time, and they have all come off warranty as well.

But the slightly lower lease rates will help us to address the slightly higher maintenance costs or maintenance provision on those aircraft in the second seven years.

Yes.

I'll just add to that as well, Michael, that we'll likely hang on to a lot of our older aircraft as opposed to extending leases.

Now we have extended two leases for three years from the spring of next year, but while we have an option to extend, we don't have to.

But in secondary terms, it is significantly lower than you would have paid in the first time on the lease.

So net-net, that should be a positive contribution then?

Well, net-net, it should deliver in revenues, which will more than offset the cost.

Sounds good.

Okay.

Thank you.

Oliver Sleath, Barclays.

Three questions, please.

Firstly, on fares for the winter, you've said minus 13% to minus 15%.

Am I right in thinking that's probably more weighted towards Q4 than Q3 given the lack of Easter?

Any rough sense on how Q3 is specifically shaping up will be helpful.

Secondly, just coming back to the Frankfurt deal, I'm interested what made you decide to make it a base as opposed to just a network point linking up with other bases?

It is all looking towards a much bigger presence in the future, and thinking about business first way flights, etc.

Final question is on the load factor.

As you're delivering such high load factors now, like 95% in October, is there ever a risk that on some flights you actually fill up too early and leave money on the table for competitors?

Thanks.

Thanks, Oliver.

I'll take the first and third.

I'll ask David to give you some color on the Frankfurt base.

We wouldn't split it; we're not going to split down the yield outlook for the -- between Q3 and Q4.

I think you're right to assume that Q4 will be marginally weaker because largely at the absence of Easter, any impact of Easter in March this year it moves into Q1 of next year.

On the third part of the question which was on the load factor, yes, I think there are times when we do fill up too early and we do spill, but we regard that almost as an investment in the continuing growth of the business giving people a really -- a lower fare.

It is certainly encouraging them to book earlier, and I think what has struck us is the extent to which forward bookings remain stronger than they were this time last year.

We're typically 2% stronger booked now through for November, December, January, February and March, and I was struck at the time, a couple of weeks ago when easyJet announced their numbers, that they were 45% on that day booked to the end of December.

On the same day we were 55% forward sold.

So, yes.

I think we are probably overdoing it a little bit around the edges.

It's very hard to be precise in this.

But if it means that our customers get a lower fare I think then that heightens the difference between us and every other airline, then so much the better.

I welcome the decision or the announcements coming out of easyJet in the last week that they're now going to manage their business for yields, or more focused on yield rather than load factors, as some of their load factors fell by 3% in October.

We will be doing precisely the opposite.

We'll be managing the load factors at the expense of yield.

And I think our strategy is the more coherent one.

David, do you want to give them a flavor on Frankfurt and the [flyer] base?

Yes.

Primarily because that's what they wanted, Oliver.

It allows for more efficient use of the facilities.

It's not a particularly constrained airport, but in terms of such blockages or slot problems that may exist, a base works better.

Having said that, when a base is ideal for a business operation, in fact, our flights next summer are four leisure destinations: Alicante, Malaga, Faro and Palma to Majorca.

But certainly as we look into winter 2017, yes, you can see the base expanding and more of a business proposition emerging.

Great.

Thanks very much.

And Michael, just to clarify, so if I understand correctly, you'd rather get customers being [used to] offered a really great value fare even if it means that you maybe keep your competition going a bit longer in the short term.

Is that the idea?

No.

Really, if I thought that would keep the competition going -- if you look at the competition's numbers, most of them are reporting a bit dip or downturn in profitability or losses.

I think it's impossible to be -- I think in general broad-brush terms, we have lower unit costs coming through the system.

We're prepared.

If that means we sell slightly more seats at lower fares, or we don't maximize yields in the near term, frankly, that's an environment I'm quite happy with because nobody --

If you look at the competition around Europe, we're still reducing unit costs.

Nobody else is reducing unit costs ex-fuel the way we are.

And so the gap between us is getting wider.

If we make a couple -- if we err overly on [doubling] the yield in order to maintain load factors, it will improve over time.

Understood.

Thanks very much.

Stephen Furlong, Davy.

Just two questions.

First, I know you've said before about 119 million passengers with the better run rate on loads, but I see in the targets, 130 million for FY18, and 143 million for FY19.

They're big jumps on what you've given before; 5 million in FY18, 8 million in FY19.

So if you could just talk about did you see more opportunities in the market and that's what's pushing them out?

And then the second thing is just in terms of the broad deflation in yields this winter, both with yourselves and the market, is there anywhere worse than anywhere else, or is it just across the piece?

For example, is Eastern Europe doing better or worse?

You might just give a flavor.

Thanks a million.

I'll answer the second bit, which is, no, there's nowhere that's particularly worse or particularly better.

There tends not to be, as you know, Stephen.

We move the capacity around, so if somewhere was doing particularly well we'd allocate more capacity there.

If somewhere was doing poorly we would remove capacity.

So there's no -- the yield deflation is in essence across the piece.

Some of that is because of the increase -- there's three factors in that.

One is the capacity additions, and there's undoubtedly excess capacity getting added into the market in Europe.

We are probably the authors of a significant proportion of that excess capacity but we're very happy to be so because it's dropping our average -- we're adding new lower-cost aircraft.

Fuel savings are clearly being passed on, and most of the -- I think what has happened with lower fuel is that the restructuring among the legacies, which had probably accelerated two years ago, has now slowed down, but it will return again.

And then you have the impact of, certainly in our model, sterling post-Brexit as we're reporting in euros.

We were somewhat struck by the yield attrition in some of our UK competitors who, given that they're reporting in sterling, seemed to be in a much more difficult situation from a yield perspective.

But that's a matter for them.

David, do you want to speak on the increased capacity, or the increased capacity additions in the next two years, bearing in mind that we're just going through a year where we've grown from 106 million passengers to 119 million passengers?

Yes.

We're very confident the opportunity is there.

Even if you look at Italy where we are the number 1 airline, we're going to grow next year by 10%.

For Italy to get to the European average in terms of passengers, they'd need to add another 10 million passengers, even to get to where everybody else on average is now.

So within our top four markets, is Italy, Germany, Spain, to a lesser extent the UK, there's huge opportunities there.

And then you look onwards into Eastern Europe where we've just taken a 30% share of Sofia Airport in Bulgaria, and similarly moving on in Romania which is the second biggest market in Central and Eastern Europe, the opportunity is boundless.

And at the same time, you have the likes of easyJet, for example, withdrawing from what we would imagine would be flagship routes, such as Berlin to Brussels, Brussels to Milan, and so and so --

Copenhagen, [London].

Copenhagen to Luton.

And Vueling closing their bases in Brussels, Catania, Palermo and cutting back in Rome.

And these are gaps that these airports really want us to fill.

Okay.

That's great, David.

Really helpful.

Thanks, David.

Thanks, Michael.

Neil Glynn, Credit Suisse.

I have three quick questions, please, the first one with respect to other OpEx.

In unit terms, it's the only cost line that's growing at the moment it seems.

I realize there's a few bits and pieces in there, but just interested in terms of how we should think about that cost line as ancillary revenues continue to develop.

Should we see investment in ancillaries whether it's in flight or other categories within that line driving it up?

The second question.

Obviously, you've highlighted the 30% target with respect to ancillary revenues.

This was the first quarter in a couple of years where ancillary revenues per passenger actually rose.

Can we be comforted that the winter will also see further growth and it will be upward from here on that line?

And then finally, just interested in terms of your line of thinking on potential [feeder] with long-haul operations.

Obviously, the load factor has continued to eke upwards and perhaps surprised you positively, which suggests less need.

But then also, you're clearly ramping up your volume growth plans today.

So I'm just interested in terms of whether feeder relationships may help you gain more comfort in your growth outlook.

Yes.

Thanks, Neil.

I'll ask Neil Sorahan to take the first two parts of that, the OpEx cost line and ancillaries upward in the winter.

And then I'll ask David to speak to the feeder discussions with long-haul carriers.

Okay, Neil.

Good morning.

Other operating expense, there's three moving parts in that figure.

The first is marketing, which is actually coming down.

We've about EUR5 million less spend on marketing in the current financial year.

And as we start to get more people signed up to the likes of myRyanair, we'll be able to rely more on the personalization.

We would send out, for example, at the moment about 50 million emails per month targeted at our passengers where in the past we would have had about [14 million].

So that helps Kenny keep the spend down on the actual marketing itself.

The other element of this would be the input costs for our onboard spend.

It's performed quite well in the first half of the year.

And it's a factor off what we're actually selling onboard the aircraft.

So in an ideal world where the onboard spend is continuing to grow, we would expect to see that rise.

And then the third element, the other element of it is primarily EU261.

We would hope that we wouldn't see the kind of air traffic control disruptions that we've seen in the current year rolling into FY18 and beyond, so that will be a factor of really what's happening there.

It's marching up this year as well given that we had the ECJ ruling in September 2015 in relation to tech delays which is in its first year, so that should normalize as we roll into next year.

On the 30% target of ancillaries, well, that's clearly a four-year target.

On the current year, we said we'll be broadly flat on a per-passenger basis.

On ancillaries the [kind of thing is] performing well.

Reserve seats, priority boarding are above expectation.

Onboard spend has been good.

Car hire, which was clearly absent in the second quarter last year, has also been a strong contributor.

But offsetting that, we would see our travel insurance penetration down and our hotel penetration down as well.

Okay.

So second half, ancillaries will be slightly down in the second half compared to the first half?

They will be slightly up compared to the first half

Okay.

So that will end broadly flat on a per-passenger basis.

Okay.

David, do you want to talk on feeder discussion?

Yes.

The first thing I should say is there was never a need for Ryanair to engage in feeder discussion.

So in our load factor over the last couple of years since those discussions have been going on has been constantly high.

It's just reaching new peaks.

But it isn't lost on many of the long-haul carriers out of Europe that there is a structural difficulty in that most of the feed into the main European hubs now is at very low capacity in the order of about 100 to 110 seats.

And the value of tapping into Ryanair's 200-airport network, and in some cases, the potential to create absolutely new hubs in the likes of Ladberg and [Charleroi], and so on, creates much more efficient lower-cost feed for them.

So we are in discussions.

They are at various stages of progression.

I think it's fair to say with Norwegian, it's now at a [secondary] level.

With Aer Lingus, conversations have been [fitful], but I think it's progressing along nicely.

We have close to [19] European routes at Dublin.

Aer Lingus has less than [16].

So there's [40] routes where feed would be of use and value to them.

Then you look at Stansted, at the moment and perhaps for an awful long time, the only London airport with spare capacity which has close to [170] routes into Europe mostly delivered by us.

So there are a lot of opportunities there, not specifically for us, and we'll take -- we'll look at each of them on their merits, but certainly for long-haul carriers.

That's great.

Thank you.

Jarrod Castle, UBS.

Three questions, if I may.

Just exploring ancillaries a bit more, could you give an idea in terms of what the mix will look like in ancillaries between now and 2020?

i.e., You're obviously adding a lot more inventory to your website.

I would image you can offer very attractive or lower commission rates to charge the hotels and the OTAS, so just how would that growth progress?

And then also, Michael, you said the margin would come down.

But surely, as the marketplace grows, actually, the leverage should kick in and at some point the margin should go up.

And I think you've never actually given us a number for margin for ancillaries; you've just said it's kind of similar to the average.

Is that still the case?

So I guess there's quite a lot of questions around ancillaries, and I've actually got two more, but I'll leave it at that.

Well, go on.

Run the two more.

Well, just a little bit more in terms of how will you decide on the magnitude of the buyback.

A generous number, but why not EUR400 million or EUR700 million?

And then lastly, you're going to get to 25 million myRyanair.

Can we expect another 10 million or so next year and then you've got all your unique customers lined up?

Okay.

I'll do the first on ancillaries.

Neil, I'd ask maybe you'll comment on the buyback side; and I'll ask Kenny then to give an outlook on the myRyanair.

Jarrod, on the ancillaries, I won't give you a bit more color on the ancillaries.

It will be opportunistic.

Some will grow faster than others.

We do think we'll get to 30% of revenues over the next four years.

Clearly, we would expect strong growth on everything that relates to the Ryanair platform, so converting existing services such as Business Plus, Leisure Plus, reserved seating, priority boarding, are all doing well.

We have more work to do though, however, on selling third-party services, so car hire with our partner CarTrawler is performing well, but there's more to do there.

The Ryanair Rooms platform, we have soft-launched that in October.

We have only two suppliers up there at the moment.

We expect to get that to five or six suppliers by the midpoint of 2017.

And the reason I caution on the margins, that you're correct, we've never given margins nor would I ever, is I don't want people out there going, the profitability's going to take off here because ancillary revenues will grow 30%.

A lot of that growth and a lot of that conversion will happen by virtue of the fact that we will give away some if not all of the commissions or the margins we make on those products as we build up a bigger platform on the ryanair.com website and mobile app, making it the Amazon of air travel here in Europe.

You're right.

I think over the longer term as we build scale, then margins and commission rates will rise.

But I think we have to be prepared if we're going to want to, and we do want to go and disintermediate the disintermediators at the moment, the booking.coms, the [Travelodge], the Expedias, TripAdvisors, etc., we have to offer customers a unique reason to avail of those services on the ryanair.com platform, and that will be by offering them lower prices.

And we can do that because we don't know to retain all that margin in those ancillaries.

It's a tiny part of our overall business.

We're clearly very profitable within the airline space itself, and growing strongly, but I think we do have a reputational issue to address in that we're viewed as being -- having the lowest fares.

But in some cases, there's a lack of customer trust with us that we will give you the lowest hotel rooms or the lowest car hires or the lowest every other services.

And I think we'll need to work on that over the next couple of years as we aggressively build Ryanair Labs as a platform which will not just be the Ryanair website but the Amazon of air travel.

Neil, maybe you'll give some color on why we determined the buyback side; and then, Kenny, you might give your thoughts on how we'll continue to build the myRyanair membership platform.

Sure.

Jarrod, with EUR3.9 billion cash growth on the balance sheet at the end of the half with net cash just under EUR100 million.

We've already distributed on the EUR470 million in buybacks in the current financial year.

So we feel comfortable based on CapEx of just over EUR1.2 billion, including maintenance CapEx, that EUR1 billion is about right to retain that kind of balance sheet that we have at the moment.

We might be marginally net debt to marginally net cash, at the end of this financial year having done just over EUR1 billion in buybacks in the current financial year.

That also retains our strong BBB+ rating that we have in the business.

So the effect of all of those things that we're looking at.

And, Jarrod, I would add into what Michael said there.

We think with ancillaries it's about winning share, it's about having the right product for the right customer.

The key to that is myRyanair.

We thought we would get to around EUR11 million by the end of the financial year in terms of signed up members.

We're at EUR15 million now, and we are saying that by adding compulsory sign-ups so that you have to be a member to make a booking, I'd expect that next year all of our customer base are signed up members of myRyanair and then we have a much better data asset to make booking faster, but also to target the right ancillary product to the right customer at the right time.

So I would expect next year at the start of the year that we're looking at all of our customers being members.

Thanks.

And is there any reason why someone would go somewhere else?

Is there any pushback from myRyanair?

No.

Very happy to say it just makes booking easier and it gives you discounted offers.

In September, we ran a couple of myRyanair only promotions which customers loved because you're getting things like priority access to sales; you're getting percentage off.

You're getting various things which basically make your customers say it's worth my while being a member other than the fact that it just makes the booking process easier, which is what everybody wants.

Okay.

Thank you very much.

Johannes Braun, Commerzbank.

I have three questions.

Firstly, in your talks with Fraport last week, did you also discuss the potential for self-connecting options in Frankfurt as a topic as well?

the second question.

I know you are normally not giving us ex-currency yields and unit costs, but given the current extreme weakness in sterling, could you make at least a rough statement what the ex-currency performance looks like?

And then thirdly, you have introduced new pilot contracts in Germany.

I think you also replaced the contracts that you have previously worked with.

Why did this become necessary?

And also, I think there are [voices] that claim that also the new contracts are illegal under German law.

Could that be a risk for your long-term growth agenda in Germany comparable to the situation you faced in France where you withdraw from setting up bases?

Okay.

Thanks, Johannes.

I would caution, don't believe anything you hear from a German union.

But nevertheless, we will.

I'll ask David to talk about the Fraport question.

Maybe Neil Sorahan will answer the ex-currency yield and unit cost.

I assume the answer to that will be, no.

And I'll ask Eddie Wilson then maybe just to give you a brief insight onto what's going on in Germany.

David?

Okay.

First of all, I wouldn't want to overstate the significance of the Frankfurt base next year.

It's two out of almost 380 aircraft.

And they are aware, as are many of the airports around Europe, that Ryanair is considering a self-connecting model, as well as connecting with other airlines, which is of great interest to many of the primary airports in Europe given the manner in which the [gulf] carriers and [Turkish] until recently has been soaking a lot of traffic away from their core business.

So they're aware of our potential to connect.

I think what's more important about the connecting, particularly self-connecting products, is that it is likely to disrupt certain cozy arrangements around Europe whereby the connecting passenger discounts available to the legacy airlines have no relationship to cost.

Also, a lot get an 80% discount worth an additional EUR7 million to them this year for doing absolutely nothing, and we expect to get into the middle of that.

Neil?

Okay, Johannes.

On the currency, we don't, as Michael hinted there, go into constant currency.

I don't plan to get into that now.

What we have highlighted that it's about 26% of our revenues this year will be sterling revenues offset by about 18% of our unit costs, ex-fuel.

So a good natural hedge, and we've de-risked the second half of the year by hedging out our net long sterling position.

On the unit costs, some of the benefit, the minus 3%, will be related to sterling.

Some of it will be load factor.

So I would estimate just over 1% of our unit costs are underlying developments in the business.

About 0.5%, maybe marginally more, would be load factor, and the balance would be sterling.

And Eddie Wilson, our Chief People Officer.

Wonderful title.

A quick highlight on the German contract situation.

Thank you, Michael.

Just on the -- first of all, it's not an investigation that involves Ryanair, to do with number of contractors that we've had in Germany, and to use the [raids] that we've had is whether they've paid the right amount of social insurance or not.

So it's about the quantum as to whether they have correctly made the returns.

We require all of our pilots, whether they're contractors or employees, to be tax compliant and social insurance compliant.

And I think what we get through the [hubris] of these investigations, which invariably come with our growth in particular markets, you'll find that there is nothing amiss there at all but it's down the individual pilots' social insurance returns.

So I've no difficulty with it all at the moment.

And new contracts?

New contracts?

There was some pilots who were offered new -- were offered employee contracts from one of the agencies, and people are free to take them or they can stay as self employed contractors.

So it's just an individual decision.

Obviously, some of the pilots were uncomfortable with the raids that happened that they would have seen completely unjustified.

So it's just another mechanism as to whether they -- as to how they want to operate within Germany.

I think an awful lot of you are seeing, Johannes, commentary coming out of the cockpit unions in Germany, most of it is complete and utter rubbish.

We wouldn't pay too much attention to it.

And while they continue to mount strikes within, or threaten strikes within Lufthansa and within Air Berlin, it doesn't affect us and nor does it affect our pilots.

Okay (inaudible).

Thank you.

James Hollins, Exane.

Three questions, please.

The first one is on Ryanair Rooms.

You were talking about this intermediating the likes of booking.com.

I think you've worked with them in the past.

I was wondering if you could mention who the two partners you have now are.

And you're talking about midterm, or certainly middle of next year, about five or six.

What would be the end game for total number of partners there?

Second one's on ForEx hedging.

I was wondering if you were hedging any of your net long sterling in full-year 2018.

And I think at Q1 on the dollar hedging you were 80% hedged.

I was wondering where we are on that now.

And then the third one probably for Michael Hickey.

In terms of the ATC, do we see that tech investment, or whatever it is going on in France, as being a massive problem November to March?

Or is it just a potential to cause of a bit of a headache?

Thanks.

Okay.

I'll take the first one, and Neil ForEx hedging, and then Michael Hickey on the French ATC tech investment.

Ryanair Rooms is -- well, we have just two partners.

The reason for that is we wanted to get it up and running in October.

We expect we're in discussions with probably another six or seven partners.

We expect to have that up to about five or six by March or April of next year.

I think the long-term outlook is what we really want to have is almost like an open platform where accommodation providers from not just hotels but also guest houses, bed and breakfast, home stay, home share, everybody can be putting their available capacity up on the Ryanair system, not unlike an Airbnb kind of platform, and deal directly with the Ryanair, the customer, the end user, eliminating the middle men like at booking.com and Expedia, who are customers or companies that we have worked with.

We respect them.

They do a terrific job, particularly for people -- they don't own a brick of a hotel anywhere.

And I think there's an increasing dissatisfaction with the booking.com model within the hotel industry itself.

They're looking for someone to provide, one, scale; and, two, a lower commission rate.

And I think that's an area where we could go in and disintermediate the disintermediators.

Now it's small-scale at the moment, but the very fact that we have launched the platform and that we will extend and grow that platform pretty quickly I think over the next couple of years is indicative of where I think we can go.

So what will be the ultimate number of partners?

It should be almost unlimited.

But we should be able to have as many accommodation providers across all of the cities of Europe where we will already be the largest, if not the largest, or one of the largest airlines operating to those cities.

So we should be able to eliminate or cut out the current hotels or those accommodation providers by under-cutting them.

Neil, you'll take the ForEx -- take the sterling, and then Mick Hickey.

Okay, James.

On the ForEx, we have hedged out to the end of Q4 FY17 the net [long] position just on the [91p].

We haven't done anything beyond that.

That's a discussion we'll have once we start to look at our budgets over the next number of weeks and months.

Just with the volatility that's existing in sterling at the moment where you see five big-figure movements over a weekend it made sense to take that a risk off the table for the current financial year.

In relation to euro/dollar, we're 90% hedged in FY18 on the OpEx at about $1.12, and then on the CapEx, as you know, we're 100% for the balance of this year, and into FY18 at a blended rate of about $1.31.

Mick, French ATC investments.

God help us.

Yes.

It's hard to know with the French whether we'll see any difference.

No.

We will definitely see.

They're advising us for six days of the implementation, which is November 17, not 19th, as I said.

It's going to be pretty difficult.

I suppose we're helped by the fact that it's wintertime; that capacity -- we'll try -- we have a plan to use alternative routes.

We just have to be mindful of it as we implement it over that -- out into January and February and see exactly what the impact is.

And do we expect to see any long-term benefits from this enormous tech investment in France, French ATC?

Well, I'd love to say, yes, but unfortunately, I'm pessimistic in this regard and I don't know if we'll see any improvement.

Yes.

It might be useful to bring in Juliusz Komorek here where we know that Airlines for Europe is pushing hard on air traffic control solutions, Juliusz.

Do you want to give people just a couple of thoughts on it?

Sure.

Morning, everyone.

Several (inaudible) for Europe in January of this year, and ATC strikes is one of our three priorities.

There is a momentum in relation to this issue in Brussels at the moment mainly resulting from the fact that there have been so many strikes in the first half of this year, primarily in France.

So while unwelcome to operations, it is helpful to a regulatory process, and we have identified a number of issues which will not remove strikes but which may help ameliorate the results of strikes.

And that's our focus at the moment.

We're working with the other large airlines in [a three] on that topic.

We believe we have the ear of many of the decision-makers in European commissions.

I would hope that we will see some movement in this area within the next six months.

Andrew Light, Citigroup.

First question on market share.

Do you have a vision of what realistically you could get to in the Pan-European bases?

I think you're 15% now and your plan, your upgraded plans would suggest heading somewhere into the low 20s.

And I think in particular as you probably don't intend to serve or have any bases in France.

And then secondly on the cost guidance for this year, minus 3%, and yet it's already I think minus 5% ex-fuel, and you're growing the second half at a similar capacity increase, I was just wondering.

Are you implying really that there will be very little cost reductions from now on?

Okay, Neil.

I'll give you the cost guidance.

If I start with market share generally, Andrew, it's always hard because the number for the total -- the total base number for Europe keeps moving.

But if you take it at the moment, there's about 650-odd short-haul flights a year in Europe, we would expect over the next eight years that will grow to 800 million, we should have about 200 million roughly of 800 million.

Market share would be around 25%.

So I think any number there between 20% and 25% would seem to me to be reasonable, but it depends on what the base figure is.

Neil cost guidance?

Yes, Andrew.

We've been fairly clear on this from the start of the year that we'd see this kind of [front slowness with] higher cost reductions in the first half of the year, slowing down in the second half of the year.

We have another 31 aircraft deliveries over this winter which will start depreciating.

We'll also start ramping up the crews for those in advance of the next summer schedule.

And then as I said earlier on, we have a slower growth in passenger numbers.

In percentage terms we grew by 24% last year, particularly in the Q4 period where we're growing by about 13% this year.

So they'd be the key reasons why you're going to see the slowdown into the second half of the year.

Thanks.

If I could ask a follow-up on the growth.

You're achieving that through not selling aircraft, extending a couple of leases.

You've still got a bunch of other aircraft you possibly could not sell as well.

Do you have an age limit on aircraft at which point you wouldn't operate it any more?

Well, our operating fleet at the moment has an average age of just over six years.

Even by the time we get out to about 2024, based on -- we have 305 new aircraft coming into the fleet, Andrew.

We'd still have an average age of about under eight years of age.

So a very young fleet, particularly when we go back to where we were with the 200s 15 years ago.

So we've no issues around fleet age.

Okay.

Great.

Thank you very much.

I think, Andrew, just to color that, that was one of the reasons why we were so keen to buy the Boeing's end of line 800 series aircraft where clearly values were so much undermined by the announcement of the MAX200 program, the leasing companies don't want the end-of-line aircraft.

We've always been content with end-of-line aircraft because we know we're an end user.

And I have no difficulty taking aircraft if the cost is right and the cost is low enough.

Operating those up over 20 years -- I think currently our depreciation policy is 23 years to a [15]% residual value.

I would have no difficulty going up there, but obviously from a maintenance and more from a reliability point of view, we're better off to try to keep the average age of the fleet at reasonably low.

Got it.

Thank you very much.

Alexia Dogani, Goldman Sachs.

I had two questions, please, as well.

Just firstly looking at your growth prospects, especially with regards to Germany, do you see more scope to add incremental capacity over the next coming months as Lufthansa have used the Air Berlin capacity deal and will make subsequent capacity adjustments on the route network?

And associated with that, do you see any other markets playing out in terms of market structure and specific players coming off specific routes to the same extent?

And then just secondly, I guess a question for Neil, just to understand the cash flow from investments going forward.

My understanding is that when you -- the capacity adjustments you've done to the fleet plan is majority from non-pursuing disposals of aircraft.

When should we expect disposals to start kicking in?

And subsequently, we don't expect any increase in CapEx other than the exercising of the options.

Right?

Thank you.

Yes.

I'll deal with that question first, Michael, if you don't mind.

Yes.

We factored in disposals happening now bar some lease hand-backs of which we've got 38 aircraft in the fleet.

We factored actual sales coming in more in the back end, so kind of from the 2022 period onwards.

Okay.

David will take the German incremental capacity question.

I'll give you some thoughts on other markets.

I don't see much by way of an absence of more capacity into Germany in the next couple of months since most of our summer 2017 capacity is now allocated; and we may have one or two surprises up our sleeves just in the coming weeks, but unlikely to have any significant numbers incrementally for Germany.

When it comes to winter 2017, Germany is competing with a lot of markets out there which Michael's going to touch on now.

I think in other markets it's always difficult to be able to predict accurately which incumbents will struggle or who's struggling.

But if you take what we're seeing at the moment, or what's driving our expansion, clearly, there's a very deep restructuring going on in Air Berlin that's in effect being broken up and parceled off into Lufthansa and [Air 2E].

I think the fact that Etihad is so desperate to get out of Air Berlin indicates there's a lack of long-term commitment to loss-making European airlines which brings the Alitalia situation into focus over the next couple of years.

You have other airlines losing money.

The Maltese are trying to restructure.

Lot is trying to restructure.

SAS and Norwegian up in Scandinavia are losing money hand over fist.

So really across the piece we see weak incumbents, and it's not so much that we see weak incumbents but the airport partners, or primary airports are identifying weak incumbents which is why they are engaged in -- trying to engage with us to get us to allocate capacity and growth to those markets.

And I think again there will be opportunities.

Really, I don't think you'll see a significant change in that until oil prices tick back up to $70/$80 a barrel, which I suppose is inevitable at some point in time.

And as Warren Buffet would say, it's only when the tide flows out you see who's swimming naked, and a lot of our airline competitors in Europe at the moment are swimming naked.

Thanks, Alexia.

I only want two more questions, guys, because we have scheduled investor meetings now for 12:30 PM here in London and we've got to go.

But we'll take two more questions and then we'll wrap it up, if that's okay.

Mark Simpson, Goodbody.

A couple of questions, as usual.

Ryanair Rooms.

I just want to ask when you think you may see the first direct distribution agreement with a hotel chain rather than using aggregators.

On the PAX and fleet targets for FY18 and FY19, multiple choice, because you've got a change in the prior targets which are larger for the fleet than the passenger numbers, and that suggests either there's a change in delivery patterns, or lower utilization, or the fact is your FY18 target is actually -- well, it should be EUR133 million not EUR130 million.

And then finally, in the past, you've talked about wanting to replicate in Milan what you did in Rome, and I'm just wondering if you can tell us your plans for Bergamo and Malpensa.

Okay.

I'll run through that quickly.

Ryanair Rooms, I think I'm not that keen, certainly for the next year or two to be doing direct bookings.

I think we're focused on building up the platform, doing it with multiple aggregators.

In the past, we would always sign an exclusivity with one provider.

We have multiple aggregators across all the different type of accommodation types and then begin to roll out into, certainly with the larger groups of hotels and/or other accommodation sources, doing direct bookings.

The FY18 target, again, don't get too caught up on the target that we've set out in there.

A lot of the traffic targets are dependent upon the timing of aircraft deliveries, and the aircraft deliveries come in either at the end of a -- towards the end of a fiscal year or the start of another fiscal year.

So the traffic growth is not smooth -- or in the sense it's not smoothly in line with the aircraft additions because of the timing of the aircraft deliveries.

And David gives you a view on Milan.

Yes.

Well, we're already doing in Milan what we did in Rome.

We are 9 million-plus passengers in Bergamo and now growing beyond 1.5 million passengers in Malpensa.

And again, it's characteristic of the general mood around Europe.

You take Milan Malpensa which once had 30 million passengers and then fell back to 18 million when Alitalia closed the hub, and Etihad is clearly showing no particular interest, not just in Malpensa, but now increasingly in Alitalia.

So there's an appetite there for growth and we're going to continue to do it, just as we're doing in [Zavant] and Charleroi, Rome Fiumicino and Ciampino, and so on.

Okay.

That's great.

Thanks.

Okay.

Last question, please, and then we have to call a halt because we've got to go and start meeting investors.

Damian Brewer, RBC.

Two questions, please, quickly.

First of all, could you just give us a little bit more color on what happened to airport fees?

In particular, if I look at the airport fee per seat, even taking out the impact of (technical difficulty), it still feels like it fell.

Could you give us just one or two ideas of what drove that?

How much of that would continue into 2017/2018 rather than just wash out as the year washes out?

And secondly, if you could just give us a (technical difficulty).

Obviously, Vueling and easyJet have both had problems with punctuality.

Yours seems to have been a lot more resilient.

Can you remind us of what makes you different from them?

Thank you.

Okay, Mick.

I'll ask you.

You can take the credit for our resilient punctuality, although I know it's still behind where it was this time last year.

Airport fees, Damien, no.

We won't give you any more color on the airport fees on a per-seat or any other basis other than you've got to trust us.

We continue the new routine of continuing -- we have four people in the team now.

They're in almost continuous negotiations with airports.

But the reality is there's a group of airports that now extends to more than 200 across Europe, all of whom are in a daily or weekly contact with us trying to incentivize us to offer them either new routes, more capacity on existing routes, or to convert routes into bases at their airports.

But really, the rest of it is commercially sensitive and we're not getting into any more color on that.

And, Michael Hickey, do you want to finish on a high point by talking what a wonderful -- tell them what a wonderful job we're doing on punctuality?

Well, why wouldn't I?

Yes.

I think there's a number of factors feed into it.

I think the key one is the technical reliability of the fleet.

[Seems to be leading] 99.74%, way above any other operator, even of the Boeing [727], and that feeds in.

I think the key thing though that we have is that we have an understanding to every aspect of the operation of the need to have on-time performance.

That's from ground handlers to cabin crew to pilots to engineers.

And that is seen -- comes to fruition every day we operate.

Good.

Okay.

Ladies and gentlemen, thank you very much for that.

I think we've run over an hour on the call and we have meetings to go to now at 12:30 PM.

So if you don't mind, forgive me if I cut the conference call.

We'll bring it to a close at this point in time.

We have extensive -- I think we have something like 14 road show teams on the road this week across the UK, Europe and North America.

If you want a meeting, please call either [Fizzy] or [Davy] that we'd be happy to facilitate a meeting with you this week.

If not, and you just want to [mention] your feedback, please feed it back through the investor relations team led by Shane O'Toole in Dublin or Neil Sorahan as well.

With that, we close the call and say thank you very much for participating.

God bless.

I hope we'll see you all later on this week.

Bye bye.

This now concludes our conference call.

Thank you all for attending.

You may now disconnect your lines.