Ryanair Holdings PLC (RYAAY) 2017 Q3 法說會逐字稿

Hello and welcome to the Ryanair Q3 results call.

(Operator Instructions).

Also just to remind you, this session is being recorded.

I'll now hand you over to Michael O'Leary.

Please begin.

Good morning, ladies and gentlemen.

Welcome to the Ryanair Q3 conference call.

You'll have seen this morning we released both press release, slide presentation and a Q&A on the ryanair.com website and I'd urge everyone to make sure they've had a look at that.

Give you a couple of brief summary remarks.

We reported Q3 profit down 8% to EUR95 million as average fares fell 17%, while traffic grew 16% to 29 million customers during the quarter.

The key metric is that Q3 unit costs were cut by 12%.

Excluding fuel, unit costs were down 6%.

We continued during the quarter to grow capacity, new routes and bases at a time when many other airlines are also adding capacity.

Accordingly, the price environment remains weak and it's a weak pricing environment that's heightened by uncertainty post Brexit, weaker sterling, switch of charter capacity from security challenged areas, like Turkey, Egypt and North Africa, into Spain and Portugal.

And we expect these will continue to put downward pressure on pricing for the remainder of this year and also into FY18.

Interestingly, as we roll out our load factor active yield passive policy, however we've stimulated industry record load factors of 95% in Q3.

During Q3 we took delivery of 10 new aircraft.

We opened five new bases in Bucharest, Hamburg, Nuremburg, Prague and Vilnius.

And in March we opened two new primary airport bases in Frankfurt Main and Naples.

We're growing strongly in Germany at a time when Air Berlin is restructuring and we've also concluded in the third quarter a new growth deal with London Stansted airport, which will see us grow to more than 20 million passengers at Stansted next year, including nine new routes to destinations such as Copenhagen, Naples and Nice.

We do expect to announce some additional UK and EU growth deals in the coming months, as airports all over the UK and Europe compete for Ryanair's growth against the difficult backdrop of Brexit uncertainty.

Our low cost base, however, continues to be the key differentiator with all other airlines.

Not only have we the lowest passenger cost but these costs are falling at a time when many other so-called low-fare competitors are forecasting flat or rising costs.

As this gap widens, we'll continue to pass on even lower fares to customers to ensure we grow safely and profitably.

Fuel costs fell 20% per passenger in Q3.

Non-fuel unit costs were down 6% as we took delivery of new Boeing 737-800s, hedged at a blended dollar rate of $1.31, negotiated further airport growth incentives, grew load factors and benefited from sterling weakness on some parts of our cost base, which was the converse of the sterling impact on our revenues.

For Q4 fuel is 95% hedged at approximately $56 per barrel but we have significantly extended our FY18 hedges.

We're now up to 85% at an average price of $49 per barrel; I think significantly lower than most other EU airlines.

And, allowing for our volume growth next year, we expect this will deliver fuel savings of another EUR65 million in FY18.

We will continue to work hard on Labs and our ancillaries.

In October we launched the Ryanair Rooms project initially with two suppliers, which will rise to five by the end of March.

In November we had a very successful cyber week, during which we ran eight promotions and delivered record bookings.

In December we launched Ryanair Holidays and we made membership of myRyanair mandatory in Q3, which will see membership surge to 20 million individual customers by the yearend.

Punctuality this winter has been a challenge, primarily as a result of unusually adverse weather, repeated ATC strikes and continuing ATC staffing-related slot delays, particularly at weekends, which meant our punctuality for the first nine months has fallen from an industry-leading 90% last year to a still industry-leading 88% this year.

The balance sheet remains strong.

We've completed over 90% of the EUR550 million share buyback, having spent approximately EUR500 million, and we expect to complete it by the end of February.

The effectiveness of the share buyback program is demonstrated in Q3, during which profit after tax fell by 8% but EPS fell by just 2%.

One of the challenges we've had in the recent share buyback has been the relative lack of liquidity of ADRs and, for this reason, the Board has agreed to put in place an ongoing authority to allow the Company to buy ADRs on a more opportunistic basis, outside of regular buyback programs.

We would envisage being available to buy when certain ADR holders have redemption issues.

Nevertheless, the balance sheet remains strong.

In December we moved into a small net debt position of just over EUR500 million, having spent almost EUR1 billion CapEx, EUR800 million on share buybacks.

We should touch briefly on Brexit.

It seems clear we're heading for a hard Brexit but there's still significant uncertainty in relation to what this will mean.

It certainly means, we think, in the short term a continuing slowdown in economic growth in both the UK and Europe.

We won't have a better idea or picture until the British file their Article 50 notification in March and begin the process of discussions with the other 26 European members as to what exactly it means.

Nevertheless, we're continuing to pivot our growth away from the UK, allocating more growth to European bases, and we will retain that flexibility as we grow over the next two years.

We hope the UK remains a member of Europe's open skies system but, until the final outcome is known, we'll continue to adapt to changing circumstances in the best interest of our customers.

In terms of outlook, we remain very cautious.

With less than two months of the year to go and no Easter in March, we expect Q4 yield to decline by up to 15%.

We will carry over 119 million customers in FY17 and the full year ex-fuel unit costs should fall by approximately 4%; up from 3% at the half-year guidance.

Accordingly, we're maintaining our full-year net profit guidance in a range of EUR1.30 billion to EUR1.35 billion but, as always, this guidance is heavily dependent on the absence of any unforeseen security events affecting close in bookings during the remainder of February and/or March.

Looking out into FY18, we're still finalizing the budget but it seems clear that pricing will continue to be challenging as capacity is being added across Europe.

We intend to respond to those adverse market conditions with lower fares, strong traffic growth and, unlike all other airlines, lower unit costs.

We expect the load factor active price passive strategy will win market share from all our higher cost EU competitors, while we continue to open up new markets.

And we believe that that will result in the best outcome for our passengers, our people and our shareholders.

I'm going to hand over now to Neil Sorahan, who'll take us briefly through the highlights of the MD&A.

Neil?

Okay, Michael.

Thanks very much.

I think you've covered a lot of the key points.

I'll just flag, again, the 8% reduction in profits, EUR95 million, driven by a 17% reduction in average fare to just EUR33 per passenger.

However, cost performance was exceptionally good.

We had 12% unit cost reductions in the quarter just ended.

And when we strip out fuel that was down 6%.

We're on target now, as Michael said, for minus 4% on unit costs ex-fuel on a full-year basis.

The balance sheet.

A BBB-plus rated balance sheet continues to be one of the strongest in the sector.

We've got EUR3.2 billion cash.

We have, however, moved into a modest net debt position, although we would expect that to narrow between now and yearend.

The buyback has gone very, very well.

We're now 90% through that and we're seeing the benefits coming through on our EPS, which, as Michael said, was only down 2% at the time when profits were down 8%.

And, indeed, on the nine months to date EPS is actually up 14%; ahead of the 6% increase in profits for the first nine months.

So I'll pass back to you, Michael.

Thanks, Neil.

Before we open up to questions, I'm joined here by David O'Brien, the Chief Commercial Officer; and Kenny Jacobs, the Chief Marketing Officer.

I'm going to ask them to give a few thoughts on the Q3 and outlook.

David first.

Okay.

Generally quite satisfied with the performance in most markets, most notably Germany, and we opened our bases in Hamburg and Nuremberg.

We've launched for sale our flights out of Frankfurt this summer.

And, particularly where routes are entering their second year, we're seeing very, very good performance there.

And, in the case of Frankfurt, I could see us adding to that later in the winter, adding capacity there based on the initial performance.

The UK market.

Demand is fine but it is underpinned by low fares.

So the UK, in particular, is suffering from challenges on the fare front but not on demand as we've grown, for example, this winter in Spain by over 30% from the UK and still are filling the aircraft there.

Growth is stabilizing in Central and Eastern Europe, where we are number 1 in countries like Bulgaria and Romania, who have seen significant growth.

We're going to steady that for the forthcoming season and concentrate also on Poland.

Kenny, do you want to give us a flavor of what's happening on the marketing and, in particular, on the Labs and -- front, please?

Okay.

So since we last updated in November, just a couple of key things I would call out.

MyRyanair membership is now up over 18 million, that's up from 15 million the last time that we updated, and we're on track to be over 20 million by the end of March.

Mandatory sign-in is now in the app as well as the website.

Generally, that has gone down fine with customers and it's giving us more information on customers and, also, importantly, blocking the activities of a lot of the scrapers that are out there.

So that will be 20 million by the end of March.

And then we'll be on track for probably something around 25 million by the end of calendar year 2017.

So solid progress ahead of the plan that we had there on myRyanair.

App downloads and active users is now up to 17 million; again, up from 15 million.

We also had a four- to five-star rating on both iOS and Android from customers achieved over Christmas.

That's in the very busy Christmas period, people using the app.

And so we said before we're number 1 for usage.

We also now get that five-star rating, which is important.

Cyber week, which Michael touched on at the start there, yes, that was a fantastic week of promotions and resulting web traffic.

So just to give you a flavor on that if you take the German market, for example, where we have about 7% market share, during that cyber week of promotions we had over 30% of search activity.

So we actually overtook Lufthansa in the German market, in terms of people searching for Ryanair.

So we are good at stimulating demand.

We're good at creating a frenzy of people coming to the website looking for the low fares.

AGB.

I won't go into any details on Always Getting Better.

We'll announce that at the end of March and you can expect the usual themes there in terms of what we look to improve.

In terms of the cross selling and ancillaries, you may have seen last week we launched cash back for hotels.

And that will give customers cash back when they book a hotel under Ryanair Rooms, having already booked their flight.

So there you see the cross selling of ancillary activities that we spoke about last year.

That has now started to roll out between flights and hotels.

Okay.

Thanks, Kenny.

Just one last comment that may clear up some misreporting of what I said at a press conference in Dublin about two weeks ago.

I was asked what I thought with fares would happen next year.

I said, honestly, I haven't a clue.

That remains the situation on yield guidance for FY18.

I did say I hoped that it would be a -- I think there will be another decline in fares.

I hope it will be a single-digit or less than double-digit decline but we don't have a clue and nor do we know what the outcome is going to be.

We're working on budgets at the moment for next year, FY18, where we're assuming a yield decline of something of the order of 5% but that's a guess.

We hope it will be less than that.

Frankly, the way we're expanding capacity, and some others are expanding capacity, it might be worse than that.

The better outcome is that, with higher spot oil prices this year, a less benevolent fuel hedging position amongst most of the EU airlines, we'll begin to see a resumption of restructuring, or active restructuring, in those airlines who are weak, such as airberlin, Alitalia, SAS, Norwegian, among others.

But, if that doesn't happen, then capacity will continue to grow above GDP growth.

We will certainly be adding to that.

We'll be taking the 50 aircraft that are already fully allocated.

We will fill those aircraft and we will continue to be price passive, load factor active.

So please, anybody on the questions, don't start asking silly questions about where I think the yield will be for FY18 because the answer is I don't know.

Okay, with that I'm going to open up to Q&A, please.

Give us your names and then questions.

Oliver Sleath, Barclays.

Three from me, please.

Firstly, on your overall growth rate you're obviously making very high margins.

It seems some of your competitors may be starting to feel the pain of rising fuel prices now, etc.

I just wondered are there any scenarios where you might actually look to raise your capacity growth, perhaps if Boeing had some more 737 deferrals where you can delay some of your lease hand backs?

Or do you think that 10% remains the right growth number for the business at the moment?

Second question for David, particularly on Germany.

I know Lufthansa and airberlin are claiming that this wet-lease deal means they're going to take 20 aircraft worth of capacity out of Germany at a sort of net market level.

I just wondered if you've seen any evidence of that happening or any smaller German airports perhaps getting a bit more desperate for your business as Lufthansa and airberlin focus on defending the big cities.

Final question for Michael on FY18.

I appreciate your comments around the fare environment.

Just on the load factor, would you agree that we are basically fully topped out on loads as we head into the summer 2017 season?

Thank you.

Let me take them in reverse order.

The FY18 load factor, yes, I think we're going to top out this year at 93%, 93.5%.

We may be 94% but I suspect something of the order of 93%.

I don't foresee us raising load factors beyond that.

I think we're essentially full most of the year round now.

[To enable us] to get the load factor up any higher would require a ridiculous amount of yield dilution and we're not in that business either.

So we're very happy where the load factors are.

We expect to maintain them there.

And jumping back to point one, growth rate, no.

I think we're very happy with the orders we have from Boeing.

We expect to grow by about 50 aircraft a year each year for the next five years.

That's about 10 million annual passenger growth.

Would we step it up?

Yes, we would if there was -- but there would have to be a financial inducement to do so.

So we're not out there actively looking for new aircraft or new orders in the next two, three or four years but if somebody -- there was a crisis or there was an opportunity to help somebody in crisis or if Boeing, or somebody, Boeing had a large volume of unplaced aircraft and were willing to price them down at our kind of deal levels, we'd certainly look at it.

But I think we're comfortable with the kind of net rate of growth we have at the moment.

It's the growth that we've been executing for the last two years and will for the next year or two.

David, Germany?

Well there are two parts to your question there, Oliver.

One, is there any evidence of 20 aircraft leaving the market?

There isn't because they were always leaving the market, those aircraft.

Quite clearly the Lufthansa wet lease with airberlin is a merger and is a blocking maneuver.

If 20 aircraft operated by Lufthansa pilots were leaving the system to be replaced by 38 aircraft operated by airberlin pilots you would hear 200 Lufthansa pilots squealing very noisily about it.

So that's completely a smokescreen to what is a blocking maneuver.

In terms of the smaller airports coming to Ryanair, in fact it's not just smaller airports in Germany that are coming to Ryanair.

It's smaller and larger airports.

And while, to a certain extent, they may have blocked Berlin in the short term for a substantial growth, it's quite clear to German airports that's what Lufthansa's about, simply blocking, and they're coming to us for growth.

So it's spread right across the piece in Germany, as you can see from our growth in Frankfurt.

Thanks.

Savi Syth, Raymond James.

Three questions from me.

On the feed agreements, I know you've talked about it being a small benefit but I'm just wondering if you could talk a little bit more about how it might impact results.

And does it provide for greater growth or perhaps more of a benefit in the off-peak periods?

And then, secondly, you mentioned about some initiatives to help the operating reliability.

I was wondering if you could talk a little bit more about that.

And then my last question, a quick one, just on the fares and the non-fuel costs in the December quarter.

Just how much of an impact did the sterling have?

Thanks.

David wants to take the first, which is the feeder agreement update and its impact, David.

And I'll do the second.

Well we've completed agreements with two airlines but, as ever, it's the technical bit that gets in the way.

It's going to take a while because it's not existential to any of the airlines.

And I don't, quite frankly, think it's going to be that material to Ryanair.

Where it is material, though, is that we will find ourselves in the middle of transfer passenger discount schemes at a variety of airports, which, for the moment, are simply structures to subsidize the resident flag carriers.

It will be interesting to see how that pans out.

But not hugely material.

On the other one, the initiatives on punctuality, we're pushing hard for more productivity out of European air traffic control, less on the strikes but more the repeated reluctance for these people to actually show up to work on Saturday mornings and Sunday mornings.

So one area we're going to focus on ourselves over the next month or two has been our two-bag policy.

It's clear, either we haven't been implementing it sufficiently strictly at boarding gates or passengers are just abusing it now but they're routinely showing up now with two out-sized bags.

And we are having to offload about 40 bags on a certain case, 40 bags, put them into the hold in plane.

And it's not to only offload the carry-on bags but you have to write bag tags for them, names, Savi.

So it slows down the departures.

To be fair, that's less than one-half of 1% of the punctuality decline.

Most of the punctuality decline is ATC delays but I think we're going to have to tackle the two-bag policy.

It's fine being nice to customers as long as they're not delaying our flights.

The impact on -- I wasn't sure of the third element but the impact on sterling --

I'll take that, Michael.

There's a sterling impact in the quarter, Savi, with about 2% on the fare and just under 2% on the cost on a per-passenger basis.

All right.

Great.

Thank you.

Neil Glynn, Credit Suisse.

Just two quick ones from me, then.

Following on from the last question with respect to the airline partnership, so the feeder deals, just interested in terms of how you manage multiple partnerships at the same time in terms of if you look towards Aer Lingus, Norwegian, Alitalia being the names that have been mentioned, clearly they will compete with each other on long haul.

And I can imagine some sensitivity you having a common feeder partner.

I'm just interested in terms of how you've gotten around that, if it's been an issue at all.

Then the second question with respect to ancillaries.

Within the statement you mentioned hotel penetration still weak and, obviously, you're building Ryanair Rooms.

So just interested in terms of next steps, in terms of adding more partners to Ryanair Rooms, when can we expect an update on that?

The feeder deals, there's really no great push back in any discussion we've had.

Aer Lingus we talk about feeds in and out of Dublin.

We won't be feeding Norwegian or Alitalia out of Dublin.

We're talking to Alitalia about feeding them in Rome.

And Norwegian, thus far, we're discussing feeding them in airports like Gatwick, Barcelona and possibly something in Scandinavia.

But, as David said, these are all reasonably small-scale stuff, I think, and a disproportionate amount of coverage, particularly this time when we have a 93% load factor.

We're essentially full most of the year.

To feed somebody we'll be displacing one of our own customers.

But I think it's an inevitable trend into the future that really the only way Lufthansa -- Lufthansa's case, for example, in Germany, is still (expletive) about with Eurowings who only Lufthansa think is a low-cost airline.

Now moseying up to airberlin.

It's not a takeover.

It's really a wet lease, which is a bit like if it looks like a pig, smells like a pig, honks like a pig, it's a pig, which is exactly what their takeover of airberlin is.

A simple way of resolving this is why don't you just take feed from an easyJet or a Ryanair or a Wizz Air, which at least looks like or have a cost base that's much more like a low-cost airline.

So it's much more a strategic thing developing that I think will grow over the next five years to 10 years, rather than worrying about do we have relationship issues?

Would Alitalia have a problem with us feeding Aer Lingus?

Or would Norwegian have a problem with us feeding somebody else?

N. It hasn't come up in any of those discussions.

Really they all want access to our low-cost feed because we can give them very low-cost feed at significantly lower prices than their own short-haul services, which operate at much higher costs than Ryanair does.

In terms of ancillaries, we've been quite clear on this.

The hotels, we started the Ryanair Rooms with two suppliers.

We expect to have five suppliers by the end of March and I would over the next 12 months, this time next year, I expect to have multiples of 10, 15, 20 different suppliers.

It is to create a base, which we will have multiple suppliers rather than one exclusive supplier.

But it will not be hugely remunerative for us in the early years.

We intend to give away some or all of the commissions we make from those hotels so that we can build scale quickly.

Understood.

Thank you.

Stephen Furlong, Davy.

You talk about low-cost in-house development of Ryanair Labs, maybe this is for Kenny, but can you just talk about how it's developing there in terms of developers, whether you're expanding in other markets in terms of that.

And you obviously see the technology being able to all be done incrementally in house.

Just talk about that a bit, that would be great.

Thank you.

Our view on that hasn't changed.

We still think doing it in house is cheaper, it's faster and it's also gives you the ability to invent proprietary stuff that we want to hang onto.

We don't see any reason to bring anyone in externally.

It's going to a, speed us up or, in any way, be cheaper.

So that's still the right approach.

Yes, Dublin and Wroclaw are the two locations at the moment.

We keep an open mind as -- but we'll move at a certain pace.

So we may add other locations.

But at the moment it's about resource in Dublin and Wroclaw.

And it's steady as we go, same strategy; do everything ourselves because it's cheaper and faster, Stephen.

Okay, great.

Thanks, Kenny.

Jarrod Castle, UBS.

Just coming back a little bit to digital.

You've obviously got these two aggregators signed on.

If you look ahead five, 10 years, would more of your inventory be coming through direct relationships with the hotels and you guys connecting to those hotels?

And I guess related to that, I think you've said in the past very difficult for Ryanair to do anything on the acquisition front when it comes to another airline, but you have spoken about digital technology.

So, in principle, would you do a leapfrog where potentially you'd look towards an OTA to integrate that within your business?

And then just on cost control, excellent cost control certainly in Q3 and then a bit more cautious about Q4 and then, again, a bit more optimistic about 2018.

So I was just trying to get a profile of how that's playing through in terms of a, 2018 and Q4 cost control.

Let me take those.

If you look out on the digital platform, yes, I think we would want to have more direct relationships, certainly with the bigger hotel groups.

But the whole philosophy of Rooms is not to confine ourselves just to hotels.

I think that's the main -- we were a bit blinkered in that in the past.

The whole Rooms philosophy is to be much wider than hotels; so hotels, home stay, B&Bs, hostels, you name it, everything.

We want to provide all of the accommodation platforms directly or -- I think directly we'd deal with the bigger ones or to create a platform that the smaller people can self-serve onto our platform anywhere, put their inventory up there in much the same way as the Airbnbs.

So these people put up your back room if need be.

So our platform will have direct APIs, I think, in from the bigger hotel groups but also people will be able to put their back room up in Ryanair Rooms and we will create a market for them with that.

M&A.

I always say we have not had a good record in M&A.

We tried previously with Aer Lingus, were blocked three times by the European Commission, whereas apparently there's no issue at all with Lufthansa buying airberlin or wet leasing with airberlin, like it's a joke.

Would we do M&A on the digital flights?

I don't think so.

Certainly we look at opportunities that come along but an awful lot of these things are a, not very viable; two, the promoters usually have some kind of ridiculous multiples, a la Snapchat multiples, and I'm not in the business of paying lots of money for things that don't make any money.

And I think that was the whole philosophy with Ryanair Labs in the first place.

There's nothing out there that we can't replicate, that we can't, if you like, copy and also that we can't disintermediate not necessarily in six months.

I think I'd disagree with Kenny.

I don't think it will be faster doing it with Ryanair Labs but it certainly would be cheaper and we would certainly have more control over.

We might be a little bit slower than a lot of these startups but if you look around at most of these startups, they don't have anything that we can't do ourselves.

So I would be very surprised if we were to grow by any M&A but I wouldn't rule it out.

If there was some exceptional offer or some exceptional transaction came across our desk and it was regulatorily doable we'd certainly look at it.

Cost control going forward.

I think this remains the key to this whole business.

The full year we're already guiding minus 4% for the full year.

We started off the year hoping for something around minus 1% to minus 2%.

It was increased to minus 3% at the half-year.

We're up to minus 4% now for the full year, which is, I think at a time when we're delivering 18% traffic growth, is very impressive.

And I have a wry smile when I listen to the (expletive) being produced by many of our competitors.

There was one last week still rabbiting on about having a lower cost base than Ryanair or the gap widening with their competitors as they reported flat ex-fuel unit costs.

They're right.

The gap is getting wider with their competitors.

It's because they're not able to compete with us.

And this is at a time when that competitor, again, was rabbiting on about having lower cost aircraft and that would give them a huge advantage over Ryanair.

And you look at their aircraft at a time when they were reporting 20% growth in traffic, their aircraft rentals went up by 29%.

These are not what we call low-cost aircraft.

Now, it may well be that they're just not able to manage aircraft purchases; maybe they don't control the aircraft purchases.

But certainly their sale and leasebacks are not resulting in lower costs within that competitor.

Whereas, if you look at our numbers today, the traffic is up but the aircraft costs are down 1%.

And that will continue to be the case.

And then you look at, God be good to them, some of the other not-so-low-cost competitors we have, like someone who reported two weeks ago, and, as far as we could tell, their unit costs ex-fuel went up by 12% in the third quarter.

So, while our two most notable competitors have ex-fuel unit costs rising 12% or flat, we're delivering Q3 unit costs down 6%.

And it's not confined just to aircraft as we're managing costs across the aircraft, airports, handling, all of the areas where no other airline can compete with us.

And, for those of you who still believe that some Central European airline with an A321 will, at some point in time in the future, have a lower unit cost than Ryanair, I would point you that the gap between us and them is getting ever wider.

And they're right.

We will be expanding more in their markets in Central Europe in the coming years with lower cost aircraft and materially lower costs.

And what we've discovered thus far is that where we expand in their market they have the choice of fight or flight.

They generally take flight, which is the sensible thing to do.

So I would urge a bit more caution in some of the coverage of our competitors, who simply are not able to match our unit cost performance.

Okay.

Thanks, Michael.

And maybe one more, if I can make it three, but just quickly on myRyanair, how many of those myRyanair customers opt in for direct marketing from Ryanair or opt out?

The vast majority do, which, again, drives more low-cost marketing for us because then we have a cheaper form of communication with those customers.

I'll just add a few things on to what Michael said there, Jarrod, on your question.

In a five- to 10-year timeframe anything is possible.

I think five years to 10 years ago you wouldn't have predicted a lot of the digital space that exists within the travel industry.

Again, I think the main pillars that will hold through are over 90% of our bookings are made direct.

So we have people coming to ryanair.com.

We're not spending with Google, so they come to us directly.

We're the number 1 airline in the world for traffic, so that's the asset that we can monetize.

And, as we get all of the customers on myRyanair, we build out that data asset so we can then start to cross sell.

It's still the same plan.

That's still the right approach of insulating the business from -- we don't depend on anyone else for distribution and we don't depend on anyone else for traffic.

And then we will build out a wider offer so we take more of the share of wallet.

Yes, lots of things will change.

Alibaba are making good progress in Asia with their Alitrip.

Let's see what others do.

But I think our model, which is envious, is the percentage of the traffic which comes direct and the high degree of traffic that we have matched with the data asset.

And that drives the ability to cross sell other products.

Thank you very much.

Yes, in answer to myRyanair, the reason I'm so keen on myRyanair is I think it's the way in which we continue to turn off our fight back against the OTAs, some of these scammers who are out there masquerading as Ryanair, being allowed by Google to masquerade as Ryanair, so they can inflate Google's advertising revenues, while then turning around and overcharging customers or mis-selling with fares that don't exist.

But, more and more, myRyanair is now mandatory at the booking process.

I think, in reasonably short order, myRyanair will become mandatory for the check-in process and we will have everybody dealing directly with us.

You want to fly with us, you'll be dealing directly with us and not being scammed by some third-party OTA or being scammed by Google working with those OTAs to boost Google's revenues.

We want people dealing directly with us and the mobile technology and myRyanair is the key by which we'll deliver that.

It makes sense.

Thanks, Michael.

James Hollins, Exane.

Three, please.

The first one, can you just run us through the story of what happened with Logitravel?

I saw some headlines about Ryanair holidays that partner exiting stage left.

The second one was on the EU 261 charges.

I was wondering if you felt they were starting to normalize now.

Or do you think we'll see incremental rises, particularly through this summer, as claim becomes easier, assisted by third parties, who you no doubt have a view on?

And then finally on the Eurocontrol charges, the route charges.

The unit decline there, can we expect that to continue into full year 2018?

Or is it a one-off benefit in full year 2017?

Obviously, UK's benefited on the currency but France and Germany look beneficial as well.

Thanks.

Yes, first Logitravel, which was the technology provider for the holidays partner.

It's implicit in all of our agreements that there's no screen scraping.

We found two other Logitravel outlets that were screen scraping our website.

We told them to desist.

They refused to desist and so we switched them off.

The holiday partner, which is W2M, will have the technology supplier replaced within about a three-week period.

We expect to be back up and running by the end of February.

I think it's just one of the ongoing areas, one of these ongoing issues.

You know our approach to OTAs and screen scrapers, where we find them, that we're not going to be dealing with them.

And, to be fair, Logitravel's agreement with W2M meant they agreed they wouldn't screen scrape and then turned on their screen scraping.

So I wouldn't lose too much sleep over it and they'll be replaced within about a four-week period.

The EU 261 charges, I suspect they are -- are they normalizing?

Probably.

I think where we're most keen there is really dealing with the ambulance chasers, the claims management companies, particularly in the UK, who are again engaged in thoroughly disreputable practices.

They're trying to get customers to sign up unbeknowingly and then deducting up to 50% of the EU 261 money from the customer, whereas what we're trying to do is get the customer to write directly to us.

Really it's a much simpler process now because the courts have, over time, determined what extraordinary circumstances are, whether they're paid whether the claim period is two years or six years.

So now we're processing a lot more of them because we're querying a lot less issues.

It becomes a ridiculous amount of money, particularly when your average fare is now EUR33 and a customer for a three-hour delay can claim up to EUR250 in compensation; more than six times the average fare paid.

But it is what it is, so we're dealing with it.

But we're determined to keep battering away at the CMAs, who are the ambulance-chaser companies, and I think we're having some success on that.

Will it normalize?

I think it will.

But I would still expect it to continue to growth from where it is now.

And a lot of that will depend on the performance of air traffic control.

And we had a very bad run on weather.

We just take adverse weather in the winter as -- it's an issue that we deal with.

And, remember, we're not responsible for the weather but we are responsible for right-to-care costs during adverse weather situations.

So I think there's still room that the EU 261 costs will grow.

And Eurocontrol charges, it's impossible to know.

There's been price reductions in the last 12 months in Germany, France.

The UK has been aided by weaker sterling.

But it becomes a year-to-year issue.

As you know, Eurocontrol is incredibly badly managed.

They're incredibly overpaid.

They have absolutely zero productivity, ludicrous pensions.

And so I wouldn't be expecting, certainly in our budget, we may be presently surprised but I wouldn't be holding out that there'll be further cost reductions there.

I think the trend there will be flat or up.

Yes, I'll just add there, Michael, that we're already seeing some of the agencies around Europe trying to push through pension deficit costs.

So some of them are pushing up costs.

Others, thankfully, are remaining down.

But we're going through budget at the moment.

Thanks.

Damian Brewer, RBC.

Two questions from me, if I can, please.

First of all just on the digital and the Labs, when we last all met you in Dublin, can you give us an update of where you are and what the next steps are in the process in terms of the data of understanding the customer better and how good you are at targeting them at the moment?

I.e., what's in the numbers we've seen and what's yet to come?

And then secondly on the airports, not just Stansted but in general, obviously the airport costs per seat fell about 9%.

Now I'm interested to understand how much of that was sterling on your UK airports and how much of that was just airport-deal effect, particularly given the changing mix of the airports to what, in theory, would be more expensive primary airports?

Thank you.

I think I'll give Kenny the first one on digital Labs and David the second one on airports and costs per seat.

Just taking that to mean how we're using data, how we're capturing it since that update, that's absolutely driven by myRyanair.

That's the volume of customers that we'll have information on.

That's then building out the type of information we have on those customers.

So the passport details, the trip types, their propensity to different products, their travel preferences, that's building all of that out.

So, by the end of the calendar year, with 25 million people with as rich a data asset as you can have on those that then becomes the opportunity.

That, for example, would compare to if you take Tesco Clubcard between the UK, Ireland and all of Eastern Europe they'd have about the same number of Clubcards out there.

So that's a very useable asset which we have already started to use in the ways that we described in terms of the variety of emails, a segment level, different versions of the website and different messaging to customers via email, in the app, etc., etc.

So it's the approach of build out myRyanair, deepen the data asset within that and then use it across the piece to drive up sell and cross sell.

And, David, touch on airports.

Sure.

Our growth in the primary airports is actually driving competition between those primary airports.

When we started in this direction of travel it wasn't fully appreciated by the airport community, if you like, just what was possible in what we're doing.

So we're very happy with the direction of travel across all of the airports.

I'm not in a position to say how much is sterling, how much isn't sterling.

I, quite frankly, don't have the number to hand.

But if you take our Stansted announcement recently, where we reversed a decision to cut traffic at Stansted and instead will grow to over 20 million passengers there this year.

And that's entirely down to a new deal, whereby Stansted, along with other UK airports, are recognizing the risks of Brexit and the risk that the lower Ryanair growth in the UK, which is one-half that as it was last year, needs to be competed for.

Okay.

Thank you very much.

I would give you an example.

One of the reasons why we're able to open the base in Naples in March was that aeroporti di Roma are putting up their fees in Fiumicino, which has seen a number of airlines announce capacity reductions in Fiumicino.

Yet, at the same time, airports like Schiphol and the Spanish airports are announcing material charges reductions.

So David and the team are continuing to deploy aircraft away from those airports who are raising fees unjustifiably and rewarding those airports who are reducing charges.

Thank you.

Daniel Roska, Bernstein.

Three questions, if I may.

First, on the fleet additions in FY18 the outlook on the net additions remained unchanged from H1 right now, I saw in the appendix.

Could you shed some light on the planned retirements for FY18 and on the overall CapEx levels resulting out of that?

Second question on ancillaries.

We've talked about it for some time on the call.

I was wondering when would you expect this actually to translate into the ancillary per-passenger number, which is hovering around the same level since December 2015?

And, lastly, could you comment on your view on the development of pilots' representation throughout your bases and specifically on the formation of the Tariff Commission in Germany last December?

And has there been any communication with the Vereinigung Cockpit since then and how would you be planning to continue on that?

Thanks.

Neil, do you want to take the fleet retirement and the CapEx?

I'll take the fleet one.

There's been no change to the slide we produced last November.

We aren't selling any aircraft out of the fleet this year.

We do, however, fix leases which are due for hand back but towards the back end of the year, rather than earlier on in the year.

And, in fact, we, as we announced in November, extended two leases there for a three-year basis to help us take advantage of the Frankfurt deal, which starts next month.

On CapEx, with maintenance CapEx included, we're probably looking, with the dollar where it is at the moment, about EUR1.3 billion, EUR1.4 billion next year.

On ancillaries I wouldn't expect the per-passenger spend to rise materially in the next year, although that is comprised -- we are continuing to stimulate additional uptake of those services we provide directly: reserved seating, priority boarding.

That is going well.

We expect a dilution in some of the areas where we are, if you like, the broker.

So the hotels, some of the car hire we're looking at ways where we can give away some of our commissions there to boost take-up and boost volumes.

We do, over the next three to four years, have an objective to get to ancillaries revenues forming up to 30% of total revenues and I think we're comfortable with that revised target.

Develop the pilot representation?

I mean it's all rubbish.

This has been going on for, I think, about the last 25 years starting first with BALPA in the UK.

There's then a group running around in Brussels called the Ryanair Pilot Group, which is comprised of a KLM an Air France, I think, and there was an easyJet pilot who were on the committee of it.

And congratulations on your German pronunciation but I didn't pick up the pronunciation but we've never heard of that mob in Germany but I presume it's another German pilot union-funded representation committee allegedly of Ryanair pilots.

Our position remains that we will continue to deal directly with all of our pilots.

We do across all 84 bases.

We have five-year pay and conditions deals already agreed with those 84 bases.

They will run for another three, four years.

Occasionally we have a base that doesn't agree an extension and that's fine.

We recognize their right not to agree an extension of those deals but usually within about a year or two years they come back and they agree extensions.

The pilot unions across Europe are a busted flush.

They preside over the death of many of the flag-carrier airlines.

They haven't played much of a contribution, apart from to repeatedly strike in Lufthansa or rescue airberlin in the last year.

And I think what they tend to do is run around and generate a bit of noise about, oh there's issues in Ryanair, more as a way of distracting from the failure of the legacy carriers in which they are recognized and which they are members of.

We've had no demands for pilot recognition in Germany.

If we had at the moment we'd politely decline them because we continue to deal directly with our own people.

And it's important that everybody understands, too.

We're an Irish company.

There's this kind of myth put out there by the unions that somehow we're anti union or people get sacked for union activities.

The Irish constitution guarantees everybody the right to join a union.

In 30 years we have never ever sacked somebody for either joining a union or union activity.

It's illegal under Irish law.

But Irish law also gives us the freedom of association that if we want to deal with our people directly we can and we will and that continues.

Another flavor of that will be the Italian market where you've the Filt-CGIL union, which is basically Alitalia union.

They, I think, in the last three months have declared three different strike days of Ryanair cabin crew and pilots, generally all unbeknownst to the Ryanair cabin crew and pilots.

All three strikes, which the strike days have then been kind of mumble, mumble canceled at short notice without anybody in Ryanair in Italy or our people being either aware of them or passing any remarks on them.

So the union activity around Europe is a load of (expletive).

I think it's really, if you look at their effort and the continuing success of the unionized airlines in Europe, it's a model whose day is largely dead.

That said, we did have the -- the SAS unions were effective in Denmark, in Copenhagen, forcing us to close the base.

I think they celebrated loudly for a whole about a week or two until they realized we can (expletive) move the aircraft out of Copenhagen.

And within 18 months we're now carrying about 2.5 million, is it 2 million , 2.5 million, 3 million passengers a year.

We're now the third largest airline in Copenhagen without any aircraft based there.

And I (inaudible) the most interesting development up there in that part of the world was SAS is announcing in recent weeks they're now going to open bases in the UK and Spain to get the hell away from the crazies in the Scandinavian unions.

But the great success of the European Union, which sadly the British don't seem to value, is the free movement of people.

And free movement of people is facilitated by mobile assets like aircraft that you can move around.

And if we got a lot of jip from some pilots in Germany or a particular base in Germany I would have no compunction about closing the base and moving the aircraft out of there.

If you don't want our jobs and our high pay, fine.

We'll move the aircraft somewhere else.

We'll still fly into that airport but the jobs will disappear somewhere else.

So really all the nonsense in Germany and Italy about these alleged unions, threatened strike days, etc., etc., it's all rubbish.

Thanks for the comment.

Andrew Light, Citigroup.

Two questions.

Actually, talking of pilots, do you anticipate any operational challenges constraints as you grow over the next two years at 9% 10%?

I'm thinking of availability of pilots, (inaudible) and so forth, particularly as that growth it can be concentrated in certain countries.

And then, secondly, can you give us the Board's latest thinking on how you split shareholder returns in future between buybacks and special dividends.

Quick question on pilot availability, we don't see any issues.

We have a long history of training most of our own pilots.

We're investing heavily in fixed-base simulators and motion simulators.

There is a bit more turnover, although I think most of that turnover appears to be within the Airbus operators in Europe.

So there's not that many 737 operators in Europe and certainly those who are licensed on 737s they're all applying to us.

I think the interesting development in the last 12 months we've noticed has been, I would say -- I don't want to over-emphasize this, but a flood of applications to us from Gulf carrier pilots who all seem to want to return to flying in Europe, or life in the Gulf isn't quite as wonderful as they thought it originally was going to be.

And we've had a number of pilots, quite a number of pilots, ex-Ryanair pilots who went to the Gulf who have applied to us to return.

We haven't allowed any of those back in because we don't have any issues at the moment with pilots.

There may be an occasional bottleneck but I think we don't see any issues there.

And we certainly don't have any truck with the usual -- as you know, the pilots do this every year.

Oh, there's going to be a shortage of pilots.

There's never going to be a shortage of pilots if people could earn what pilots earn, who can only work or fly less than 900 hours a year, which is about 18.5 hours a week.

On shareholder returns, I think we've been fairly upfront on that.

I think the Board will continue to review it.

At the moment they favor, because the P/E multiple is below our historical averages, between 15 times and 18 times.

If we're below that, we lean in favor of doing buybacks.

If we're above that, and we're slightly over priced, then I think we might look at dividends.

But I would believe -- in the end, there's a couple of other issues in that (inaudible).

Firstly, obviously, it's the split of the ADRs and ordinaries.

I'm pleased to say after this current buyback they will be up at around 58%/42%.

So I think the next buyback we do would probably be ordinaries only.

We have been disappointed by the lack of support we've received from a number of our ADR shareholders who seem to not want to participate in our buybacks, which means the ADR buybacks are a little bit more difficult.

That's, I think, the reason why we're putting in place this kind of perpetual ADR buyback capacity so that if somebody has a redemption issue we can deal with it.

But, frankly, up at 48%/52% I think the next buyback or two is more likely to be ordinaries only.

But I think the Board will continue to look at those things opportunistically.

Neil, do you think that's a fair --?

Yes, that's a fair assessment.

Okay.

Thanks a lot.

Johannes Braun, [MainFirst].

Can I ask on the strategy and the growth targeted in Milan Malpensa, but I can see you're adding another seven routes there?

Do you know how was competitor reaction and what is the longer term growth plan there?

And then, I guess, two for Neil.

Firstly, what is your hedging position into FY19, if there's any yet?

And, secondly, after nine months CapEx stands at EUR1 billion, which I think is your full-year budget.

I was just wondering how Q4 will probably look like in terms of CapEx.

I'll let David take the first one.

David, Milan Malpensa growth, competitor reaction and the impact on Bergamo.

And Neil, then you do the hedging FY19, please.

Well Bergamo is and will continue to be our number 1 airport from Milan, where in the next year we'll do, I think, close to 10 million passengers there when we're edging closer to 2 million in Malpensa.

So there's quite a way to go.

One thing we have seen is that both the airports can accommodate the same routes as each airport, so there's no real constraint on growth at Milan.

The deal there is highly competitive.

So I would say that growth at Milan Malpensa largely depends on other airports, not just in Italy but outside of Italy, where we're getting increasingly attractive offers at similar sized main airports.

Competitor reaction in Malpensa?

Nothing we've really noticed, to be honest.

There may well have been but it's not something we're looking at.

Okay.

And Neil, do you want to do hedging FY19?

FY19 we have very little.

We've a little bit of currency in place, but that's about it, on the OpEx.

On the CapEx we're hedged out to the end of the current Boeing 737-800 program.

We don't have any fuel hedging in place beyond the 85% for FY18 that we've already announced.

On CapEx for the balance of the year, we're going to have a total CapEx of about EUR1.4 billion on a full-year basis.

That's for this year, EUR1.4 billion?

For this financial year.

And I've already dealt with the next financial year.

Thank you.

(Operator Instructions).

Anand Date, Deutsche Bank.

Just coming back to ancillaries, I just have one question and it's more for Kenny, I think.

You've got yield management systems that you've been running for decades, so you've got all the data you can mine it.

Can you talk about any sort of maturity on the customer data side?

I.e., if I am a regular Ryanair passenger how many trips do I need to make before you really know what I'm about and then you can really move beyond just scattergunning me and really start to extract every last dollar?

What's the maturity on that sort of data?

Thank you.

I would say you keep building that data asset so, yes, the more someone buys from you, be it flights or other products, you build on that data asset.

And I think over time you can integrate other datasets to make it richer and give it wider context.

But I don't think there's any point of maturity.

I think, as time goes on, more types of datasets could be integrated with that.

So I don't see any end in sight.

We'll just keep building the data asset.

We don't integrate it with external data.

We may consider that at a point in time but we're not near that point yet.

Or if I ask it another way, maybe, is there a sweet spot at which it's not just about collecting the data; it's much, much richer?

So is it after you've had me as a customer on four flights or something, you've got 90% of the value -- or 90% of the data that you need to extract value?

And then the last 10% isn't as valuable.

There are industries in retail I would say yes, and they've reached that point.

I don't think there is a sweet spot yet and we haven't reached it.

I think it's just a case of building up, get as much as we can and then we will determine what that sweet spot is.

Yes, in more mature markets with high frequency customers, yes, that obviously is a more usable data asset in terms of how you would up and cross sell but I wouldn't say it's exactly at this level of frequency for how long a customer's been with us yet.

Okay.

Thank you.

[Gary Olsen, Tavera].

Just coming back to the opportunistic ADR buying, would you mainly be looking at blocks or would you, for example, get active if the ord-ADR spread tightens a lot?

Thank you.

No, I think what we're looking at there is redemptions.

Given that we're 58%/42%, I don't foresee us doing any more or including ADRs in the next share buyback or next one or two share buybacks.

Obviously that's a matter for the Board, but I'm giving you my personal opinion.

But what we have discovered is when we announced our share buyback over a period here from November to February, there isn't a lot of ADRs or much liquidity in the ADRs and a lot of the existing holders are unwilling to sell into our buybacks, even we've asked them just to maintain their existing, so sell pro rata into the buyback.

But I think where we see further opportunities is that, over a period of a year, certain of the ADR holders may have redemption issues and that if we're able to work with them at a time when they have redemptions we're more likely to pick up bits and pieces of ADRs on an ongoing basis.

And I think that's what we would look for going forward with the buybacks.

It may be in the next year, if the Board decides to do a buyback, would be we'd have a formal (inaudible) program on the ordinaries that may account for 80% of the buyback and we may look to see if there are opportunities on ADR blocks.

But I don't see us out there actively trying to persuade ADR holders or to bid up the ADRs or bid up the premium of the ADRs just to get ADRs out.

We're not under pressure in that area at the moment because of the 58%/42% split.

Thank you.

Gerald Khoo, Liberum.

Just a couple of questions.

Firstly, could you remind me where you are on the dollar hedge on OpEx for this year and next year?

And what's -- I'm just trying to work out what's going on with fuel consumption?

You've obviously given guidance in terms of what's happening with the fuel bill going into next year and it doesn't seem to be as big a fall as you might have expected, given what's happened to your hedge price year on year.

Neil, do you want to take the first one.

Sure.

On the OpEx we were hedged for the current financial year at about $1.18.

That drops back to about $1.12 in the next financial year.

And the fuel fall last year we were hedged at $83, this year $56.

The fall was bigger in terms of the actual -- the fuel reduction in the oil price.

Next year we're hedged the movement goes from $56 to $49; it's not as big a reduction.

We will still have something of the order of an 8% or 9% volume increase.

Some of the fuel saving this year was also eaten up by higher load factors and heavier aircraft so that the actual fuel burn per hour is slightly up because of the higher load factors and heavier aircraft.

And we expect that to -- there won't be an increase in the load factors going forward next year but the fuel, the hedge saving from $56 to $49 is lower than it has been in the last two years.

Having said that, the fact that we're hedged at $49 for 85% of our volumes next year at a time when spot prices, Brent spotted now around $57 last Friday, is the one area for optimism we see in the next 12 months.

Many of Europe's airlines have either been taking on too much new capacity or have not been retiring loss-making capacity in the last two or three years because oil prices were falling.

That should reverse itself this year.

And we think a number of our competitors would be under much more material pressure to get fares and yields up, whereas we're content to continue to add capacity and drive down fares in the next 12 months, if that's what we have to do to maintain our load factors.

Okay.

Thanks very much.

(Operator Instructions).

And it seems we have no further questions at this time, so if I could hand the call back for closing comments.

Okay, folks, thank you very much for participating.

As I said, we've had a very strong quarter.

The unit cost performance is where I would draw your attention to, particularly our unit cost performance by comparison with those of our peers, our competitors across Europe, who are either flat or seeing their ex-fuel unit costs rising.

We'll continue to grow strongly.

We have a pipeline of low-cost aircraft.

We're clearly able to grow with low-cost aircraft where many of our competitors are not, or don't have particularly low-cost aircraft.

And, while I would be generally cautious for the remainder of this year and into next year on pricing, I think we'll continue to be aggressive on the unit costs side and that should, I believe, widen the gap between us and all of the competitors in Europe.

And, Neil, anything else you'd like to add before we wind up?

No.

I think, Michael, it was a fairly comprehensive Q&A.

I would direct people to our free record, which is on the website as well for a bit more detail on some of the MD&A.

But the key takeaways, the costs are in very good shape and we continue to drive them down.

All right, everybody.

Thank you very much.

If anybody has any individual questions, Shane here is our Head of Investor Relations.

He's in the office in Dublin.

There is obviously no road show on the Q3s but if you have any follow-up questions please direct them here to Shane and the team in Dublin.

Neil is in London.

David will be back tomorrow.

Thanks very much, everybody.

Look forward to seeing you in the not-too-distant future.

Bye-bye.

This now concludes our call.

Thank you for attending.

Participants, you may disconnect your lines.