Ryanair Holdings PLC (RYAAY) 2018 Q1 法說會逐字稿

Hello, and welcome to this Ryanair Q1 for the Full Year '18 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.

Okay, thank you.

Good morning, ladies and gentlemen.

Welcome to the Ryanair Q1 Results Conference Call.

As usual, you'll have seen this morning on the ryanair.com website both the quarterly results, the share presentation and a video presentation, a video Q&A with myself and Neil Sorahan, the CFO.

Accordingly, I'm going to zip through this, and then we'll open up to questions fairly quickly.

So you'll have seen this morning, we reported a Q1 increase in profits of 55% to just under EUR 400 million.

This result, however, was distorted by the timing of the Easter, which fell entirely into August -- into April, rather, with no holiday period in the prior year comparable.

But in summary, for the first quarter, traffic is up 12% to 35 million.

The load factor has continued to improve, up 2 points to 96%.

The average fare distorted by that presence of Easter in Q1 finished up 1% at just over EUR 40.

Unit costs were down 6%, and I think that's the key takeaway.

Excluding fuel unit costs, we're down 3%, which is in marked contrast in most of our competitors who are still talking about lowering costs while delivering rising unit costs.

And notable in the quarter, we announced 10 additional MAX -- 737 MAX aircraft, 5 in spring '19 and 5 in spring '20.

It takes the firm game-changer order up from 100 to 110 with 100 options.

We returned over EUR 200 million to shareholders via share buybacks.

And at the end of Q1, we had just under 400 737s operating in the fleet.

Two, I think, key points I would make in the quarter is the continuing uncertainty over Brexit, which becomes increasingly – as hoping, increasingly into view.

We will need some sort of legal certainty by about September of 2018, which is now worryingly close, about 15 months away.

We continue to campaign for the U.K. to remain at least in Open Skies.

But if the U.K. government continues to hold to its position and it won't accede to ECJ jurisdiction, then there's a grave danger that the U.K. must leave Open Skies.

We do not believe that the U.K. has had the time, the ability or the goodwill on both sides to negotiate a timely replacement bilateral with the EU27, in which case there may well be a disruption of flights for a period of weeks and/or months from April 2019 onward.

We've been saying this for some period -- considerable period of time.

We do not see any other solutions out there.

And more recently, efforts by some of our competitors to either setup the U.K. AOCs or off-screen AOCs under one holding company will not negate or trade away that risk.

If there is not some kind of bilateral between the U.K. and the EU27 by around September or October of 2018, then I think we are facing some precipitous disruptions.

And I wouldn't underestimate the extent to which the competitors in Germany and France, in particular, would like to see or encourage that kind of disruption.

In terms of comps, we, I think, continue to show unit costs declining 3% in Q1.

In marked contrast to a number of competitors, Wizz, easyJet and others who are reporting unit costs ex fuel rising, despite bullshitting on for the last number of years about how bigger aircraft will lower their unit costs.

It seems the more bigger aircraft they take, the higher their unit cost ex fuel rises.

And we continue to make the point that, that gap, it's that rising gap between us and our competitors on costs, is what is going to make -- match Ryanair out from them.

I think then we'll touch on guidance.

As we have repeatedly tested the market, the Q1 was very strong, substantially distorted by the presence of Easter in April.

We still see H1 fares would fall by about 5%.

So in other words, we see quarter 2 fares falling by between 6% to 8%.

H1 traffic is growing strongly on the back of these lower fares.

But yields are also being affected by a steep decline in baggage revenue.

Both the penetration of check-in bags and the rates being paid by customers for checked-in bags are declining.

We attribute a considerable portion of that to the continuing success of our Always Getting Better program and in particular, many more customers switching to carrying 2, 3 carry-on bags and actually creating some problems for us with the volume of free carry-on bags that are going onboard the aircraft.

We've raised the full year traffic target up by 1 million from 130 million to 131 million.

And as I said, we expect -- we have no yield visibility into the second half of the year.

And so at this stage, we continue to guide average fare decline in H2 will be 8%; and for the full year, average fare falling by between 5% and 7%.

Ex fuel unit costs are on track to deliver a 1% reduction this year.

Ancillary revenues continue to grow in line with traffic, but we -- as we continue to discount pricing to drive rising penetration.

And therefore, based on all of the above, we continue to guide for a full year profit after tax in a range of EUR 1.4 billion to EUR 1.4 billion (sic) [EUR 1.45 billion] which is a high single-digit growth on last year's profit after tax.

Neil, anything you want to add there by way of commenting on the MD&A before we open up to questions?

I just want to highlight that the EPS performed well in the quarter as well, and share buybacks that we've done -- sorry, EPS of 63% at a time when the profit after tax of 55% and the balance sheet in good shape.

We saw a reduction in our net debt figure by EUR 150 million to just EUR 94 million at the end of the quarter.

That was after EUR 200 million buybacks -- EUR 200 million worth of buybacks and EUR 400 million worth of CapEx in the quarter.

Okay, thanks.

I think we can open it to questions now.

But I'm going to ban questions asking for color on the second half of the year yields.

We don't know.

We have no visibility.

I'm also banning any questions on color for next year's yields.

We have equally 0 visibility on that as well.

Other than that, if you've got a question that isn't already answered in our video or in the results release, please feel free.

(Operator Instructions) And our first question comes from the line of Savi Syth of Raymond James.

Three questions for me.

First, on the average fare trend.

I was wondering what the trend was excluding kind of the impact from the bag fees and when you might expect that to normalize, at least the drag from the bag fees.

Second one on the nonfuel real quick, just what the benefit was from sterling and what you have the sterling impact in your cost guidance for the year?

And then finally, I know this is kind of very early stages and overall, we're talking about small numbers, but I was wondering if you have any color on how many connecting passengers you're seeing currently or what you might expect for the full year?

Okay, I'll do 1 and 3, and Neil, I'll ask you to do 2. Average fare trend, as we said, we continue to see average fare trend declining.

We continue to see check-in bags as -- also declining, although the rate and pace of the decline will, I think, is slow down over time.

We have seen penetration over the Q1 this year over last year down and also the rate per bag down.

And that's just a function more and more passengers changing their behavior and bringing more carry-on bags.

Connecting passengers are too small to mention.

We are offering connecting services only over 2 of our bigger Italian hub airports, in Rome and in Milan.

Bergamo, as it is a meaningful number at both of those airports, but not something that is system -- it's not something that is a significant -- statistically significant number yet.

I think what's more important to us at this point in time, though, is that we're not seeing any particular handling difficulty, which is why we are running it as a trial at both of those airports.

We're not having passengers miss their flights.

We don't seem to have any difficulty transferring the checked bags.

Mind you, we don't have a lot of checked bags.

And -- but we're not going to roll out that connecting to any other hubs until the end of the summer until we get used to what are the issues with those connections.

Neil, what's the sterling impact on nonfuel?

We're looking at it, about just under 1.5% in the quarter.

Our next question comes from the line of Daniel Röska of Sanford Bernstein.

Glad you didn't ban any questions on Brexit, 2 on those and 1 on the ancillaries, if I may.

So first question is, you talked about this a little bit in your Q&A this morning on the site -- website.

What additional options beyond the disenfranchising and forcing to sell for the shareholders have you considered?

And why did you chose this part -- did you discard any of those options you looked at and why?

Second part is, what's your reading on the most recent EU guideline from June on the ownership and control regulations they put forward?

Because if I read it correctly, there may be -- this may make reallocating the shares to mainline Europe a little bit more difficult as the final beneficial owner is kind of the barrier you have to pass?

And lastly, on the ancillaries.

You said you're discounting pricing to incentivize the uptake, but I was just wondering, could you give us some color of the different buckets flowing into those ancillaries as you report them?

Because I think, Neil, you today said that seats and bags were in the seat revenue, so what's actually left in the ancillaries?

And if you could classify that in 2, 3 buckets and how are they developing into the future, that would be great.

Okay, thanks.

(inaudible) working my way backwards though.

We're not giving you any further color on ancillaries or the buckets.

Our guidance for the year is ancillaries to be generally flat and -- sorry, flat for the year, and it's up marginally in Q1, but we expect to give that back in the rest of the year.

We don't see any significant change in the EU guidelines on ownership and control.

We expect in a hard Brexit that the U.K. shareholders will either be forced to sell or will be disenfranchised and therefore, over a period of time when they come to sell, will be required to sell to EU shareholders, which is why we don't think the IAG ownership structure will survive a hard Brexit.

We don't believe that the easyJet structure of having a holding company, owning an Austrian, a Swiss and a U.K. AOC will survive a hard Brexit.

And we don't think the Wizz nonsense last week of setting up a U.K. AOC would have any effect during a hard Brexit.

In the hard Brexit, there is likely to be a period of months, I think maybe even through the summer period of 2019, there may be no flights for a period of time.

In a bizarre way, I think given the weakness of the U.K. government, that might actually be one of the areas where they wake up the U.K. government to the realities of what Brexit means instead of the nonsense with the clichés they've been drumming out in the U.K. for the last number of weeks and months.

Our view of life in a hard Brexit, I doubt if there will be a forced sale of U.K. shareholders on the 1st of April 2019.

But I think they will be -- the treatment will be something similar to ADRs -- our ADRs at the moment.

The U.K. shareholders will only be able to sell to EU resident shareholders or we may have some sort of period of time when we force them to sell.

If there's a forced sale that would clearly be downward -- have a downward impact on our share price, and we may well speed up our share buyback program to take advantage of that and also to facilitate U.K. shareholders' selling.

Additional options on the share -- what were the additional options in shareholder sales, well same thing.

Was the -- first part of the question was, would we -- were there any other options other than forced sale of the U.K. shareholders?

No.

And I think you commented on the -- when you commented on the IAG and easyJet structures.

So therefore, you looked at tough structures and you don't think they will hold up, right?

No, we see -- I mean, if there's a hard Brexit and we know that the certainly mainland European competitors, most notably the Germans and the French, are all over this like a rash.

They will not -- I think they will certainly be campaigning very hard for -- to look through the -- something like, say, the IAG structure, for example.

And I note at a conference in Brussels 2 weeks ago where Willie Walsh was very active calling for reform of the arcane EU ownership rules, which I thought was somewhat surprising given how relaxed he has purported to be over the last year or 2 about how good the IAG structure is.

I don't see any way that it's going to be blind trust will survive a hard Brexit.

But maybe that's -- I continue to hope -- again, hope that in a hard Brexit environment, the British may well blink or at least have a more considerate view of the outcome of Brexit.

Our next question comes from the line of Jarrod Castle of UBS.

Three as well then.

One, Michael, I mean, how serious are you about looking at Alitalia?

Is this just really to look under the buybacks and see what's going on?

I mean, again, it comes to issues worth kind of short-haul, long-haul, trade unions, et cetera?

So just to kind of get some color around, I guess, what you are and aren't doing when it comes to them?

Secondly, just on unit cost performance, a good showing in Q1.

I mean, is there some potential that you could do a little bit better than guidance as you kind of move through the quarters?

And then secondly, just in terms of, you mentioned Brexit and the U.K. And you mentioned it also on the -- on your Q&A about U.K. kind of fares performing worse than the rest of the network.

Can you give some color relative to the average fare being up plus 1 across the whole network, what the U.K. was doing?

Okay.

To start and take those in sequence.

Alitalia, look, as the largest airline in Italy, it is incumbent upon us to work with the Italian government and the commissioners in Italy to try to assist a positive outcome for Alitalia, its customers and the people who work there.

We are serious in indicating that we have an interest in Alitalia.

But we're also serious in that our interest in Alitalia is only if there's going to be some fundamental reform.

There's the Chapter 11 process under which the commissioner -- 3 commissioners currently run Alitalia.

They can bring about some fundamental reform.

They do have the legal power to significantly restructure Alitalia.

And if there was a significant restructuring such that Alitalia could reasonably be seen to operate and on a profitable basis, then yes, I think we would have an interest in it.

But those are high bars to cross, but clearly something -- Alitalia's going to have some cross -- have to cross some high bars if it's going to survive in its current form.

And it would also obviously involve an absence of Italian government interference, which again would be another high bar.

In unit cost, yes, we're always striving to do better on unit cost.

But I think our -- remember, last year, we reduced unit costs by 5% when every other competitor we have in Europe saw their unit costs rise.

In Q1, we've taken that down.

This is ex fuel by another 3 percentage points.

Whereas in the last couple of weeks, we've seen fairly pathetic unit cost performance from alleged competitors of ours, many of whom have been going around for about 2 years promising to be able to match Ryanair on cost or God has them beat Ryanair on cost because they're getting new, super dupery, longer, shinier aircraft.

And yet, every quarter, they continue to report unit costs increasing, but some kind of failed hope that by the end of the year or in 2025, their unit costs will decline.

The reality is we deliver unit cost declines.

We are far better at managing unit costs than any other airline.

And our competitor are pretty piss poor at us.

So I think, we would certainly be striving to do better, but I think it will be unreasonable to expect anything more at this stage than a 1% decline for the full year.

And on Brexit or U.K -- breaking down, no, look, in the Q1 results, we're not giving you color on sectors or bases or markets or anything else.

We'll do that on the half year when we go around and do the Investor Relations road show.

But it is fair to say as we have publicly that certainly the market from the U.K. and U.K. particularly the Spain and Portugal and Italy where there's been and continues to be a large capacity increases, both charter capacity switching out -- continue to switch out of Egypt, Turkey, North Africa, some other of the monarch jet to these guys arriving down there with very significant capacity increases.

That has put an inordinate downward pressure on airfares, and that continues to be the case.

But we're not in Q1 breaking out this sectoral detail.

Our next question comes from the line Duane Pfennigwerth of Evercore ISI.

Just with respect to your Q2 fares down 6% to 8%, is that what you're seeing on the books in July so far, down 7%?

It's in that area, yes.

Okay.

And then can you just talk about how far out your order book is fully committed?

What periods are still open depending upon pricing?

And then with respect to the MAX, does this bring new markets -- given the range capabilities, does this put new markets on the table for you which you haven't historically been able to serve?

By reference to the order book, I assume you mean the aircraft, is it?

Yes.

Yes.

We have the aircraft orders run out to the end of summer or the autumn of 2023.

We currently have -- we take the last of the NGs in the autumn of 2018.

We take the first of the MAX Game 200, while 110 firm MAX game-changers in the spring of 2019.

We still have 100 of those that are under option.

But I would be amazed -- I mean, unless there was some kind of very significant adverse event, I expect us to take all of those, be confirming all of those options as they fall due 2 years prior to delivery.

The MAX aircraft won't extend our range of operations.

We have no interest in flying the MAX, for example, across the Atlantic.

Again, because of its range limitations, we can do Dublin to kind of Boston.

But we can't -- unless you're going to serve both the East Coast and the West Coast with a long-haul, low-cost carrier, we don't think you have the scale or the ability to penetrate that market properly.

So we don't see the MAX as being some sort of quasi-Transatlantic or quasi-long-haul aircraft.

The MAX, the game-changer is going to significantly lower our unit cost.

It has 4% more seats.

It has 16% lower fuel per seat.

And it is going to transform significantly the unit cost base of what is already and, by some distance, the lowest cost carrier in Europe.

And the cost -- the carrier in Europe that has a widening unit cost advantage over Wizz, easyJet, Norwegian and all the other lunatics out there who can't manage their cost base.

And I think it's a particularly important message for some of the idiot analysts out there who keep writing (expletive) that somebody's going to close the cost base between Ryanair either in 2018, 2019 or 2023.

It would be helpful if you look at the current quarter and the previous 6 or 7 quarters and show the inability of the others to manage their unit costs whereas we continue to deliver declining unit costs.

And that's why, by the way, as we add very significant capacity, I mean we will grow this year by another 10 million passengers, which is not far off half of Wizz's total traffic on an annualized basis.

We are supremely confident in our ability to fill those extra seats and continue to deliver impressive returns for shareholders because we are actually reducing unit costs.

We're not just talking about reducing unit costs.

Our next question comes from the line of Mark Simpson of Goodbody.

(inaudible) carefully into this, in terms of your super-duper, shiny, big aircraft...

Yes.

Your favorite center (inaudible) you want to talk about the #2 carrier in Central Europe again, do you?

Well, I wouldn't want to talk about Wizz on your call.

But in...

Some flight of the imagination, but do you (inaudible).

Well, it comes down to per pax, so for the SK, but let's not dwell on that.

Well, it bloody doesn't.

Now in terms of the comment though, Bloomberg suggesting that you might be interested in the MAX 10 in 2023.

Is that just Bloomberg commentary?

Or is that something which you would contemplate?

I mean, it's Bloomberg commentary.

There's been no development there.

I mean, we have made no secret we are interested in the MAX 10.

But we're only interested in the MAX 10 if it can lower our unit costs.

Thus far, the discussion with Boeing haven't gone anywhere.

They are -- I think their pricing on the aircraft at the moment is far too high.

It's not something that we have any interest in.

But we have told them to go back.

And if they can come up with a pricing on the MAX 10 that meaningfully reduces our unit costs, we'd be very happy to place an order.

We were underwhelmed by the orders they announced at the Paris Air Show, which were basically conversions of existing orders from United and SpiceJet and a few others.

If that's what your order book consists of, then Godspeed.

If or when there's going to be a -- this aircraft -- and like, we do believe a 230-seat aircraft can deliver us a meaningful reduction in unit cost, then it will be of interest to us.

But if it's the tipping of Boeing (inaudible) 30% more seats and pay us 30% higher price, frankly, it's of no interest to us.

And we are -- we have no need to place another aircraft order for about another 5 years at this point in time.

So we are very interested in the aircraft, but we're only very interested in this aircraft or indeed any aircraft if it lowers our unit costs.

If it's just a shiny (expletive) toy as your friends in Wizz there who like shiny toys, yet as their traffic rises, their aircraft ownership cost rises at an ever faster rate, that's not the business model we're in and haven't been for some 30 years now.

Yes, fair point.

I just wonder what's your view of residual risk for the MAX-200 (sic) [MAX 200] on the basis that the market seems to favor 180-190 seaters or 230-240 seaters.

Is there perception of residual risk in the MAX 200 and you got to have to sweat that asset till the end of its useful life?

Frankly, we wouldn't give a rasher.

We've never worried, have never yet ordered an aircraft and worried about the residual life of an aircraft because we know we're an end-user.

We've always been an end-user of these aircraft.

What the residual value is, frankly, I couldn't care less because we can fly them until they're 20 years old.

But the price at which we're buying them is so competitive.

I mean, if we get this aircraft in here and we have 4% more revenues and 16% lower fuel costs, I'd happily fly them until somebody invents Star Trek travel.

And then one final issue different to ancillary revenue per pax.

You highlighted lower hotel penetration rates in your release.

Is that just a transition period from booking.com to Ryanair Rooms?

Or is that seen as slightly disappointing?

And I wonder if you could give us idea of what you're targeting on conversion rates?

No, I mean, I think, it's actually – it's a (inaudible).

We are -- Ryanair Rooms is a new product.

Actually, the penetration rate started off very lowly.

The penetration is rising very quickly, both on rooms and on holidays, but it's very low numbers at the moment.

And I think it's something that we're looking to -- I think Kenny and John Hurley and the digital team are working actively on.

And we're looking for much more -- have much more inventory online by about the end of this calendar year.

I think you'll see a big push into Ryanair Rooms for 2018.

Our next question comes from the line of Neil Glynn at Credit Suisse.

Two questions for me, please.

The first one, I note some of your top growth routes this summer include Italy domestic and Poland domestic.

Just prompts the question, to what extent do you feel you need to increase domestic penetration in some of these markets to produce more balance with international services to ultimately optimize your relevance to local customers?

And then secondly, on the bag charges.

Obviously, you've mentioned, Michael, they're weighing in the first quarter.

Just wondering to what extent do you have a plan to deal with this, if indeed you need to?

And on top of that, you've mentioned a very good on-time performance number in the first quarter.

Just interested, do the 2 carry-on bags, are they having any negative impacts on turnaround times at all?

Okay.

The top line growth, yes, I mean, domestic Italy is doing well.

But domestic Poland is tiny.

Domestic Poland is only 2 routes.

So don't get distracted by do we need to do more.

Like, we never look at business on the basis of are they domestic or international.

It's short sector, and short sectors do help us to maintain efficiency.

And unlike all the other airlines who sell their airfares on some seat-kilometer basis, we only sell our seats and manage our costs on a per passenger basis, which is why we like shorter sectors.

But I think there's a limited growth in domestic markets generally.

Domestic Spain is sizable, but we're reasonably big in.

Domestic Italy is sizable, we're reasonably big in it.

Domestic Germany is sizable.

I have no desire to be big in domestic Germany as far as we're doing into the European or Germany.

So I think, don't get too distracted by different -- by smaller, by sectoral issues.

Always look at us as a kind of pan-European airline.

And if we're doing a short flight, whether it's a domestic or it's an intra-European flight, it's just a short flight.

Flight charges, yes, we continue to see significant change in customer behavior.

I do think we -- last year, when we were above 20 -- just above 20% in checked-in bag penetration, but that was probably as low as it would go.

We have been surprised this year to see checked bag penetration fall below 20%, now running at around 16% in the -- into the peak summer period, which is unusual.

It does show that more and more passengers, though, are now traveling with 2 carry-on bags.

We are -- I mean, it isn't affecting our on-time performance, but it is affecting the speed at which we can board aircraft.

Our on-time performance is struggling at the moment, mainly because of staffing issues within German, British and French ATC, particularly at weekends where they are piss poor.

It's also being affected by -- we have this, same as last year, an outbreak of thunderstorms, which seems to hang over Continental Europe for the month of June and July.

This (inaudible) high in the wrong place, and that has a fundamentally -- the bigger problem.

I think though it is becoming an issue for us, the volume of carry-on bags, our handling agents do a good job at managing the queues.

But we are putting far too many, I think, second bags into the hold free of charge at the boarding gate.

I'm not quite sure how we'll get there, but I think we have to do something before the -- maybe the end of this year or sometime into early next year just to reduce the number of carry-on -- free carry-on bags that are being put into the hold of the aircraft.

It seems clear to me anyway, although the management team are not entirely united on this, that there is a -- people are now gaming the system because they know they can just show up at the bloody boarding gate and get the bag carried free of charge instead of going to the check-in desk and checking in the bag.

And I think we are looking at different ways where we may limit the number of people who can bring 2 carry-on bags.

That might be priority boarding, it might be by splitting the pricing of different products into a standard and a basic price being on airfares.

But we will need to do something to limit the amount of free gate carry-on bags we're taking into the hold of the aircraft.

But I would -- again in that light caution, I mean, in many respects, I think that the -- I look favorably on the declining checked-in bag penetration or the increasing penetration of (inaudible) passengers bringing -- gaming the system by bringing more bags onto boarding gate is just one of the by-products of our Always Getting Better program.

And it's the Always Getting Better program and its success that has continued to mean that we are seeing very strong traffic growth, load factor's up at 96% and rising -- profits up in the first quarter by 55% and even profit growth in the -- over the full year of high single digits.

The fact that bag penetration is down is one of the negatives of Always Getting Better, but it goes to the heart of what we're doing, which is still passing on more value to customers in the form of lower fares and now more and more free carry-on bags.

Our next question comes from the line of Stephen Furlong of Davy.

Can I just talk to you about -- you talked about Italy, so can I just talk about Germany, what you think is going to happen and how it's going to play out with Air Berlin?

And also, what's going on with the Berlin airports, and how you think that will play out (inaudible) and stuff?

Okay.

I mean, again, it's difficult to say how it's going to play out.

Clearly, Air Berlin is teetering on the edge of bankruptcy.

It seems to us that it is Lufthansa that's keeping them alive in what is a flagrant breach of EU competition rules.

But the Germans seem to be able to breach competition rules whenever it suits them.

I suspect, but again I also -- I caution, I was the one who thought the U.K. would vote to stay in the European Union.

I suspect that Lufthansa will somehow be allowed to buy Air Berlin.

But they will reduce Air Berlin's capacity because they will then ultimately control the German domestic market, which will mean higher fares for German consumers but less capacity.

That should, I think, assist our growth in the German market because more and more of the German airports will look to have low-cost, intra-European traffic growth make up for the decline in the German domestic traffic they will have at their airports.

And the second part of the question was?

Air Berlin.

Yes.

Berlin Airport, I mean, they have this mad idea to close the second -- the 2 airports, Brandenburg and Tegel -- Schönefeld and Tegel into 1 smaller airport, Brandenberg, which can handle -- has the capacity of about 27 million passengers.

The combined traffic at Tegel and Schönefeld at the moment is about 34 million passengers.

It's nuts.

The only people who are in favor of this plan are Lufthansa who think that actually it's better to have less capacity in Berlin, less competition to Lufthansa.

But at least the poor Germans won't be confused about traveling and operating at a city with more than 1 airport.

It's clearly a scam by Lufthansa to limit competition and keep fares high in the German market.

I think there is a reasonable prospect, certainly more momentum behind the campaign to keep Tegel open.

Kenny was over there last week and he did a good job of, in fact, not just keeping Tegel open, by the time he was finished, he was calling for a third airport in the Berlin market [placement].

To be fair, if you look at the way the traffic in London has mushroomed once the BAA monopoly was broken up and Heathrow forced to sell Gatwick and Stansted, nobody would argue I think in retrospect that, that was anything but good for our consumers and good for competition.

Berlin should have at least 2 and if not 3 airports, not 1 smaller airport.

Our next question is from the line of Damian Brewer of RBC.

Two questions please.

First of all, just one simple one.

If we take out Easter, what was the May, June revenue per seat development like just to understand what next to Easter effect was like?

Secondly, just looking at your outlook for the year, fleet growth and, therefore, seat growth in theory looks like it would be about 12% if it followed the fleet growth, the passenger growth up 9%.

So clearly, it looks like you're grounding a lot more capacity this winter or something else is going on there in terms of fleet timing.

Could you expand a little bit more about what's going on there that the passenger growth still lags the fleet growth this year?

Okay.

Let's say, Easter -- I wouldn't break out Easter on a revenue per passenger.

But in terms of profitability, we think Easter roughly is now around EUR 50 million in our profit.

So about EUR 50 million tends to move around.

And that's been one of the key drivers of the bumper kind of Q1 number this morning.

Fleet growth, I think it's a little bit distorted.

Remember, we get a significant -- most of our deliveries come -- the big flow of our deliveries come through January, February, March, April and May.

We're taking about 9 aircraft a month -- or 8 or 9 aircraft each month.

So the fleet growth is heavily skewed towards Q4 where the traffic growth is spread across the 12 months.

There's nothing untoward and that we are still -- we still believe our load factor will hold up at or slightly ahead of where it was last year, which was what 95% or 94% for the full year.

We expect that, that would be repeated again.

So there's nothing -- we're not grounding more aircraft.

In fact, we would be flying.

We'll be grounding only (inaudible) we'd only be grounding what we need for our winter maintenance program.

So there're no disconnects between the fleet growth and the traffic growth.

Okay.

So it's all in the timing of deliveries basically?

Timing of the deliveries.

And as you can see this morning, we have raised the traffic for the year.

It's gone from 130 million to 131 million, so there may be a little bit more in traffic.

Our next question comes from the line of James Hollins of Exane.

I've actually got 3. First one is just on the U.K. inbound.

You highlighted terror attacks London, Manchester.

I was wondering if you feel there's still an impact just as it might impact the late booking market for this summer?

The second one is on airport handling charges.

I just noticed on your video, Neil, you said discounts are coming forward.

Just wondering if you're seeing an acceleration in airport charge discounting and maybe quantify that to some point?

And the third one is just on CapEx hedging.

Again, on your video, I think you said you're now fully hedged '21 to '24, partly hedged on '20.

Just wondering if you can say what proportion is hedged on '20 and what average rate you've got on '21 to '24?

Thanks, James.

I'll do the first and, Neil, I'll get you to do part 2 and 3. U.K. inbound, look, whenever there we have a terror attack and we had them in Brussels and Paris last year, but Brussels and Paris are a smaller part of our overall traffic than the U.K. is.

Our immediate response on those is to open up more cheap sets.

So you never see the impact of these terrorist events on traffic volumes.

In Ryanair, you'll always see it impacting on yields.

So there's no doubt, we have had a -- London has had a difficult spring, that is particularly prevalent into Q2 where post-Manchester and the 2 attacks in London, as we opened up more seats to keep everybody flying at that point in response to those.

So the response to the terror attacks is not a falloff in traffic, it's a falloff in pricing.

And, Neil, the handling charge and (inaudible).

The airplane handling, we saw unit cost reduction in the quarter just ended.

The points we were making is that we've got volume discount deals in place at both primary and secondary airports, which will continue to deliver savings for us into the future.

And then on the CapEx, as you correctly said, fully hedged on the MAX firm deliveries from FY '21 to '24.

And we're about 70% now through FY '20 at an all-in blended rate of just over 120 against the euro-dollar on each of those years.

Our next question comes from the line of Robin Byde of Cantor Fitzgerald.

Just one actually.

Going back to the Brexit theme.

In broad terms, can you say how many of your flights as a proportion of the total are between the U.K. and EU?

[About] 40% of the traffic operate between the U.K. and the EU, that splits, and it's slightly more U.K. originating than EU originating.

But it's about 40% of the total capacity.

Now as an EU airline, post-Brexit, we can still -- in an Armageddon, in one of our Armageddon events is, we would take up to 80 or 90 aircraft that are currently based in the U.K. and reallocate them across our remaining bases in Continental Europe.

We would have the capacity to do that.

In a hard Brexit, we think we'll be doing that and taking up enormous opportunities that would arise because either IAG -- I'm pretty sure Iberia won't be flying as a subsidiary of BA or easyJet Austrian AOC won't be operating at all.

But nevertheless -- well, we are reasonably flexible in moving aircraft around.

Moving the crews, the pilots and the cabin crew would be expensive and logistically difficult for us for that period of time.

But I continue -- and I think it's important that we front up on this issue.

I mean, what's been disappointing is our Brexit debate to the extent to which the other airlines have been kind of sticking their heads into sand.

Oh no, no, we don't do this.

Oh, no, it won't be that bad.

It won't be bleh.

It will.

And if they were all a bit more upfront about it instead of kind of trying to mumble through it, we put more pressure on the British government to begin or initiate bilateral discussions on the -- with EU27.

The problem is because the Brexit discussions haven't even got started yet, they still have no -- they haven't even initiated discussions on either the exit bill, the rights of EU citizens and vice versa.

They can't even start the bilateral with the EU27.

And so I think there is a real likelihood at this stage that there will not be a separate bilateral.

And therefore, if the British don't blink, which I ultimately think is what may well happen certainly as regards flights, but the idea that Gove and Johnson and some of the village idiots over there would have you believe that the European airports like the German car manufacturers would put pressure on their governments to do a deal with Britain to ensure that the -- that they continue to welcome British travelers, that's simply not going to happen.

Our next question comes from the line of Anand Date of Deutsche Bank.

I was just wondering, with the developers you've got in Dublin and Eastern Europe, what are the metrics you're using to analyze their performance?

What are you actually tangibly looking to get out of them, just interested in that.

And then secondly, on the Business Plus and the Leisure Plus, could you just outline maybe what proportion of tickets are booked that way?

Basically, I'm trying to figure out how much of what we might classify as ancillary is actually seating and schedule?

Okay.

Thanks.

(inaudible) devs, what we're trying to do here is take -- hire talented IT developers who can quickly -- we can spool up quickly and give us more, what you call, development teams so we can actually implement more than one project at a time.

Here in Dublin, we have about 5 or 6 development teams.

I'm looking at Kenny, about 5 or 6 development teams.

We have now in Bratislava replicated that.

So we have, in total, between 10 and 12 development teams.

So then, we're looking for about another 5 or 6 in Madrid over the next 18 months.

And it is so that we can be very flexible, very adaptable.

But we, Kenny and John Hurley, set the way we develop both mobile app and penetration.

Because I think if you look at the way the penetrations are jumping, it has been enormously successful.

And I think that -- so what we're looking for is to hire bright, young development talent.

And the advantage of doing that in Bratislava and in Madrid is there -- it's cheaper there than it is in Dublin with a far lower rate of turnover.

I mean, the problem here in Dublin is that the market is very hot.

We bring in bright kids here, both domestically and in from Europe.

And within 2 -- within reasonably less than 12 months, they have been distracted around their heads turned by working for the back office processors here for Google and Facebook and all these guys who in Dublin do no IT development at all, they're just issuing (expletive) invoices.

But nevertheless, they have all the sexy appearance of doing sexy stuff that kids (inaudible).

So the advantage primarily of Bratislava and Madrid is much lower rate of turnover of these IT development talent and lower cost.

Business-Leisure Plus, penetration is now all rising up around -- between the 2, we're now heading between 6% and 7%.

It'd be quite difficult to break it out how much of ancillaries is in the underlying airfares, although there are clearly some and it's a growing percentages.

It's also the continuing growth of the Business Plus and Leisure Plus is also partly responsible for the decline in the checked bag revenues as well because they have bags included in them.

Yes.

Can I just ask a quick follow-up?

Yes.

Just a bit longer term, hearing from some of your competitors as well that the ancillary mix is permanently changing, right, because customers are behaving differently.

Is the implication, therefore, that revenue growth on ancillary might be slower, but that actually margins are more likely to go up because the newer products are higher margin?

I don't think so.

I mean, look, it -- the problem with that is you're trying to predict what's going to happen to ancillaries into the future, and this is a very fast-changing area.

If you look at what we talked about with Ryanair Rooms, Ryanair Rooms in the next 2 or 3 years could generate very significant revenues for us but almost no profitability because, frankly, we're willing to promote Ryanair Rooms on the basis that we get -- we'll make no money.

Whatever commissions we get from the hotels, we would give away to customers in the form of either discounting below the prices being charged by booking.com and the other GDS suppliers or we'll give them discounts off their flight.

So we're willing to do hotel rooms for 0 margins.

So like -- but that could change again in 12-month time.

So making predictions as to what's going to happen I think to the margins on ancillaries that is the profit of ancillaries is very dangerous in what is a very fast-changing environment.

If I just add...

Yes, Kenny?

It's about driving the conversion rates, and I think if you go back over the past number of years, an x number of years, there's still loads to go in getting a higher percentage of the customers who fly with us flying various ancillary products, be that seats, be that fast track and the kind of the old ancillary products related around the flying products or be it car hire, or as Michael said, Rooms.

There's still plenty to go for in terms of the overall penetration rate.

Our next question comes from the line of Johannes Braun of MainFirst Bank.

Just 2 for me.

Firstly, on the full year guidance, net profit on what sterling rate is that more or less based on?

And did you hedge any of your net sterling exposure by now?

And secondly, again on costs.

I mean, I can see what you're saying on your relative cost performance versus peers.

But still, I mean, just looking at your moving parts here, you're guiding minus 1% unit cost per passenger.

So you still have the benefit of the weak sterling, the benefit of higher load factors and you also have growth benefit of almost 10% growth.

I was just wondering or trying to understand if there's any underlying cost inflation there?

Is it marketing?

Is it wage inflation?

You have growth costs?

Or is it just you being again conservative?

Well, let me address second question first, Johannes.

I'd like to correct you.

We don't have peers.

We have (inaudible) there is a basket of other people out there claiming to be peers.

But when you analyze their cost performance, it becomes pretty (expletive) evident that we don't have any peers in the marketplace.

And I have -- I think the point I'd make to you, in our cost guidance -- unit cost guidance, and is ex fuel down 1% for the year.

It's another superb performance coming on the back of last year when we reduced unit costs by 5% ex fuel.

We're lower.

These are meaningfully lower costs.

And I contrast that, I mean there was some silly analysis produced recently by Bernstein, I believe, who are writing that oh, as we move to primary airport, our costs will increase.

We started moving to primary airport 3 years ago.

We're now moving to year 4 of AGB.

And the whole analysis, oh, as we move into main Madrid, main Rome, main Brussels, Frankfurt main, our costs will explode, handling (inaudible) . We have all these uncontrollable costs that easyJet and others seem to whine on about.

We're now in our fourth year at a lot of those airports.

I think the key message is, if you go through each of our cost lines, staff, airport and handling, route charges, maintenance and materials, even the others, we are -- there is unit cost reductions across all of those classes.

There is one, I think, where we have cost inflation that is the continuing rampant scamming of EU261 claims.

And these (expletive) ambulance chasers who we are trying to bury across Europe.

I mean, it is a complete another scam that we have with an average fare of EUR 40 have to pay up compensation EUR 250 every time some bloody George thinks that the delay was our fault or we're somehow should be responsible for these delay, when it's ATC and others who are [mental], who are clearly responsible for the delays.

We continue to believe that if there is going to be customer compensation as in most other industries, it should at least reflect the airfare paid.

But -- so that's the only area where we have cost inflation.

But even that cost inflation, which is included in our other is on a per -- on a unit cost basis close to flat because Kenny and the team are spending less money on advertising and marketing as we use our lower fares, lower declining bag fees and the brilliance of AGB to continue to deliver 9%, 10% traffic growth.

And the sterling impact on the full year guidance, Shane, you want to take that or Neil?

Yes.

Well, first and foremost, Johannes, we don't give out our budget rates to you guys.

What I can say is that we had a positive impact of sterling, which I already indicated about 1.5% in the first half of the year.

We would expect sterling to go in the opposite direction as the comps get more difficult in the second half of the year.

And you're not hedged on your net exposure?

No, we're not hedged on net exposure.

Can I just come back to the costs point.

I mean, the point that I was trying to make is that given that you're calculating unit cost on a per passenger basis and you do not adjust for currency, you do have a tailwind from the currency side and you do have a tailwind from higher load factors, so (inaudible).

Because load factors are flat this year, Johannes.

Yes.

Load factors are flat.

They're not higher.

But In Q1 they were up still, so if you strip these out, you have -- it seems that you would have some cost inflation underlying.

I was just trying to understand this one.

No, we don't.

And we have no further questions in the queue at this time.

Well done, everybody.

That's the first time we managed to get this bloody call down to under an hour.

Look, if there'd any follow-up questions, Shane is here in Dublin.

Neil is in London doing the press stuff.

Again, the underlying themes are traffic is strong, yields would be weak into Q2.

I would say we did -- we're the only one for the last number of months who have been predicting fares would be weak this year, while all others were predicting fares would be up.

Our unit cost discipline continues.

We are continuing to deliver unit cost declines when most -- in fact, all of our competitors are delivering unit cost increases.

And it has widening unit cost gap between us and the competition that will continue to enable Ryanair to succeed, but particularly as we expand the amount of head-to-head competition we have with these so-called peers.

The only other one out there is, clearly, Brexit continues to be an issue.

It's going to become more and more of an issue, I think, particularly as we get to the second latter half of this year, and we are less than 12 months away from September 2018.

We will be trying to keep this issue front and center in the U.K. I don't think anybody should get panicked.

But until the U.K. begins to realize the weakness of their negotiating position, particularly in this sector, there is a real risk of disruption to fight from April 2019 onwards.

Okay, everybody, thank you very much.

And if there would be any follow-up questions, please feed them back to Shane here in Dublin.

Thank you.

Bye-bye.

This now concludes our call.

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