Ryanair Holdings PLC (RYAAY) 2018 Q3 法說會逐字稿

Hello and welcome to the Ryanair Q3 FY '18 Results Call.

(Operator Instructions) Just to remind you, this conference call is being recorded.

Today, I'm pleased to present CEO, Michael O'Leary.

Please begin your meeting.

Okay.

Good morning, ladies and gentlemen, welcome to the Ryanair Q3 conference call.

You'll have seen this morning that we released the press release, the slide presentation and the MD&A together with a video of myself and Neil.

It's on the ryanair.com website and provides all the detail you'll need, so we would refer you there for that.

I'm joined here by the entire management team.

Neil Sorahan joins us from London where he's doing the Q3 financial PR.

So just a couple of quick themes.

We had a reasonable successful Q3.

Remember this was the quarter that suffered most of the impact of the pilot rostering failure in September, and therefore, we think it was a credible performance to deliver a 12% rise in the Q3 profits to EUR 106 million.

Average fares fell 4% to just EUR 32 per customer.

And it's a theme of Ryanair that we keep cutting fares, lowering fares, delivering strong growth and improving load factors.

Following the -- I think, again, we focused -- this is the quarter that took most of the hit of the pilot rostering failure in September, and the painful decision to ground 25 aircraft through the winter schedule, November through to March, but that has ensured that the punctuality of the operation has returned to our normal 90% average.

We've -- pleased that we have successfully concluded our first recognition agreement with BALPA in the U.K. That is a milestone because it is by far and away our largest market and accounts for over 25% of our traffic, and over 25% of our pilots are based there in the U.K. It is by far and away the largest market we have.

And I think it's a reflection of our ability to change the model, enter into union recognition and do so without disrupting the growth or the operations or our growth.

As we've said here over the last number of months, union recognition may add some complexity to the business and it may cause short-term disruptions and some negative union PR, but it does not alter our cost leadership in European aviation or alter our plan to grow to 200 million passengers per annum by March 2024.

Again, the key theme of this morning's conference call will be our unit cost discipline.

In Q3, unit cost fell 1%.

Ex-fuel unit cost increased by 3%, but primarily due to the higher staff and the one-off EU261 costs arising from the September rostering failure and our decision to cancel flights in September and October.

Our cost advantages on other nonfuel cost lines is significantly better than our competitors across Europe and will continue to improve over the coming years, particularly as we take delivery of 210 MAX 200 aircraft from April 2019 onwards.

These game changers have 4% more seat capacity and are at least 16% more fuel-efficient and will materially alter and improve the cost base for the better.

Our balance sheet remains very strong.

And having generated over EUR 1 billion in net cash from operating activities in the first 9 months of the year, we spent more than EUR 1 billion on CapEx, EUR 639 million on share buybacks and repaid over EUR 300 million of debt.

In light of the continuing reasonably healthy trading, the board has approved another EUR 750 million share buyback of ordinary shares, which will start in September (sic) [February] and, subject to market conditions, should be completed sometime at the end of October 2018.

Ancillary revenue continues to perform well across most of the areas we are stimulating more conversion -- customer conversion is improving, and we would expect that to continue.

Brexit remains a significant worry.

We believe the U.K. government continues to underestimate the likelihood of flight disruptions to and from the U.K. beyond April of 2019 and, this issue will hove into view, particularly for the airline, sometime in around September 2018.

We need more clarity.

Juliusz will give -- will address some of the issues on Brexit, and we do hope to see a -- the transitional agreement which the EU has proposed being accepted by the U.K., but it's a matter for the U.K. will have to accept it if we're to continue uninterrupted at least for a year or 2 after April '19.

In terms of outlook.

Again, as we finalize union discussions in other jurisdictions along similar lines to those agreed in the U.K., we expect some localized disruptions and adverse PR, so investors should be prepared for same.

In certain jurisdictions, particularly those jurisdictions that account for a tiny proportion of our pilots, we expect that the unions who represent competitor airlines will want to test our commitment to either our low cost or our high-pay, high-productivity model, particularly as we run up to Easter, and so we're expecting to have to face down the threats of these disruptions around Easter.

And if we have to, we will.

In that -- with that said, we expect the full year traffic to grow 8% to EUR 130 million, up EUR 1 million from the EUR 129 million previously guided.

We expect full year '18 fares will fall by at least 3% as we continue to lower fares.

Ancillary spend per customer should rise by about 2% for the full year.

Unit costs, which were adversely impacted by the EUR 25 million nonrecurring EU261 hit in Q2 and EUR 45 million of additional staff costs in H2.

While oil prices have risen in the second half of the year, we still expect FY '18 unit costs to be down 2%.

Accordingly, we're maintaining our full-year guidance of profit after tax within the previously set out range of EUR 1.40 billion to EUR 1.45 billion for the full year, but this guidance is heavily dependent upon close-in Easter bookings and the extent of localized disruptions in the run-up to the Easter period.

We would, however, caution at this point in time for next year, I am slightly somewhat concerned by the degree of irrational exuberance there appears to be among competitors and analyst community about rising fares into summer '18 or our FY '19.

We believe there are very significant cost headwinds out there.

Particularly, we expect to see the fuel bill increase by about EUR 300 million in FY '19.

There will be a full year impact on labor of about EUR 100 million on staff costs, mainly as a result of the 20% pilot pay increases.

Those increases are being progressively rolled out to our pilot base as we now have a majority of the 87 bases across Europe have voted in favor of them and even the 35% of Dublin pilots who have been blocked from voting on this pay increase by the unions, we wrote to them last week individually offering the pay increase, and we have been -- received a significant number of yeses, [are] people voting themselves individually for those pay increases [or that] we get.

Nevertheless, we think we will confine the cost increase to -- an additional EUR 100 million over the full year.

The lack of clarity on Brexit will also be a concern through the back end of summer '18.

We think there's going to be some serious worries, particularly as we don't think there's going to be any early clarity from the British, given the political situation there.

So I would be very cautious for FY '19.

I do not share the kind of exuberance of others that fares would simply rise to cover higher fuel.

Historically, there tends to be a lag effect of about 12 months with fares rising usually about 12 months after the impact of higher oil cost.

And I think the market should be much more pessimistic than it appears to have been over the last number of months.

With that, Neil, is there anything you want to add to that before we open up to Q&A?

No, Mike.

I think you covered off most of it there.

The buyback starting off probably sometime this week.

It's an ordinary share buyback where we'd be using VWAPs to get that in place over the next number of months.

Costs still in very good shape.

And guidance, as Michael said, retained at EUR 1.4 billion to EUR 1.45 billion.

Okay.

We'll open up to Q&A.

But now please don't ask us for more color on summer '18 fares.

We don't have it.

We have very limited visibility, and we're not going to get into too much detail on the union discussions on the conference call.

We will have an analyst session here tomorrow in Dublin where, in the confidentiality of a room, we will share with you more insights on where we're going with that and the progress -- significant progress that's been made.

So with that, let's open up to Q&A, please.

(Operator Instructions) And the first question is from the line of Jarrod Castle from UBS.

Three, if I may.

You've increased the 2018 traffic guidance, you've left 2019 as is.

So just a bit of color in terms of your thinking of the profile of the growth to get to the 200 million.

Secondly, just looking at ex-fuel unit costs.

I mean, do you still think, over the medium term after this kind of staff [hump], we can expect ex fuel unit costs being flat or even down still, let's say over the next 3 years?

And then lastly, you talked about the opportunity, potentially in France and Scandinavia.

So maybe you can just give an update in terms of some of your thinking there in terms of bases?

Okay, we take the first of those.

At the moment we're guiding 138 million for FY '19.

As we said in the statement this morning, that we haven't yet finalized the budget.

We think that will be the base case.

The original prediction to get to 200 million was 140 million in FY '19, and I think we'll be somewhere in between that around 280 million -- maybe 138 million, 139 million passengers, we're unlikely to get to 140 million in 2019.

Ex-fuel unit costs, we think, over the next 2 to 3 years, particularly as we take in a significant amount of the MAX aircraft, we will, in 3 years' time, we will have 100 MAX aircraft in the fleet, we think that will help us to significantly moderate unit cost increases.

And I would expect them -- I think being down is unrealistic, but I would expect them to be flat with the benefit of the new maintenance contract we've done with CFM on the 800 and also the impact of more and more MAX aircraft coming through.

We think the MAX will deliver us a very significant unit cost advantage over our competitors in Europe.

And France and Scandinavia, maybe, David, do you want to just give a flavor of your initial discussions with the French and Scandinavian airports on possible bases?

Sure.

I think the candidates for French bases speak for themselves, largely.

I don't have to go through a list, but we met with all of them and all of them are keen and all of them should deliver lower costs should we open (inaudible) there.

Scandinavia is very much a white spot on our map, where we've less than 5% market share in most of the major market -- in Norway and Finland specifically, and less than 10% in Sweden and Denmark.

Again, they present opportunities locally.

In particular, a lot of high-frequency, high-cost routes, a lot of domestic routes north to south within the various Scandinavian countries available to us.

What isn't available to us is sufficient aircraft to supply all of that demand.

So it puts us in a strong position in terms of negotiating superior airport deals, and that's beginning to sort of (inaudible).

And I think that may well lead to some significant churn at existing bases as well as we try to source more aircraft for new base developments in France and Scandinavia.

It might also would be helpful just to hear briefly from Eddie Wilson, Chief People Officer, who has a -- has been the -- has held the first initial meeting with the French pilot unions in Paris in recent weeks.

Eddie?

Yes, I spoke to the French unions and due to speak with the Danish unions in the next number -- in the next 2 weeks.

And their view is that once they are -- once we're sort of compliant with the local common labor agreements, there they've no difficulty.

We're not under any compulsion to talk to them in advance because there are some relaxation of the labor laws in -- with the Macron initiatives.

So again, they were delighted to see us and to see whether we could open some bases for the number of French unemployed pilots.

So we're -- there's a lot of growth potential there for us.

And next question comes from the line of Savanthi Syth from Raymond James.

Just 3 questions from me.

On -- first, on the U.K. AOC, just wondering if that would just be all kind of U.K.-based aircraft that will be included in that, and if it has any implications on kind of the Irish contract applying to the employees there?

On the second one, just to -- actually more of a clarification on kind of the fare outlook.

I'm not asking for what you think it is, but just kind of the general caution here is, is that because you're not seeing any capacity adjustment to higher fuel?

I can understand why fares were down this year, but with fuel going higher, just kind of wondering if that's what's causing that caution there.

And then the kind of final one is on the ancillary revenue, and it came in above your expectations.

It seems pretty broad-based, but any kind of early thoughts on what we should expect as we kind of head into fiscal year '19 on the ancillary revenue front?

Okay, let me take those.

The U.K. AOC won't have any impact on U.K. employees, unusually, because the Double Tax Treaty between Ireland and the U.K. all of our U.K.-based employees, pilots and cabin crew, are already on U.K. contracts and are paying their tax in the U.K. It's in the other European jurisdictions we'd want to move to that model, and there's certainly a demand from the unions for more local kind of tax.

Say for example, in Italy or in Spain, they'd be paying their tax in Italy and Spain, whereas currently Irish legislation requires us, because they're flying on Irish-registered aircraft, to pay their taxes here in Ireland.

That's something that needs to be resolved.

I think the caution on fares is more a response to what we've seen as -- I would describe as irrational exuberance in the last number of weeks and months from competitor airlines.

There has undoubtedly been a -- some of them have benefited from the fact that we've grounded 25 aircraft during the winter period.

They've also seen, obviously, Monarch's capacity taken out, some Air Berlin capacity taken out.

But ultimately, we don't see there being that significant uptake on fares continuing through into calendar Q2 and Q3 of 2018.

We think we should continue to be very conservative on pricing during that period.

We will be adding significant capacity ourselves anyway, and we also think there's a lot of still some irrational loss-making capacity, I would point to Norwegian out there, around the [piece].

So they're -- undoubtedly the fares -- I mean, I think the big challenge for the airlines this year is that oil prices -- spot oil is up at $70 a barrel, this time last year it was under $40 a barrel.

Ryanair is reasonably well hedged against that, but a lot of our competitors who don't have a balance sheet are not well hedged against those kind of price increases.

I do believe that there will be an upward pressure on pricing, but that upward pressure on pricing tends to lag the fuel increases by about 12 months, so I think you're more likely to see that yield environment moving towards calendar '19 rather than calendar '18, and I think those who are promising significant price increases through calendar '18 will be disappointed.

On ancillary revenues, again, we haven't finalized the budget for FY '19.

It's a bit early yet, although I think you can see in our current numbers that we're continuing the combination of Labs and what we're doing through the ancillaries and with Kenny on the commercial side, we're certainly seeing improvements in customer conversion across most of those ancillary items.

And I wouldn't want to get into any more detail other than that at the moment.

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

So can I just ask about ancillaries firstly, just maybe talk about the change in terms of the priority boarding and how that's working in terms of the turnaround times for the aircraft, and maybe talk a bit about Ryanair Rooms, which I know you're now aggressively marketing.

And then just one for Neil on the CapEx.

Just talk about again what you see as the maintenance CapEx there as well as the overall CapEx, that'd be great.

Okay.

Thanks, Stephen.

Ancillaries, look, we'll give you more color on that tomorrow at the analyst day here in Dublin tomorrow.

I think that's a more appropriate forum that we share -- to give you a bit more detail on ancillaries.

Kenny will be -- and John Hurley will both be making presentations on both of that.

It's really not for this call this morning.

Neil, maintenance CapEx?

Yes.

You're looking at about EUR 300 million, Stephen, this year and next year.

And next question comes from the line of Neil Glynn from Crédit Suisse.

Next question is from Mark Simpson of Goodbody.

Okay.

Just the usual couple.

Ancillary, I just want to clarify your guidance for FY '18 suggests that Q4 ancillaries for [pax] would be down 1% year-on-year.

That doesn't look like a trend.

So I'm just wondering if that's cautious or whether it's a specific issue in the current quarter.

Just going forward with the 10% voucher, so back on Ryanair Room bookings.

I'm assuming that, that will be seen in yield dilution, might be small depending on conversion rates.

But the booking on the revenue is on the ancillary line and the discount is your dilution, I'm assuming that's the way to look at it.

And then finally, on the labor front, you've obviously given us the EUR 100 million reflected increased cost due to pay rises.

But looking forward, what would be a sensible number to think about of additional labor inflation with potential changes to terms and conditions?

Okay.

No, on the ancillaries, yes, we are cautious, but we're taking the money back on the Rooms is coming out -- will be coming out of the ancillaries budget.

It is therefore the revenue from or the contribution from hotels as we build Ryanair Rooms within ancillaries will fall to effectively zero.

And that would become an increasing line -- an increasing sum within ancillaries, particularly as the travel credits seems to be working very well in the 4 countries in which we have it.

We will extend that offer to other countries over the coming weeks.

And again, as I said, we'll deal with that in more detail tomorrow.

Labor, for the moment, the additional cost increase will be about EUR 100 million.

We haven't yet finalized the budget for next year, and I don't want to -- we're not going to go into a number on that -- on this on the call.

Tomorrow, we'll give you a bit more color on tomorrow's meeting.

Next question is from the line of James Hollins from Exane.

A few from me.

The -- can you just let us know just what portion of this year's EUR 45 million of additional pilots costs were in Q3?

The second one is you seem dead certain that there might be some strikes coming up.

Have you actually been informed by anyone or any of the unions that there is a strike coming?

And then finally, on Germany, I'm just wondering if you could quantify the December strike impact.

And also, your progress in Frankfurt through your first winter season and are you accelerating growth elsewhere in Germany because of Air Berlin?

Okay.

No, I wouldn't be able to break down the proportion of the EUR 45 million in Q3.

Obviously, it was slightly less in Q3.

Most of the agreements with the pilots or the majority in particular we hadn't -- for example, 9 of the 15 U.K. bases were agreed for and were paid in November/December.

But 6, including the biggest Lufthansa, was agreed only from January.

So there's a split between the 2, but it's not material to either the Q3 or the Q4 numbers.

We have not said, by the way, we are certain there's going to be strikes.

I said what we've said is you should expect disruptions, which may be adverse PR and which will be counterbalanced also by more agreements.

I mean, we expect we're very close, I think, to another national agreement.

We would hope to have another one done before the end of February in one of the bigger countries.

That does not mean -- but I think some of the analysts have really been remarkably distracted by the occasional press release from a union somewhere.

They need to grow up a little bit.

Unions engage in adverse PR, we just get on with the business.

I'd give you the example, the German strike impact was 0. They had a 3-hour strike on the 22nd of December.

What was remarkable about that is they were striking for union recognition when we'd already conceded union recognition on the 15th of December.

But some of these people just want to have -- be disruptive for the sake of being disruptive.

What has been strange about the German market is that we haven't heard back from -- having met the unions in December and in early January in fierce pressure on the union side.

We haven't heard back from them for, what, about 4 or 5 weeks now.

In fact, we're writing to them going, "Well, you haven't come back to us yet with your proposals.

Where is your proposal?

What are you doing?" I would also give you the example of the union here in Ireland, where we sent them a signed recognition agreement on the 3rd of January and we still haven't heard back from them.

And all they've been trying to do here in Dublin is to block -- there's about 35% of the Dublin pilots have not yet received the pay increase, and we asked the union twice to arrange a vote of those pilots, and twice they've refused to arrange a vote.

So we've now offered it directly to the Dublin -- those 35% of Dublin pilots, and we believe there will be a very substantial take-up of that pay increase.

Again, some of the unions are engaged in a bit of misinformation.

The Aer Lingus pilots' union here in Ireland are promising, "Don't vote for this pay increase, because we'll get it backdated to November or September, whenever it was last year." There will be no backdating of this pay increase in any base.

We have not -- we have now had about 47, 48 of our 87 bases have now accepted the pay increases at various different stages in November, December January and/or February, and it would be unfair on those bases who actually got off their arses and voted for the pay increases to suddenly get backdated for some other base.

So we have been absolutely clear.

And if somebody wants to go on strike, whether it's in Dublin or somewhere else, over our refusal to backdate pay increases that they haven't voted for, they can go on strike.

I'm not sure there will be strikes yet.

I think there will be threats of disruptions.

I think somebody though will clearly -- if you look at the easyJet experience, where they usually sort of here landed with a strike notice by somebody in Easter week or during the peak summer months, we will undoubtedly receive some of those and we would say, "Fine, off you go, strike away." We are not going to be rolling over to unions who decide they're going to -- or to some of our pilots who think they're going to disrupt our operations either in Easter week or in the summer peak.

And in some cases, I think one of the things have been dealing with unions -- and I think we have demonstrated quite a degree of speed and flexibility in our dealings with the unions, but they all have to understand that we will take strikes, we will not roll over because of the threat of disruptions.

And then I think you get to a -- I might look at IAG and what Willie has done with IAG in recent years, I mean -- and to a certain extent, Carsten in Lufthansa, I'm amazed at the extent to which some analysts are distracted by the threat of strikes in Ryanair, when Lufthansa has had 17 pilot strikes in the last 2 years and IAG has had probably a similar number.

If you're dealing with unions, strike threats are pretty frequent, actual strikes and actual walkouts tend to be a lot less frequent because people don't want to lose out on money, which is what will happen when they do.

But I think so we're trying to educate both the analyst community and our own shareholders, you should expect some strikes and you should expect us to face down either some disruptions or some strikes.

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

If I can give you the questions.

First of all, just in the prepared presentation earlier this morning you talked about first officer recruitments and retention.

Could you also give us a little bit more elaboration on what the situation is with experienced captains?

What the turnover retention and recruitment looks like there?

Secondly, on the CFM deal, could you be clear or elaborate if there's been any financial impact in this reported quarter or if in Q4 or thereafter, there will be one beyond savings impact?

And in particular, if there's any balance sheet or cash flow items we need to watch for.

Also, just because it's in vogue at the moment, could you just give us a feel about how your average net debt has trended through the quarter rather than just the year-end, and where that leaves you in terms of contingencies if the major 737 operator got into trouble later this autumn?

Do you have the balance sheet capacity to jump in?

And I guess a very final cheeky one, we're seeing the CAA in the U.K. sounding off in the press again about allocated seating.

Last time they did this on the U261 Monarch went bust the next week.

Should we be thinking of any contingencies of a U.K. airline running into trouble next week again?

I would certain -- couldn't agree more with you on the last one.

We can't wait to see how the CAA defines what a group is.

I understand they've done some surveys, given that we sell our seats to -- on an individual basis, individual passengers.

The idea -- and that we understand their survey excludes families, of course, because we allow families with children and the children get free-of-charge allocated seating, like it seems to be regulatory idiocy at its -- in its extremis, where, now, they're going to tell airlines how to allocate their seats.

We hope they'll include the British Airways business class and first class offerings in that as well in that analysis.

Average debt, how it moved through the quarter, frankly and with the greatest respect, it's none of your business.

We give you the quarter-end numbers.

Suffice to say that we have a very small, minuscule net debt position and a very large and substantial cash position, and we would use that if necessary, if the appropriate opportunity arose.

The CFM deal will have effectively no impact on the -- had no impact on Q3, will have minuscule on Q4.

Going forward, it will have a significant annualized effect over a 10-year period, but that's about as much information as we give it to you.

And then Peter will touch briefly on FO recruitment retention and experienced -- or captains recruitment and retention.

Peter?

Damian, it's Peter Bellew.

We have a -- we'll be up at a ratio of 5.3 captains and first officers per aircraft for the start of the summer season.

We only need 4.7 ratio actually to run the schedule, that's even with our 5-on-4-days-off pilots roster.

So we're in good shape right now.

We're having no problems hiring experienced captains.

We're having a number of people applying to us from the failed carriers.

And also, a lot of people want to return from the Gulf carriers back to Europe, so that's going well.

And we're building additional training capacity in London Standsted, we'll have the next of 3 simulators by the end of the year.

And we're in hiring and training another 100 senior trainers.

So we'll be building up the capacity to more than recruit and train the number of people we'll have as we grow to 600 aircraft over the next couple of years.

Next question is from the line of Neil Glynn from Crédit Suisse.

(technical difficulty)

Neil, sorry, you're having problems with your line.

We'll go to -- oh, sorry, go ahead.

Sorry, I was on mute.

If I could ask 3 quick ones, please.

The first one, credit card fees were outlawed in the U.K. from the 13th of January and some other countries.

I know you've seen it in markets such as Italy before, but just interested, are you seeing any effect from that?

Second question, you mentioned new base opportunities and significant churn.

Just interested, will regions such as Eastern Europe, for example, make it more difficult to justify existing scale with higher staff costs?

Will that be influential in any churn decisions?

And then finally, with respect to the U.K. AOC, obviously a higher tax rate in the U.K. than in Ireland.

Just interested, will that have a structural uplift on your effective tax rate on the business as a whole?

Okay.

Maybe I'll start with the last one.

First, U.K. AOC would be relatively small.

To the extent we have a U.K. AOC, we would expect to be using it largely for the U.K. domestic routes, which are, a, small in scale and not particularly profitable, not loss-making either, so we don't think it'd have any effect on our group effective tax rates.

New base opportunities, no, we see the new base opportunities largely at those countries where we have avoided in recent years because of the threat of unionization, so we think the new base opportunities arise in France and in Scandinavia.

Eastern Europe will continue to be a focus of very significant growth for us.

We see, a, it's an area where -- and it is an area where we have lower kind of staff costs and more efficient staffing.

I mean, the only competition for us in Eastern Europe at the moment is Wizz Air and a couple of [slower], smaller incumbents who are significantly higher priced and higher cost than us.

They keep having this idea that by 2023, they'll have some magical potion that will help them -- give them a lower unit cost than us.

But frankly, as we expand in Eastern Europe, we see them withdraw most recently in Prague where they've now closed the base and continued to move further east to avoid, we think, competition with us.

Poland will be the one market where we have kind of toe-to-toe competition with them, and we continue to grow faster than them in the Polish market with a larger market share.

And finally, credit card fees are outlawed, no, you'll see no impact on our numbers or our operations.

And next question is from Anand Date from Deutsche Bank.

I was just wondering, the -- at the sort of board level, have you guys got a view on if the flag carriers are moving to fully dynamic pricing, which seems that they are, does that impact you if at the lower end of the booking sort of profile they actually reduce prices, therefore you may need to actually do a bit more on price to get the loads that you've been achieving?

No.

I mean, look, at board level, the legacy carriers, we see really not that much competition.

There's certainly very little price competition from the legacy carriers.

All of the developments we've seen in recent weeks, particularly as Lufthansa has acquired Air Berlin, is a significant uplift in pricing, particularly at the lower end in the German market.

Alitalia seems to be less price competitive.

I mean, what drives most of our -- we price against ourselves, in effect, is that we're taking 50 new aircraft this year, we're adding a lot of new routes, we have raised load factors from 94 -- 93% to 94%, and we'll continue to grow very strongly in a lot of markets.

And I think it's also important -- particularly for things like the CAA [investigation or] CAA analysis, or whatever they do, a survey that was referred to over the weekend.

I mean, what's missing from this survey is, yes, we've changed the way that we are allocating seats, but that's a customer choice.

People who want to pay for a particular seat should be free to do so.

What shouldn't be lost in that analysis is actually that Ryanair's continued to cut the underlying airfares as we have in each of the last three years.

So we are materially lowering the cost of air travel, while the CAA is running around doing kind of bizarre surveys into the freedom of people to choose the services they wish to choose and wish to pay for.

And also, the freedom of those people who don't wish to pay for an allocated seat, who are free -- who choose a randomly allocated seat to receive a randomly allocated seat entirely free of charge.

But the underlying package and the underlying yield is falling, and we expect will continue to fall.

And that, ultimately, is the biggest weapon we have against every other competitor in Europe.

We've seen all sorts of rubbish analysis since last September when, mea culpa, we had a major rostering (expletive), which we have now fixed.

But all -- either the ECJ or the Mons case or unionization will blow up Ryanair's labor costs [to that, yes].

I mean, our labor costs are a tiny fraction of our unit cost advantage over every other airline in Europe.

And we continue -- if anything, the gap between us and them is widening.

All of the airlines in Europe are suffering a degree of labor cost inflation.

There is a tightening in the market for experienced pilots.

We have no shortage of recruits.

We've hired over 1,100 pilots in the calendar 2017 and expect to do a similar number again this year.

The question for us is as some of the flakier competitors who couldn't make money when oil was under $40 a barrel last year is how long they'd survive when oil is at $70 a barrel, and they are -- will lose even more money and are frantically selling off what limited assets they have to provide the cash for them to continue to operate.

Or one of the other competitors who, in recent weeks, has raised a bond for, I think, about EUR 35 million or EUR 40 million, paying a coupon of about 7.5% or 8.5% on a EUR 35 million bond.

I mean, EUR 35 million here would be chump change in Ryanair's operation.

We raise bonds for EUR 850 million and pay unsecured for 8 years at a rate of 1.15%.

So I think there will continue to be change, there will continue to be failures, the question is when those failures will arise.

But no, we don't see any impact or the threat of legacy airlines becoming more, what is it, more sophisticated in dynamic pricing that will lead to lower prices.

Every bone in every competitor -- legacy airline competitor body, Lufthansa, IAG, is all about how do we [stiff] the customer for ever-increasing airfares, how do we drive up prices, how can we buy up all the competition in the German market, particularly the German domestic market, not so that we can lower fares, so that we can raise fares and gouge the consumer.

And yes, you're right that is opening up more route opportunities for us in Germany.

Could I ask then a slightly different twist on it?

So if we think that in, whether it's 2, 3 years' time, all of the legacies are fully dynamic, they're fully unbundled, then anything that happens...

It won't -- sorry.

Look, Anand, it won't be.

But we deal with them...

No but isn't this a positive because, actually, then everyone can see a totally unbundled price.

And the price transparency -- yes, there's an argument that prices have become less transparent, arguably, they've become more transparent.

So actually, people realize even more that the lowest-cost seat is the way forward.

But there's no evidence among the legacies.

So Lufthansa's pricing, if anything, is they're going the other way.

There's more business class pricing, there's more sort of premium economy class pricing.

There's absolutely no movement there towards transparency.

And nor should there be because the reality is if you're BA in London, you have that market by the balls, so you price the (expletive) out of it.

As exactly what Lufthansa do in Munich and in Berlin, they will never move towards more price transparency, they always want less.

The reality is if I'm connecting with BA through Heathrow and I originate anywhere outside of London, I will get a price that's a fraction of the non-transparent pricing that's imposed by BA on passengers originating in the London market.

The same happens in Germany, the same in France, in -- KLM's pricing is completely nontransparent, but hugely supported by, frankly, anti-consumer policies by the Dutch government in limiting competition in Schiphol, (inaudible), Hoogeveen, Lelystad and all the rest of it.

The supposition in your question is that there's more price transparency or that some of these guys are more sophisticated is not true, not accurate.

We are the only people who continue to be engaged in absolute price transparency, admittedly by dis-intermediating services that were previously assumed to be free, such as the checked-in bag or the allocated seat, while still allowing passengers who don't want to pay for checked-in bag, you can still bring 2 free carry-on bags on board the aircraft, one of them may go in the hold if you don't want to pay for priority boarding, and that's entirely your right.

And if you're -- you don't want to pay for an allocated seating, we have lots of random available seats.

But as the amount of reserved seating rises, there is less random -- there's less availability of random seating for individual customers.

Look, we can theorize in more detail at tomorrow's meeting, it's just I'm not sure it's helpful on this call to be doing it here.

Next question is a follow-up from the line of Mark Simpson from Goodbody.

Just 2. Neil, just on the tax rate, 6.5% in Q3.

Is that a timing issue?

Or is that something we should...

It is.

I mean, if you look at the tax rate on the 9 years -- on the 9 month, it's 10.3% against 10.8% last year.

So we'll be down a little bit on a full year basis, but it's a timing thing.

Fine.

Okay.

And then Michael you said -- earlier on the call, you said that you were not saying there would be a strike, but in your video Q&A you said that it's inevitable, so I'm just wondering which one we should take?

Geez, I don't -- I would -- I think disruptions are inevitable.

I'm just not sure that I would say there will definitely be strikes.

But you should be prepared for us being threatened with strikes.

And I think, particularly, some of these unions will be trying to lie there or do something around Easter week, and we are geared up for that and ready for it.

One of the areas where we suffer if there is repeated or unwarranted disruptions like that, again, that would also be factored into the kind of churn that we would be considering here from a commercial point of view.

We may reduce aircraft at certain bases where there has been -- if there is repeated interference in much the same way we did when we originally opened in Copenhagen.

2 years ago with an aircraft -- we had 3 aircraft based in Copenhagen, the SAS unions were then blocking our aircraft or blockading our aircraft, we simply flipped the aircraft out of Copenhagen.

We're now the third largest airline in Copenhagen, but with no base there.

Now we will now go back in and have discussions with the Danish unions.

I believe we'll reach an accommodation with the Danish unions pretty quickly and that will, I think, again, enhance our ability to grow, or our growth prospects in some of the Scandinavian airports and in Denmark.

But there are undoubtedly -- and I would -- for example, we have, in Dublin, we have Aer Lingus pilots actively interfering in the discussions we are having with our own pilots and with the FORSA/IALPA union.

It's not generally in best interest of our pilots since they have denied them a pay increase now for almost 2 months, and we have now the crazy situation that the union instead of securing a 20% pay increase for some of our Dublin pilots, we're having to write them directly to offer them the right to accept the 20% pay increase in the February payroll, having lost out on that increase in January and December.

Now I think that's inevitable that when you have that kind of mindless interference by people who are promoting an Aer Lingus agenda rather than a Ryanair agenda, it will lead to some disruption somewhere.

So I'm -- it's not that I think we are definitely going to face strikes, but I want our investors and analysts to be, look, grow up.

There is going to be some disruptions here.

And look at some of our competitors whether it's IAG or Lufthansa, they've had lots of strikes.

I mean, Alitalia is [rimming] with strikes, but they would not necessarily be the example I would like to compare us to.

But there will be some disruption somewhere.

And if that is strikes, it will be strikes where people want to challenge either our efficiency or our low cost.

The pay increase is 20%.

It's not going to be 21%, it's not going to be 25%, it's going to be 20%, and that's it.

And so some of you in the modeling who have forecasted labor will rise by an additional EUR 170 million, EUR 240 million, I think EUR 100 million is a reasonable figure.

And the fact that the U.K. pilots have themselves voted for that pay increase now, I think gives us a fair degree of confidence that it will continue to be the formula that we -- is most likely that we will use in next year's budget.

Next question is another follow-up from Jarrod Castle from UBS.

Just 2 others quickly.

Can you just remind us what the benefit from Easter was in April time?

And then secondly, I mean, when you've engaged with your staff, what do they feel that the union can bring that they're not achieving now?

Or is that a question for tomorrow, Michael?

I suspect that's more a question for tomorrow, we'll give you more color tomorrow.

And I think what a lot of our staff are discovering now is it's a bit like somebody else's grass is greener, all would be so much better if we only had unions in here.

Well, now you have unions and the unions, for example, in Dublin have blocked your pay increase now for 3 months, with the bizarre situation that 65% of Dublin pilots have received a 20% [day] pay increase during the month of November, December and January.

And there's 35% of them sitting there going, "What the hell, where is our pay increase?" Well, you're going to have to go and get it or vote for it.

But I would not want that to be a negative or a confrontational message.

We have had very positive discussions with the British unions who have moved remarkably quickly.

We are making significant progress in countries like Portugal, Italy and in countries like France, where I never thought we'd make any progress, although admittedly we don't have any bases there yet.

So I think we're making significant progress there.

Easter, don't get distracted by it.

I mean, I wouldn't want to break out what we think Easter will be.

But there is absolutely no doubt that Easter -- the first half of Easter traffic will have an impact on yields in Q4, a positive impact in yields in Q4 and a negative impact on yields in Q1 compared to last year's prior year comparable when Easter was around the 15th of April and all of that travel was in Easter.

I wouldn't want to put a figure on it.

As there is currently no further questions registered, so I'll hand the call back to the speaker.

Please go ahead.

Okay.

Just before we finish, I'm going to just ask Juliusz to give you an update on Brexit, and then we'll wrap it and we'll do -- look forward to meeting, certainly the analysts, here in Dublin tomorrow where we're having an analyst briefing session with all of the senior management team.

Juliusz, might -- can you give us the latest development there on Brexit, please?

Okay.

Last week, there was a fairly significant development in Brussels in that the EU Council has agreed to offer to the U.K. to maintain the existing rules for aviation for the transition phase.

So the phase between April 2019 and the end of 2020.

We think that the U.K. will ultimately accept it despite some mixed messages coming out of the U.K. government last week.

And this will be a useful precedent, this will be an acceptance by the U.K. of rules effectively being set without them in the room and a continuation of status quo, both in terms of traffic right and in terms of ownership and control.

Post-transition then, so from January 2021, the EU negotiating task force also last week identified 3 potential types of aviation agreements.

Type 1, effectively, is the continuation of status quo, and then types 2 and 3 are progressively more restrictive.

Type 1 would obviously be our preferred option, and it would be so for all progressive airlines in Europe, but it does cross against the U.K. red lines.

And the EU task force has itself described Type 1 as unachievable.

Now, I would tie back to the agreement on the transition phase.

I think that if the U.K. accepts a continuation of status quo for the transition phase, then it will be a useful precedent for the post-transition phase period.

But we won't know for sure for many months, I believe that this issue will be decided late in the negotiations.

Just in terms of what we are doing on this front, so as you know we have applied for the U.K. AOC back in December, and that process will last another 6 months or so, we believe.

We also have, over the last few months, been busily working on a plan to protect our license against a hard Brexit during which the rules on ownership and control might change, so we have a fairly ambitious plan in place, and we will be announcing details of it later this year, at some point between 6 and 9 months from now.

Okay, thanks, Juliusz.

With that, we'll wind up the call.

Thank you very much, everybody, for participating, to the analysts who we're looking forward to meeting you here in Dublin tomorrow where I think we can have a slightly more open conversation than we can on the conference call here.

And if I have a parting message for you is that the strength of this morning's Q3 numbers is that we can oversee a management (expletive) on the rosters like we did last September and still deliver growth in traffic and profits, still deliver exceptional unit cost performance.

So the model is robust and will continue to deliver as we grow to 200 million passengers between now and 2024.

The share buyback, we think, is opportune.

It is a sensible use of our spare cash, and we'll roll that out over the next 6 months.

And in the meantime, Eddie and Peter will continue their dialogue and negotiations with both pilots unions and some -- and cabin crew unions across Europe, and we look forward to bringing you up to date on those developments.

But be assured that where some silly people decided they want to challenge either our cost base or our operational efficiency, we will face down those disruptions.

And if necessary, we will move aircraft out of those bases and there will be job losses in those bases where there was that kind of -- where that kind of challenges to the model take place.

Okay.

Thank you very much, everybody.

See you tomorrow.

Bye-bye.

And this now concludes the conference call.

Thank you all for attending.

You may now disconnect your lines.