Ryanair Holdings PLC (RYAAY) 2019 Q1 法說會逐字稿

Hello, and welcome to today's Ryanair Q1 FY '19 Results Call.

(Operator Instructions) And just to remind you, this is being recorded.

So today, I'm very pleased to pass you over to Michael O'Leary, CEO.

Please begin.

Okay, good morning, ladies and gentlemen.

Welcome to the Ryanair Q1 profit -- or Q1 conference call.

I'm joined here by the management team in Dublin.

Neil Sorahan, the CFO, is in London where he's doing the press and the media briefing this morning.

As you will see, all of the information, together with the details, MD&A, question-and-answer session is up on the ryanair.com -- Investor Relations page of the ryanair.com website.

So we'll be going through some brief comments and then open it up for Q&A.

When we get to the questions, obviously, we would limit the questions.

Nobody can ask more than 2 questions each, just so we can try to get everybody into the 1 hour duration of the call.

So if you see this morning, we reported 20% fall in Q1 profits to EUR 319 million after tax, but excluding exceptionals.

The key drivers of this was a 4% decline in average fare in the quarters, partly due to the earlier time of -- earlier timing of Easter.

The first half of Easter fell into last year's Q4.

Higher fuel and staff costs were offset by stronger ancillary revenue growth in the quarter.

Currently, at the moment, bookings are slightly ahead of last year, but at lower airfares.

We've seen a number of factors in recent weeks driving that, most notably the World Cup or the impact of the World Cup, the heat wave in Northern Europe and, in recent weeks, a degree of customer uncertainty about the pilot strikes or the cabin crew strikes.

Our investment in Labs and Always Getting Better continue to drive improvement in ancillary revenue, which has now jumped to 30% of total revenues in Q1.

On costs, we continue to have significantly lower costs per passenger than any of our competitors, but we're facing into a number of headwinds, most notably fuel, and there is a 10% unhedged balance of our fuel in Q1 where we were buying at spot prices of close to $80 per barrel.

We've significantly increased the staff cost, which was well-flagged, principally as a result of a 20% pay increase to all or most of our pilots or agreed by over 90% of our pilots in the -- at the start of the year and also our cabin crew.

And there's been a meaningful jump in the EU261 right-to-care cost.

They're up 40% in quarter 1, primarily due to 2,500 air traffic control-related flight cancellations.

Despite this, the balance sheet remains strong.

Cash generation is strong.

In quarter 1, we had a CapEx of EUR 460 million, shareholder distributions of EUR 265 million, but we still managed to cut our net debt by EUR 24 million in the quarter to finish at just under EUR 260 million at the end of June.

Air traffic control staff shortages and strikes continue to bedevil our operations and those of many other European airlines.

A repeated air traffic and staff shortages, mainly in the U.K., Germany and Greece; and recurring strikes, particularly at weekends in France, caused us to cancel over 2,500 flights in the first quarter.

That caused us a loss of 450,000 guests.

It was also a loss of higher-yielding weekend traffic and a steep rise in our EU261 right-to-care costs.

Punctuality has also been severely affected, falling to 75% on-time flights in Q1 compared to 89% last year, a 14 percentage point decline, all of which is directly related to first-wave ATC staff shortage and strikes at weekends.

Fuel, as you see, we are paying significantly higher oil prices for the unhedged balance 10% of our fuel.

While this is in the short term painful, we believe over the medium term, it's good for our business as there's a number of European airlines who are pretty much unhedged and are suffering significant cash flow squeezes and who are close to breaching their debt covenants.

If oil remains in the mid- to high-70s or close to $80 a barrel this winter, we believe this will accelerate the rate of EU airline failures and consolidation over the winter period.

As you know, we have suffered a number of strikes ourselves.

Despite signing pilots and cabin crew recognition agreements in most of our major markets, most notably the U.K. and Italy; and the recent agreement, as recently as last week, with our German cabin crew, we're making slower progress in smaller markets, most notably Ireland, Belgium and Portugal, largely where competitor employees, pilots and cabin crew are involved in and impeding progress.

To date, we have suffered 2 unnecessary strikes by a small minority just last quarter of our Irish-based pilots.

There's a third one taking place tomorrow.

The cabin crews in Spain, Portugal and Belgium are also threatening to strike on Wednesday and Thursday this week.

Our approach to this has been to confront these strikes.

We try to minimize and we work hard to minimize the impact on our customers by canceling a small proportion of flights well in advance, typically 5 to 7 days, which gives us sufficient room to re-accommodate or refund all of the passengers.

Although the impact of this is that it does mean we're losing the ability to sell unsold or the last remaining unsold seats at high yields because we're re-accommodating passengers onto those flights from other disrupted flights.

We're making good progress here in Dublin, where on the first day of the -- with a 1/4 of our pilots on strike, we canceled 32 out of 290 flights.

On the second day, last Friday, we canceled 24 out of over 290 flights.

And tomorrow, the third day, we would cancel less than 20 of our 290 flights.

And we're extremely grateful to the vast majority of our pilots and our cabin crew in Ireland who are working normally, which means we're able to pretty much minimize the impact of this on our customers, although it does affect our forward bookings and our ability to sell last-minute seats at higher fares.

Brexit remains a concern.

We remain concerned at the danger of a hard, i.e., no-deal Brexit in March 2019.

And we continue to believe that the risk of a hard Brexit is being underestimated.

What this all just means in terms of our guidance is that we see no reason to alter the full year guidance at this time.

It continues to fall within a range of EUR 1.25 billion to EUR 1.35 billion.

That is down on the EUR 1.45 billion we recorded last year.

The key drivers of this is the weaker fare environment.

We think that will also be impacted in Q2 as a result of customer concern at the prospect of further pilot and/or cabin crew strikes, and then re-accommodating passengers who were booked at cheap fares well in advance onto the remaining empty or what we would otherwise have been selling these seats at high fares.

That means our Q2 fare guidance now has fallen.

Previously, we had guided up 4% in Q2; now we think it will be up about 1%.

We continue to have almost 0 visibility in H2, the second half of the year, but we see no reason to expect that H2 guidance won't remain broadly flat over last year.

Ancillary revenues continue to perform well, but will not offset a EUR 430 million higher fuel bill or a 6% increase in our ex-fuel unit costs.

I should also touch briefly on Laudamotion.

Their results are not included in this guidance.

And at the moment, we have an investment of 24.9%.

We recently, I think in the last 2 weeks, obtained EU approval to increase that to 75%.

And we'll be sitting down with Niki Lauda and his team over the coming weeks, hopefully, to finalize that investment or increase our investment in Laudamotion to 75%.

Laudamotion's trading this summer has been adversely affected by 3 factors: firstly was the late release of its fares and inventory into the summer season, so the fares are lower than we would originally expected; two is it's completely unhedged on oil, so it has been badly impacted by having to pay for spot oil prices, up at high 70s, close to $80 a barrel; and three, Laudamotion has continued to struggle with a number of anticompetitive actions by Lufthansa, who delivered less aircraft than they were originally required to deliver to Lufthansa -- or to Laudamotion this summer.

And then in recent weeks have sought to artificially trigger a termination event, which would allow Laudamotion to -- or Lufthansa to retake the 9 aircraft it has delivered to Laudamotion this year so that they could return them to a direct competitor, Eurowings.

And I'm pleased to report that as a result of a [case magistrate] hearing in London on Friday, that threat of leak has been postponed until late November, early December, thereby removing the threat to Laudamotion's operations for the remainder of the summer season.

However, the combination of lower fares in an intensely competitive market in Germany, higher spot oil prices have meant that Laudamotion's losses for the first 12 months have risen from an expected EUR 100 million to approximately EUR 150 million in what will be a first difficult year.

Already, we're making significant progress in Laudamotion next year.

The management team in Laudamotion has made good progress in securing additional aircraft, hopefully in time for summer 2019, at lower prices than some of the Lufthansa aircraft.

And the airline will obviously have a much longer run into the summer '19 schedules where its scheduled seats, particularly on high-yielding markets between Germany, Austria and Palma de Mallorca, will be on sale well in advance.

Okay.

And Neil, is there anything you want to touch on briefly or pre-highlight in the MD&A?

No, Michael, I think you covered it all there.

I'd just highlight again the strength of the balance sheet, very strong [space], high CapEx of EUR 462 million in the quarter and EUR 265 million of buybacks.

We managed the net debt position down to just over EUR 250 million from EUR 280 million, so balance sheet continues to be in good shape.

Okay, thanks, Neil.

Okay, we'll open up the Q&A, and we're going to limit everybody to no more than 2 questions or 1 question in 2 parts.

Let's open it up now, please.

(Operator Instructions) And the first question is over to the line of Daniel Roeska at Sanford Bernstein.

Two questions.

Number one, on Laudamotion, when would you expect that operation to break even?

And anything that would prompt you to walk away from that over time?

And the second one, maybe longer term over the fleet plan, given the current state in the European sector, you also commented on high-capacity growth in the videos this morning, anything you consider changing around your previous statement that you would be taking up all the options on the MAX contract?

Okay, Daniel, thank you.

At the moment, we're reasonably confident that Laudamotion will break even in year 3. I think that will largely be a function of when we can redeliver, that's when the Lufthansa expenses, Lufthansa leases will need to be redelivered.

It's, to a certain extent, opaque, so it depends on the rate and speed of the fleet growth in Laudamotion.

And Laudamotion and the management team there are making significant progress on sourcing other Airbus aircraft for summer '19.

But clearly, it will need to grow to be a 40 or 50 aircraft over a 3- or 4-year period, at which stage, we think it will be a significant profit contributor to the overall group.

And we see no reason to walk away from it.

It has been a very challenging and difficult first summer.

I think some of that was inevitable given the late nature of the -- or the reorganization of the administration and Niki Lauda successfully acquiring the -- what was a grounded airline.

And we remain confident it will be a profit contributor over time.

The fleet plan, at this point in time, it's a bit premature.

I think what will really drive the fleet plan over the next number of years will be -- the rate and pace of airline failures and consolidation in Europe this winter.

Clearly, most of our -- and most of the market focus will be on Norwegian, which continues to lose money hand over fist.

And we would -- I think the market generally expects Norwegian will not survive in its current form.

Whether it's taken over by somebody else or just goes bust this winter, we don't know.

But I think that will significantly alter both our growth prospects in certain markets, the availability of pilots in other markets and may significantly affect the valuation of the lease rates on Airbus aircraft going forward.

We remain very pleased with our existing order for -- which consists now of over 210 Boeing MAX 200 Gamechangers.

The first 5 of those comes in the spring of next year.

It is likely that we will place those aircraft somewhere in Continental Europe, particularly those areas where we're growing very strongly, and that would presently be in the German market or possibly in Austria or in Central Europe where Ryanair Sun, in particular, has had a very good summer.

It is growing.

There seems to be a very significant demand for Ryanair Sun to grow more rapidly from the Polish tour operators in that charter market.

The next question comes from the line of Savi Syth at Raymond James.

I apologize, my voice is a bit off, I'm a bit under the weather here.

But just on the revenue side, I know there's an accounting change that's distorting the base fare versus the ancillary.

I was wondering if you could, as a result, kind of provide what your thinking is for kind of the total fare per passenger trend for the second quarter, just a little bit more color on that.

And then on the balance sheet side, I know you've been at like [EUR 16 million] year-over-year profits this year, you have the Laudamotion investment.

Just wondering if you can give some updated thoughts on your thinking about use of cash.

Yes.

We're not going to give any more detail on our outlook for the total fare per passenger.

I think our focus is that the underlying average yield is going to be softer, we think flat in the second half of the year.

Ancillaries will continue to be strong.

But I don't think -- and now it's a bit early in the year for coming up with a forecast on total fare per passenger.

Uses of cash will continue to be as before.

We continue to be strongly cash generative.

The uses of that cash will be CapEx.

The new aircraft delivery is funding those deposits.

There will be a funding requirement on Laudamotion.

The investment in Laudamotion, as or whenever we move to 75%, and we expect that to take place in the current quarter, subject to discussions with Niki Lauda and his team.

And we have another still 30% of the share buyback to take place.

It is over to the line of Jarrod Castle at UBS.

Two.

One, you've given a lot of kind of detail in terms of the operational disruption due to ATC and the strikes.

But can you actually give us a financial number for the previous quarter and the coming quarter?

And then second question, just on fuel hedging, any plans to adjust how you're going to hedge for 2020, just given IMO 2020?

Is that changing your thinking on the hedging on the fuel?

Okay, the operational disruption we've set out in Q1, there was 2,500 flights canceled as a result of air traffic control strikes and staff shortages.

There continues to be, while thankfully, differential staff striking in the second quarter, we're still suffering, I mean, on a daily basis, typically standing between 15% and 20% of our first-wave flights mainly out of the U.K., Germany, Greece.

And Greece and France are being delayed by staff shortages within ATC, not just us, but all other airlines as well.

And the problem for us and for other airlines is that with reasonably quick 25-minute turnarounds, this builds up through the day and leads to cancellations later on almost on a daily basis, either because we can't achieve the curfew limitations at some airports or because our crews are running out of hours as a result of cumulative ATC delays.

So in many respects, it's the staff shortages that are the kind of epidemic [dissemble] within ATC.

Because the degree of customer understanding, where the French air traffic control strike at a weekend that there will be cancellations and everything else, it's much harder to explain to customers why flights are running 2, 3 hours late.

We had one particularly appalling weekend, last weekend, when the -- as you know, France were in the final of the World Cup.

On Sunday afternoon, most of the French ATC basically down 2s.

And on the Monday, when they were all returning back to Paris, most the French ATC is down 2. We were taking 3-, 4-, 5-hour flight delays without the reason of being on strike.

It's an issue for all of the airlines.

We, IAG, easyJet and others have been to the fore in taking legal action now against the French Government for the ATC strikes.

But we are increasingly getting aggressive with the ATC providers, most notably the Germans and the British, who continue to cover up on our staff shortages with euphemisms, such as weather and capacity.

But there are no such -- there is no such thing as an ATC capacity restriction.

It's generally that somebody hasn't showed up for work and they haven't rostered enough air traffic controllers.

On the fuel hedging, no, from a practical point of view, we won't be changing our policy, and that is to continue to roll forward on a 12-month basis at around 90% coverage.

For FY '19, we are building in the Laudamotion and the Ryanair Sun fuel capacity as well.

And Neil, do you want to comment briefly on the accounting policy change?

Yes.

Well, the IMO '20, Jarrod, that's evolving at the moment.

The technology around scrubbers for the likes of the cruise, liners and the cargo shipping is becoming cheaper.

So I think it mightn't be as big an issue as it was originally feared when it was first announced, keeping it under review.

But as Michael said, I don't see any reason to move away from the kind of hedge strategy that we have at the moment.

We're going over to Stephen Furlong at Davy.

Just -- can we just talk about aircraft for a second?

You're happy with what you've seen so far with the -- I'll say the port development with the MAX aircraft coming in April.

And then secondly, I was just wondering if you have any further discussions either with the manufacturers or with leasing companies for other aircraft types going forward, including for Laudamotion?

Yes.

What happened with the MAX aircraft, it's coming in April.

All of the indicators are that it will deliver its -- well, obviously, it will deliver 4% increase in revenue per flight because it has 4% more seats and a minimum of 16% fuel consumption -- 16% reduction per passenger in fuel savings.

These will be very meaningful cost savings going forward and will widen the gap between us and our competitor airlines, most notably with the likes of Wizz who continue to make these mythical claims about having lower cost than Ryanair while their aircraft financing costs balloon through the roof.

Ours, we will be adding these aircraft to our balance sheet with a net purchase price, giving us materially lower costs than even our existing aircraft costs.

The cost to manufacture the leasing companies, no, we have an ongoing dialogue with both Airbus or with Boeing.

We have also opened up discussions with Airbus in conjunction with Laudamotion because, clearly, we want to secure, I think, a line of Airbus aircraft for Laudamotion, which has had an Airbus AOC, Austrian AOC with Airbus aircraft in it.

We haven't made much progress with the manufacturers.

Their order books are reasonably full.

Again, I think we would want to be opportunistic this winter if there's some major shakeout in of the European aviation sector or in Asia with oil at $75, $80 a barrel.

We have -- Laudamotion has had made progress with some of the leasing companies in procuring aircraft that are returning from Asia for the summer 2019 schedule, which hopefully will allow Laudamotion to continue to grow, but with lower-cost Airbus aircraft, which they will need because the Lufthansa leased aircraft are particularly expensive.

But the -- so there's -- but the leasing is not our chosen way forward.

We would like to place an order with Airbus or a manufacturer for a flow of Airbus aircraft at Laudamotion.

We're very happy with our aircraft order book with Boeing.

That runs out to 2023, 2024.

Again, I mean, I think we've had a number of discussions between ourselves and Boeing that are predicated on being opportunistic if there is some major shakeout this winter, which we expect if oil remains up at $80 per barrel.

And I think both we and Boeing are conscious of the fact that there may be some opportunities there for aircraft, but we're already looking at Boeing aircraft for the period, I think, 2023 to 2027 at this stage and, obviously, with a focus on maybe a bigger aircraft, the MAX 10, at that point in time.

But there's no pressure on us at the moment.

We are very pleased with the order book we have on the MAX 200, which will be more than sufficient aircraft to take us up to 200 million passengers by 2024.

Next question is over to the line of Neil Glynn at Crédit Suisse.

If I could also ask 2. The first one -- they're both actually related to disruption.

But the first one, clearly, you're thinking of an optimal load factor change dramatically over the last few years, and now you are clearly at a very, very high load factor.

Just interested, is there a growing argument for targeting a lower load factor in some markets to absorb disruption, whether it's even just keeping open seats for lucrative last-minute fares?

The second one, on the strike impact and your guidance for fares in the second quarter, can you give us some color as to whether the negative impact from strike concerns is contained to bases where strikes are actually announced?

Or do you feel that that's a broader issue impacting bookings here, there and everywhere because of media coverage and pervasive concerns from passengers?

Yes, I think it's important, and we're conscious today not spending too much time on strikes.

Let's put the strikes in some context.

In Dublin, so far, we've had 3 days of strikes by 1/4 of our pilots, that has affected less than 10% of our flights to and from Ireland.

Now because it's Ireland, they have received a disproportionate amount of publicity.

And we have undoubtedly seen a downturn, not in bookings, but in the pricing of close-in bookings and forward bookings for the next couple of months.

So a reasonably limited, in fact, very limited strike by a very small number of pilots in Ireland has had an impact on pricing going forward.

Ultimately, that's good for our customers.

They're getting lower fares at the peak periods, which I think they will appreciate.

And I think we've demonstrated, too, quite an impressive ability to manage our way around disruptions.

Having had 3 days of pilot strikes in Ireland, the fact that we have now canceled less than -- well, if you take it all, the 3 days, an average of 25 flights, and when we do more than 2,500 flights per day, I think it indicates what limited impact these strikes have had.

But it does damage forward pricing in some geographical markets.

And we think that is largely focused around the Irish market.

Certainly, there's some impact in the Belgian market this week where there are some sort of cabin crew protest strikes in Portugal, Spain and Belgium this week.

We don't think there'll be much in Italy because of the work we've done with the Italian unions where we have agreed recognitions.

So without wishing to overplay it, even if you look at the big, broad scale of a kind of a coordinated strike by cabin crew across 3 bigger markets, Portugal, Belgium and Spain, this week, we're canceling each day about 300 flights out of almost to over 2,500 flights, which is not insignificant, but it's still only 10%, 11% of traffic on those days.

And we have, quite impressively, in the 7 days prior to those strikes, re-accommodated almost -- over 90% of those passengers have been re-accommodated or received refunds.

Now the challenge for us in that is that by re-accommodating those passengers in the 7 days prior to the strike, or the 5 days after the 2 days of strike, is you're taking up seats.

We're filling up seats that we would otherwise sell close in last minute at higher fares.

And so the impact, there is an impact on our yields, but not on our traffic numbers.

So the answer to the question in that roundabout way, we think there will continue to be some industrial disruptions.

It will be reasonably selective around the Irish, but we hope the Irish pilots, or at least the 1/4 that were involved in this, largely misled by a couple of Aer Lingus pilots, which is remarkable that with our pilots being misled by some Aer Lingus pilots into taking action that directly benefits Aer Lingus, but we are where we are.

We would like to see that they would come and meet with us to discuss whatever they think their outstanding issues are, but that's a matter for them.

So no, we wouldn't adjust our load factor disruption because, I mean, if you take the fact that we're running well at 95%, 96% load factor on 2,500 daily flights, the very fact that we have to cancel even 300 of those flights means we're still running with a 96% load factor on the other 2,200 daily flights.

And that's key to our -- the revenue forecast.

It's key to our ancillary revenue potential.

It's also key to continuing to drive our very low unit cost and our unit cost leadership over everybody else.

Other than that, the strike impacts are reasonably small.

They are significant in certain country markets, and I wouldn't underestimate the impact that it's having on forward airfares in the Irish market, to a lesser extent, in the Portuguese market and the Belgian forward -- pricing on forward books to Belgium.

Spain seems to have been largely unaffected.

We had a very good conclusion last week with the Spanish government on minimum services.

We're now operating -- in fact, we slightly over-canceled in advances.

We canceled about 50% of the flights on the Spanish-based aircraft, which is about 25% of our total flight to and from Spain.

And the Spanish government, who are not particularly happy with the strikes, have imposed minimum services of about 60% of the flights on the Spanish originating aircraft.

Now having said that, Eddie Wilson and the personnel team are working their way through meetings.

We are making very significant progress in, certainly, our bigger markets.

But if it's inevitable that, where we have unions, there was going to be occasional strikes, there will be a period of bedding down when we have to learn our way around gating with these unions.

And also, these unions have to learn that Ryanair is not some legacy airline that's going to roll over every time we're threatened with a strike.

We will take strikes in those markets where we think we're -- that we are facing unreasonable demand.

I mean, for example, in Germany, we're expecting the German pilots' issues with some strike notice recently, where they now want to determine what the crewing ratios will be.

Now unions, and particularly Lufthansa unions, will not be determining what our crewing ratios are.

We determine that ourselves.

Now we're meeting with the unions in Germany on Friday.

We hope that we will be able to at least negotiate with them in a way we haven't been, let's say, for example, the Irish pilots union.

But if we have to take strikes in those uncertain markets over the next number of weeks and months, we will and we'll continue to work our way around it.

But the kind of key message I would want to communicate to our -- both our customers and our investors is these are reasonably limited.

Their impact, despite some of the kind of crazy PR and some of the coverage, even in some of the analysts' notes, their impact on the overall operation is reasonably small.

But it is damaging certain geographic markets, which is why we said today, we are now actively relooking at some of our base allocations of aircraft for the winter schedule.

And we'll be communicating those decisions in the coming days and weeks, depending on whether we -- how much progress we make in our negotiations with our people and their unions in those country markets.

We have, at the same time, other markets.

Again, I would point most notably to the strong growth of Ryanair Sun in Poland where we're short of aircraft.

And if we could reallocate more aircraft this winter or next summer into some of those markets, we could grow more strongly in some of those markets.

So with 450 aircraft across 87 bases, we do and we will and the board is continuing to look actively at our base allocation decisions and how we can perhaps change some of those allocations so that we devote more of the aircraft assets to those markets that are growing strongly and profitably.

And we may be forced to take some aircraft away from markets where pricing is weak.

Our pricing in forward -- the pricing of forward bookings, in particular, has been affected or customer content is maybe being affected by unreasonable behavior by a small minority of our people.

But we would hope to avoid that kind of decision because people will come to work with us.

We want to work with our people and our union.

We did say we were serious about union recognition last December.

And I think the fact that we've signed recognition agreements with pilots and cabin crew in most of our bigger markets is indicative of how serious we are.

I just wanted to double check, actually, I probably should have been clearer.

But the first part of the question was actually more related to the ATC issues.

You've probably covered it there, but ATC issues and those headaches aren't causing -- or likely to cause any change in load factor taking either way?

I don't -- I can't -- I mean, it's very -- I don't think so.

I mean, because you have to take -- it's very painful that we're taking ATC staff shortages, particularly on the first wave during the peak summer period.

There will be less impact of ATC staff shortage in the winter period.

And even though the kind of 15% of our first wave of flights get delayed to reduce 100% of the load factor and 100% of our flights throughout each day when we're still running with 75%, 80% punctuality, would not be a sensible decision or an economically sensible decision.

We are now over to Mark Simpson at Goodbody.

Just 2 questions related to Laudamotion and Tegel.

First off, the EUR 150 million loss that you talked about, is that the total loss or the 75% related to your holding once consolidated?

And just thinking about the medium-term Tegel, from where you stand at the moment, do you think that's going to stay open or close?

I'll ask David to do the second half of that.

The EUR 150 million refers to the total loss for Laudamotion for the full year, which we will have to incorporate into our numbers or they're probably an exceptional item in the first year if we take to -- if we move to 75% control within the current year.

So that is the total, not 75% that was.

David, do you want to give us some insight in what you think is going to happen at Tegel?

Nothing for a while.

I mean, it's obvious Tegel should stay open.

But politically, they find it unpalatable in Berlin.

And I think and the likely outcome is simply further delay to the opening of Brandenburg.

It will just get pushed along a little further because it's an attractable political problem there.

There will be insufficient capacity between Brandenburg and Schönefeld to accommodate the existing traffic.

So I think it can get kicked a little bit further down the road there.

But our presence via Laudamotion in Tegel, I think, is important because the original rules by which airlines would be allocated to Brandenburg were rigged in favor of Tegel airlines.

And our presence via a Laudamotion in Tegel will be helpful when that comes to a head.

Over to the line of Damian Brewer at RBC.

Two questions.

First of all, just could you elaborate a little bit more on the ancillaries?

If I strip out the IFRS 15 distortion, it still looks like you're up about 12% or just over year-on-year.

Could you elaborate a little bit more on sort of what's going well there, whether it's priority boarding, reserve seating and just give us a little bit more flavor?

And then secondly, just coming back to Lauda.

Could you give us a little bit more on the sort of the bridge to breakeven, in particular, that EUR 150 million total loss delta, how much of that would be eliminated just by removing the Lufthansa leases at their expense and replaced with more market-based levels?

And secondly, how much would be eliminated by just sort of taking out the very limited lead-up you had with [selling] this year?

Okay, thanks, Damian.

Firstly, there's no -- we're not going to give you more color on ancillaries.

Traffic is up 9%.

The accounting accounts for about 5% of the 20% -- or the 25% growth in ancillaries in Q1.

And most of the stronger performing services within ancillaries, these are set out in the press release, has been the priority boarding, reserve seating, those kind of optional services, which more and more customers are now taking or using the better presentation of them, thanks to Ryanair Labs, through the website and the mobile app, in particular.

We don't want to get into any more detail than that at the moment.

It creates too much kind of optimism or irrational exuberance among analysts, whereas we would rather play it reasonably low key.

There's no doubt that customers are -- more and more customers are taking those services.

They'd also include fast track at a growing number of airports.

And Laudamotion, the bridge to breakeven, we will -- Laudamotion's losses will be significantly curtailed in year 2. If I were to give you sort of numbers, I think the reasonable will be EUR 150 million this year; we think under EUR 50 million next year, in year 2; and breakeven, maybe a small profit in year 3. That's based on having the Lufthansa aircraft in there over those 3 years.

The vast majority of the exceptional losses this year would be and in the very least, Lufthansa, and Laudamotion didn't.

Part of the problem with Laudamotion was that it would be -- if you go back when Niki did the deal with the Austrian administrator this year, they were going through a lot of flying for Lufthansa and some of the Eurowings in the early months of March, April and May this year.

When he then did the agreement with us, Lufthansa pulled all that flying and left them effectively with low flying for a number of months with a number of aircraft.

Lufthansa were then late in delivering the aircraft that they were required to deliver under the European Commission decision of the competition, the decision with Air Berlin.

And then, lo and behold, the leases that did arrive were significantly expensive.

But by having a significant -- or a reasonable run -- a full run into the summer 2019 schedule, we think that the losses will be of the order will be reduced by at least EUR 100 million in year 2. Also, the EUR 150 million this year allows for a very significant uptake in the base in Vienna this winter.

Laudamotion will be operating, I think, is it 8 aircraft from the Vienna base this winter.

We expect a very material fare war there this winter with other high-cost airlines like Wizz, Level, IAG and Austrian.

And Laudamotion will win that fare war because it will have materially lower fares than everybody else.

So we are kind of kitchen sinking the results in Laudamotion this year in the first 12 months of operation.

But then we believe that the -- it will lose less than EUR 50 million in year 2. And we'll be very close to breakeven.

It could be a couple of million, either side of breakeven, year 3. Then again, the profitability into year 4 and 5 will depend on how many aircraft we can procure at what rates Airbus aircraft [4] is into that period of time.

But we think Laudamotion has a very bright future as Austria's #1 low-fare airline.

The Lauda brand is very strong in Austria, whereas brands like Level and Wizz are particularly weak.

And in the past, wherever we have come up against Wizz in a fare war, or an IAG subsidiary, whether it was Vueling or Iberia Express, we've never yet come up with a level, but we don't ever think it really would be a particularly low cost.

We expect we will win that fare war comprehensively.

But the numbers won't be pretty in Laudamotion in year 1. But we still think the assets in Laudamotion, most notably, very scarce slots in Palma de Mallorca and a number of the main German airports in Düsseldorf, Tegel, where we were effectively blocked out of those airports, will be long term -- medium and long term very profitable for the Ryanair Holdings group.

We're now over the line of James Hollins, Exane.

One on cost, one on ancillaries, please.

On the cost side, your guidance stayed the same.

Obviously, EU261 has ballooned et cetera.

Are you doing slightly better elsewhere?

Or is it a rounding issue?

And also what assumptions are you using for your expected cancellations from ATC?

Do they stay elevated levels?

Or are you bringing that assumption down?

And then on the ancillaries, I was wondering if maybe Neil could guide on what the profit impact was from the, I guess, the exceptional accounting changes.

Is it all of that EUR 25 million?

Or is it slightly less?

And maybe one for Kenny, if he's on...

That's two.

That's two.

That's two.

So I assume that's the 2 you have.

Cost at EU261, we expect that to continue to balloon.

We think that the short staffing, particularly through the summer, will continue right through to September, October.

We think that will have a material impact on the marketing distribution and cost line.

Almost all of that increase in there is the EU261 cost.

So we expect a material adverse outcome on the EU261, both compensation and claims through the remainder of this year.

The other underlying in there, which is the marketing spend, distribution commissions to airports is in line with the 7% growth in traffic.

Neil, do you want to do the ancillaries?

Yes, on the IRFS 15, revenue accounting, James, yes, the EUR 25 million is the net figure that came through in the quarter.

That will increase to about EUR 70 million in Q2 and then wash its way out over the second half of the year.

Okay.

James, if you have other questions, just route them through to Shane here later on today.

It's from the line of Alex Paterson of Investec.

Just on the Laudamotion, the EUR 150 million, I was just wondering if there's any risk that, that gets worse.

So excluding oil prices, is there anything else that you're relying on from Lufthansa?

Are there any other risks that could see that worsen?

And then secondly, obviously, you want Laudamotion to be an Airbus fleet.

If you are struggling to get aircraft, is there a possibility you could run a mixed fleet, perhaps relocating Boeing aircraft from areas if you have ongoing issues with the unions?

Okay, yes, the EUR 150 million could worsen.

I mean what would materially worsen that is the spike up within oil prices.

Obviously, if it goes above $80 a barrel this winter, then because it's unhedged, the results will spike.

We could also spike because fares would be worse than we're presently, but we're presently pretty conservative on the airfares in Laudamotion for the remainder of the summer and into the winter in Vienna.

Going forward, we would like it to be an Airbus fleet and it is geared up.

It has an engineering structure.

It has an AOC that's Airbus-related.

Although it is operating a 20-aircraft, 19-aircraft fleet this summer, that is 9 Airbus and then it's wet leasing 10 of Ryanair's 737s.

So we would not see it operating a mixed fleet going forward.

We will, I think, make a decision at some point in time largely when we did -- I think maybe after this winter, and the preferred decision would be for it to be an Airbus airline.

But if we can't get a deal with Airbus, we may well say, "To hell, let's go ahead, and we will put the Boeing aircraft in there," but that would be a longer term, more painful outcome.

And I think it is important that we have, within the Ryanair group of companies, an Airbus operation, not because Boeing or Airbus will be particularly price competitive against each other because the 2 compete, they don't, but we want to be -- and certainly in the Airbus side of the market there, we've seen significant value in the leasing side at the moment.

We would like to have an Airbus operation within the Ryanair Holding group, but we'd like to have -- obviously, we're going to continue to be a very large Boeing customer.

But our -- the value of aircraft and doing deals comes not because Boeing and Airbus particularly compete against each other, but it comes by having the discipline to wait until there's a major downturn in the industry, which we would be hopeful will happen this winter.

With oil remains an $80 a barrel, there will be big shakeouts of loss-making airlines in Europe and in Asia, many of whom have humongous aircraft order books that they can't possibly fund or can't possibly fund.

Okay, it's over to the line of Monique Pollard at Citi.

Michael, just a couple from me.

Firstly, would you be able to give an update on what's going on with your negotiations in Spain with the pilot and cabin crew unions?

And then secondly, on the slide that the World Cup had some impact on forward bookings and such, are you seeing that now start to revert and return?

Thanks, Monique.

Let me do the second one first.

Yes, I mean, we've seen an uptick in bookings post the World Cup, but it's been small.

I think while we've been slightly disappointed, 2 things have happened, obviously, since the World Cup has gone down to its last week is, one, we continue to have a heat wave in Northern Europe where normally, at this time of the year, the Irish are all getting depressed and booking last-minute bookings going to Spain and Portugal.

And there's a noticeable weakness in those markets, some of which we think is caused by the extended heat wave in the U.K., in Ireland, in Northern Europe, and therefore, we're not seeing that surge of last-minute bookings that we would normally have seen in a -- at the end of a World Cup period when rain in Ireland prevails.

As also, we think the Irish market is also being affected by a disproportionate kind of coverage of fairly minor strikes by a fairly small number of pilots here.

You'd swear the entire country had shut down the way it has appeared on the front page of newspapers, but it's actually pretty small.

So there's a number of factors there that we think that are affecting forward pricing in the Irish market, also the Portuguese market and, to a lesser extent, in the Belgian market.

Well, Spain seems to be reasonably unaffected at the moment, but we continue to monitor closely.

Negotiations, I'll ask Eddie to comment, but it's like we're making progress.

We have meetings with the Spanish pilots and with the Spanish cabin crew, and we are making reasonable progress there.

Maybe, Eddie, you want to give your insights on that?

Yes, just broadly speaking, the difference between where we're making good progress and little progress is where we have the involvement of competitors, involved in the negotiation process.

And there's the added complication in Spain, the number of unions are a very small one, which is more of a separate than the larger cabin crew union.

So the pilots are taking a legal case on local contracts.

So the negotiations are -- have stalled on that for the time being, but we're pretty much, I would say, 90% there with them.

And on the cabin crew side, negotiations will start again after the strike.

But the big difference is if you didn't have competitors involved, we've got a cabin crew (inaudible) for another airline in the middle of the negotiation process in Spain, and that's...

Yes.

No, a Norwegian cabin crew, like it's a joke.

We have to go to a meeting with the cabin crew union last week in Spain, and we find ourselves negotiating with a Norwegian cabin crew, like the same issue in Portugal where there's the TAP cabin crew is the chairperson of the union.

And because of the recognition, the union in Portugal doesn't have any Ryanair people on its committee council because the council elections only happen in August or September each year.

And it's very difficult for us to go through a negotiation with a Portuguese, a TAP cabin crew, to talk about Ryanair's pay and conditions.

In Ireland, for example, we've endured 7 out of 9 hours spread over 2 [event] meetings with the small minority, 25% of the Irish pilots.

While we sit down with our committee and the [4] Union, they say they have 11 requirements of seniority.

We take space of the -- our proposals already agreed 8 of their 11 points, and then they went out of the room for an 1.5 hours to consult with 1 or 2 Aer Lingus pilots, and then come back in and say, no, we want to -- they can't even explain what it is they want.

So until we get a couple of Aer Lingus pilots out of this process, I don't see there's going to be any significant change in Ireland, and -- but we've demonstrated that we can continue to work our way around this.

But I can contrast that with the progress we've made.

I mean the pilots are in the U.K. Pilots have no difficulty agreeing on day 1 that there will be no British Airways pilots, no Monarch, no Egypt pilots involved in these negotiations.

We're negotiating with BALPA and the Ryanair council.

Same in Italy, we're negotiating with ANPAC and the group of Ryanair pilots.

But yes, I know of no other industry, if you look at where -- for example, you take media, with RTÉ, we'd be sitting there negotiating with a TV3 union rep.

So it's a bit bizarre, and that means -- and these people are holding themselves out.

It was a Norwegian cabin crew down in Spain holding themselves out as the man who's going to negotiate for Ryanair cabin crew.

Even Ryanair cabin crew was surprised from that to be notified last week, that they're supposed to be held up by a Norwegian cabin crew member.

So these are -- I'm perfectly willing.

We, as a group, are perfectly willing to accept that we have to learn, and there is a process here that we have to go through.

But we're not going to learn how to negotiate with Aer Lingus pilots, who -- Aer Lingus is an airline with 40 aircraft and 1 base.

We're an aircraft with nearly 500 aircraft and 87 bases.

Even the Aer Lingus pilots don't know what the hell they're talking about in this process, and some of the proposals that they have designed would damage Irish pilots.

And so all prevents us from -- give you a flavor, one, they want the right to refuse to be transferred somewhere else even if there's a promotion, which would mean we couldn't crew a new base.

Well, we're never going to agree to that.

And if First officers want a promotion, normally it happens by being moved to a new base where we have promotion opportunities for -- nearly all of our first officers want a promotion, which you have a couple of Aer Lingus pilots in there trying to run negotiations that would now disadvantage almost all of our first officers and limit our ability to grow.

So in those countries -- and again, without (inaudible), remember, what we're talking about here is 25% of our Irish pilots, which is less than, I think, 1% of our -- or maybe 2% of our total pilot complement.

So this is reasonably small scale, and I think, in time, we will move to the same [posting] as we've established with BALPA in Italy, even in some of the other countries where we're negotiating with the unions and our own people.

When we agreed to recognize unions last December, we didn't agree to recognize unions and competitor airline employees, and we're not recognizing competitor airline employees.

So it's up to the unions of these countries to come to maybe discuss or negotiate with us, with a group of our own people, not the competitor [hosting] on our pilot.

Thank you.

Thank you.

That's very flexible.

There you go.

Okay.

The next question is over to the line of Gerald Khoo at Liberum.

Firstly, I know Ryanair Sun is still small, but just wondering how that's being accounted for.

And particularly, am I right to say that revenues is going be going to the schedule revenue line, but the passenger numbers don't go into the passenger counts?

And secondly, you talked about getting a pay rise deal with 90% of the pilots.

So just wondering what's the situation with the other 10%.

Okay, I'll do the second half.

Neil, I guess, you can answer the Ryanair Sun -- the accounting question.

Most of your -- the 10% is a couple of hold-outs as we have a small group of Irish -- or some of the Irish pilots haven't reviewed -- have not accepted the pay increase.

In most of the countries, it has been, but the big one will be in Italy where we're very close now.

I mean there's the kind of a complicated structure in Italy where our pilots and the unions want to change the basis of pay to mirror what kind of the same basic and allowance payments in Alitalia because it's tax advantageous for Italian pilots.

As long as your unionized, it's tax advantageous for Italian pilots to receive more of their payments in expenses and stuff like that and less in basic pay.

It's called (inaudible) or (inaudible).

So it's taken us a number of months.

Eddie, again, I think you had...

Yes, I mean, it is -- the largest number is in Italy like perversely where we're probably making most progress on a comprehensive collect of late payments because the union give (inaudible) and offered this individually for pilots in that market, and that does account for the sort of 1% there.

But Michael's quite right, the rest of it is pilots (inaudible) where people haven't opted into the new structure.

I mean, (inaudible) we will have -- about 97%, 98% of all pilots will have agreed.

And I asked the [kids], they've all -- they have agreed to 20% pay increases this year.

This is the kind of a joke of what we are dealing with here in Ireland.

We have about 1/4 of our pilots who are earning between 150,000 to 200,000 a year, got a 20% pay increase this year, are now engaged in strikes over seniority that doesn't affect them or base transfers that they don't want -- they're not -- they're already in the base they want to be in.

So it is nothing other than they -- a couple of us being gamed by a few Aer Lingus pilots to the benefit, frankly, of Aer Lingus.

I mean if that's what we have to put up with for a period of time until the majority of our pilots in Ireland actually work out that their interests are better served in dealing directly with us and not listening to a couple of Aer Lingus pilots, then we may have to take some more strikes in Ireland.

But that would certainly cause us, I think, to materially look at the way we allocate aircraft in Ireland this winter or in summer of 2019.

And Neil, you want to take Ryanair Sun and the accounting changes?

Sure, sure, sure.

On Ryanair Sun, that is relatively modest, 5 aircraft flying this year as the schedule of revenue -- the revenue -- the schedule of revenue line to the extent that they've got any scheduled passengers, and they'll have some, there was (inaudible) capacity numbers, otherwise, they won't.

And the costs, they get broken down over the various cost lines.

Over to the line of Johannes Braun at MainFirst.

Just 2 for me as well.

Obviously, despite all these, some brokers in union recognition deals with north of Germany cabin crew union where you also signed, I'm just wondering what does recognition deal with the union actually give you?

I mean, obviously, it's not a CLA yet, which would cover working conditions and all that.

It seems to me that the really hard part is still to come for all those countries that you do have now recognition deal in place.

And then secondly, any new thoughts on France regarding a potential basing of planes there?

Okay.

I'm going to ask Eddie Wilson to do the first half, and David will give an update on the second question.

Yes.

Just in relation to the recognition agreement with Berlin, it just adds up.

The relationship was actually how you can build business on that, and there's a commitment in that recognition agreement to start negotiations on a CLA pretty much immediately.

But we already have a deal in place for our cabin crew, which goes to effect in 2021, which has a 5/3 roster and predetermined pay increases, all that included there.

So we'll be sitting down with Berlin in the next week or so to start that in fairly rapid format to try and formalize a collective labor agreement for our German cabin crew.

David, in France?

Yes.

Actually -- what it actually regulates in terms of the other countries, U.K., Italy, where you have recognition deals in place, is this different to the German one?

Or is it...

Yes, in some -- well, in some countries, you need an actual recognition agreement to have the procedures.

It's less stringent in Germany.

You pretty much get into a CLA straightaway, but we at least have agreed the ground rules of how we engage with one another.

It's not required by law in Germany, but that's what we're doing, and we're very happy with it.

And I think there's a (inaudible) -- what's interesting about the strikes thus far is, even the Irish pilots, it's not about pay.

So with the cabin crew, the cabin crew one this week, which is more of a protest, paying is not featuring in these discussions.

I mean our cabin crew earn up to 40,000, Our captains are in between 150,000 to 200,000.

So union clear in smaller markets constructing disruption over really esoteric stuff like seniority, which we already have seniority offers on the table with the Irish pilots, with the German pilots, to the extent, on the seniority [list].

So the good news in all of this is we're not having strikes about pay.

We're not a low-pay airline, even the pilot can't argue that they're lowly paid.

And so the recognition is the most important.

So we actually started the process of negotiating or at least having relationships with these people, but we do not have recognition in Ireland and nor we have until we get Aer Lingus pilots off [this pitch].

David, France?

We're negotiating with 5 French airports, and we have deals that are more or less acceptable, at this point, with 3, out of which we should select 2. It ultimately depends on our aircraft availability next summer, which could be determined in fact by some of the activities going on at the moment if we move aircraft as with some market to make France more likely next summer.

It's over the line of Ruxandra Haradau-Doser of Kepler Cheuvreux.

Two questions, please.

First, what share of your current capacity is at primary airports?

And what share trends are you seeing at these airports?

There is a lot of capacities at -- in that primary airport over the last year that should have reached maturity now.

And second, how do we expect the average unit airport cost to develop over the next 3 years?

Some competitors mentioned potential increase in the airport cost.

Okay.

The majority of our aircraft are at primary airports.

We don't see maturity.

We're growing at the moment by -- even this year with ATC strikes, traffic in the Q1 grew by 7%.

That means our -- if you take our growth this year, we plan to add about another 9 million, 10 million passengers.

I mean, we're growing at the same size, at the total size of Aer Lingus on an annual basis.

So I never hold this idea that because we're at primary airports, you won't grow or we're at maturity and we should expect higher yields.

There is undoubtedly higher fares as the fares are slightly higher at the primary airports, but so are the costs.

And the average airport unit cost, I think I would generally expect them to be flat going forward.

We've seen interestingly the -- in the Q1 numbers, the airport and handling costs have only risen by 5% in a quarter where traffic was up by 7% and block hours were up 9%.

So you can see, despite the fact that we have a majority of primary airports, we're still doing very good growth incentive schemes with the primary airports as well as with the secondary airports, and they're competing against each other.

So I think the reasonable assumption going forward would be flat on airport unit cost and it might do a little bit better.

It's over to the line of Michael Kuhn at Societe Generale.

Two questions, one again on ATC, one on the Laudamotion.

On the ATC side, it looks like some of the problems are quite contractual, no willingness on the ATC side to train enough people.

Do you see that situation changing?

Or could that develop into a serious growth obstacle for the whole sector going forward?

And then on Laudamotion, would you be willing to share with us the current expected top line and operating margin that you see for the current year?

Okay, I'll do the first one first.

No, we wouldn't be willing share it with you.

And on the first part of the question, ATC.

I mean, like -- I think one of the issues that has materially changed with aircraft, like you look at the biggest offender at the moment, it's the German air traffic control services (inaudible).

They're about 50.

They have deliberately chosen 2 or 3 years ago to adopt or to take on the low traffic forecast, there's a low, medium and high traffic forecast model, so that they could under recruit air traffic controllers, therefore, make more (inaudible), but that allows them then to say they have less flights, charge a higher unit rate and then on the recruits.

So then they come up this year, oh, we're surprised by the growth in Germany, which is strange given that Air Berlin went bust in the last 12 months.

Now some of that -- a lot capacity has been taken over.

It is simply their regulatory gaming by the providers, NATS in the U.K. NATS in the U.K. are doing some system upgrade, and most of the delays, most of the system upgrade was seems to take place between 5:00 a.m.

and 7:00 a.m.

on a Saturday morning and a Sunday morning.

Now I -- we -- anybody knows anybody, the people working in IT, millennials do not work at 5:00 a.m.

on a Saturday morning or a Sunday morning, yet we have a wave of delays.

Typically, we get the morning, we have 39 departures out of Stansted between 5:00 a.m.

and 8:00 a.m., and 32 of those 35 aircraft were delayed largely because of this system upgrade work being undertaken by NATS.

I mean, it's complete bul(expletive).

They are just understaffed, and they -- lots of air traffic controllers will show up to work on Tuesdays, Wednesdays and Thursdays.

They either don't roster them to work weekends or they call in sick at weekend.

And the delays are just shoveled on to the airline.

So it's not just us.

easyJet, IAG will all confirm this is the same issue.

We have -- so the worst offenders are NATS, the Germans.

And when (inaudible) goes down, more of these flights then get shoveled on to neighboring systems.

In (inaudible), they go down because they get overstressed.

And you have the French then, whether they're own strike or not on strike, just won't show up on a Saturday or Sunday morning.

So the 2 peak days, you have most of these people understaffed on ATC.

It is structural.

Yes, it's structural, but it's structural because the regulatory system allows them to game that system.

Will it become a growth obstacle?

It is probably a growth obstacle, but a lot depends on how much capacity disappears out of the system this winter with oil at $80 a barrel.

I mean, if there's a bankruptcy at Norwegian or a significant slowdown in their growth plans of loss-making airlines like Norwegian, Alitalia continues to be loss-making, SAS is loss-making.

If there was a material change in that kind of capacity, then it would free up some ATC services.

What the fundamental challenge remained -- they continue -- they need to hire more air traffic controllers.

There's no shortage of sky up there.

The shortage is badly managed, badly rostered, but extremely expensive air traffic control services on the ground.

And the more endemic problem is not the strikes because will people understand when the French go on strike, it's because they don't understand that there's ATC capacity shortages on Saturdays and Sunday mornings.

Laudamotion, second half, no, we're not breaking down any detail on Laudamotion for the moment.

We would probably give people much more color on that when we get to the full year results in Ryanair, and we have the first full year of Laudamotion revenues, et cetera, in our numbers.

So that would be about May of next year.

It's over to the line of Duane Pfennigwerth at Evercore ISI.

Michael, do you have examples, historically, of bases that Ryanair have closed?

Where you switched completely from serving a market with a local aircraft to serving the market with aircraft from other bases?

It seems like where you are today, given the number of bases and the network that you have, this would be really easy.

What prevents you from doing this more aggressively?

Okay, it's good question, Duane.

Unfortunately, I mean, we do have examples in the past.

The obvious one was Copenhagen about 2 years ago when we announced the forward aircraft based there.

We've got taxed by the Danish union, and we flipped the aircraft out of Copenhagen and based them in the U.K. (inaudible) and a couple of other airports and have still over that last 2 years grown to be the #3 airline.

Are we #2 or #3?

The #3 behind Norwegian and SAS.

We're the #3 airline in Copenhagen with no aircraft based there.

However, and it is absolutely critical, we are not talking about base closures here.

Base closures create current (inaudible) opportunity for competitors to arrive in and take advantage of the work we've done over many years in growing bases.

What we're talking about is moving a proportion of aircraft out of the base.

And so say, if you have aircraft and has 10 aircraft based there, you probably have 20 aircraft worth of flying to and from that base because 10 aircraft will be in base and 10 aircraft will be at other bases outside that base that are flying inbound into those bases.

And what we're talking about doing is if we are taking up our business being hit by customer confidence or lower fares in 1 market, we might reduce from 10 aircraft in the base to, I don't know, 5 or 6 aircraft.

Some of those aircraft will go -- we could increase.

There will be very little reduction in capacity at that base because we might allocate about 14 of the aircraft elsewhere to fly in and out of that base.

So there's still be largely about 20 aircraft worth of flying to and from the base, but instead of it being 10 based and 10 nonbased, it might become 15 nonbased and 5 based.

It would also free up the opportunity for us to reallocate some of those aircraft to more profitable flying elsewhere, and in particular, we think we have a very significant opportunity in Poland with Ryanair Sun, where it has traded very substantially and profitably this year.

There also looks to be some aircraft airlines in that marketplace, most notably Small Planet, which is teetering, we think, or struggling financially.

And we think there will be more opportunities, and you take a market like Poland where there's a -- economy is doing well, propensity to travel is rising rapidly.

It's a market where Ryanair is already the #1 airline in that market.

Despite all the talk of Wizz being #1 in the Central Europe, Eastern European markets, we are, by far and away, the #1 airline both in Central and Eastern Europe and in Poland.

And it would be a very useful allocation of aircraft to switch them to Poland.

I think we're also looking at the possibility as we take the first 5 of the MAX 200, is that they -- those aircraft might also go to Poland next year for the Ryanair Sun subsidiary, particularly where is -- at markets in Dublin or in the U.K. where it would've been our natural decision.

We would've been the natural home for those aircraft.

If we're having difficulties with pilots in those markets, then we might as well send the new aircraft to charter market in Poland.

But we haven't finalized those decisions yet.

So we can close -- we can close the base and move the aircraft elsewhere, but we're not planning to close bases here.

If you take those markets like Portugal, Ireland and Belgium, where we're certainly looking at reducing some based aircraft, we would not be closing bases.

We would simply be reallocating, moving aircraft out of Portugal, maybe to Poland for the winter, allocating aircraft to Poland, but we would still have a lot of additional aircraft flying down to Portugal from aircraft based overseas where a lot of those aircraft already operate.

We have no requirement to have aircraft based in Faro or in Ponte Delgado, Lisbon or Porto for the winter period.

We could readily move aircraft out of there, and we'll do so if we are facing a repeated or unnecessary disruptions caused by TAP cabin crew.

Yes, with the network you have today, it seems very straightforward.

Okay, we are now over to Kathryn Leonard at Numis Securities.

Just 2 really quick ones to finish off.

Just without the ancillaries, you mentioned the full year results that you -- Michael, that you saw allocated seating was probably desaturated around 50% level, which you reached in March '18.

I just wonder, given the commentary, have you sort of -- have your thoughts on that, in terms of saturation, priority boarding, allocated seating, changed outputs from there?

And then secondly, just really briefly on the -- you mentioned on the recorded comments U.K. and U.S. ownership, voting rights, et cetera, and disenfranchise-ation.

Just in terms of -- could you actually tell me what percentage of your shareholders are U.K. and U.S. at the minute, please?

Okay, thanks.

No, sorry, we may have gotten -- we've communicated (inaudible) allocated seat or the priority board -- sorry, allocate -- reserved seating, we think will max out at around 50% of passengers, we're not there yet.

We're close to it.

Priority boarding, again, we would limit priority boarding.

It's already limited to just under 50% of passengers.

It's limited to I think 90 passengers per flight.

And beyond that, it makes no sense to me, it's not priority boarding if it's more than or -- at or more than 50% of passengers.

So there is those the reserved seating, priority boarding are continuing to grow strongly as we retail to better using the mobile app.

Brexit, again, and we would continue to caution, we have long believed that the risk of Brexit is being underestimated.

We still, like most of the market, believe that there will be a transition agreements that would at least get us from April '19 through to December 2020, mainly because we don't see any other outcome.

But there is a growing risk, I think, of political uncertainty in the U.K., and that may lead to everybody falling back into a Brexit, a hard Brexit.

In those circumstances, at the moment, we have about 44% of the stock is currently held by non-EUs, about 20% of the stock is held by U.K. -- currently, U.K. shareholders.

We think half of that 10% would reflag pretty readily into European shareholding, half that won't.

And therefore, we run the risk of running between 44% and 54% non-EU shareholding in a hard Brexit scenario.

In those circumstances, we would immediately disenfranchise all non-Brexit shareholders, which would be the ADRs currently, close to say about 10% of the U.K. shareholders.

We would also put in place the restriction we've exercised a couple of times before in that those who are U.K. shareholders who are not able to reflag to Europe.

They would immediately be same restrictions that were previously placed on at the ADR, and that is they can only sell to an EU share resident or EU national shareholder, resident shareholder, which was readily over a very limited period of time, we think weeks or months, bringing us back to a 50.1% EU ownership.

And once we get back to 50.1% ownership, we would then probably -- we would then remove or we would reinstate the voting capacity of non-EU shareholders, but it will be very important to us to ensure that we protect our EU ownership and control in a hard Brexit environment.

And we've had extensive discussion with the European Commission that others, regulatory agencies, who seem reasonably comfortable that those measures would ensure that we continue to remain EU-owned and controlled even in a hard Brexit scenario.

Juliusz, Neil, do you want to add anything on that?

No, that's a good summary.

This is the final question for today, and it's over to the line of James Goodall at Redburn.

Just a quick one from me.

What's your current thinking in terms of revenue management between your fare revenue and your ancillary revenue?

I guess what I'm trying to ascertain is, to what extent, if any, you're allowing ancillary revenue to cannibalize fares?

We're not.

We don't allow ancillary to cannibalize fares.

Our current thinking, we're still I think in year 3 or year 4 of our 5-year program to get ancillary revenues to 30% of total revenues.

We've got there 18 months early.

Partly, that's a function of the fact that the yields environment has been weaker in Q1 than we had originally thought with the move of Easter into Q4.

We don't allow -- we don't run ancillaries here to cannibalize underlying airfares.

What drives underlying airfares in Ryanair is our commitment to being load factor active, price passive.

And therefore, we are price takers.

In the current environment where we think -- and this is not new today.

I mean, on the full year results, when there was a lot of optimism this year that airfares will rise higher into the year, we are very cautious.

We don't see it.

We're continuing to grow very strongly.

I mean, we will get to probably 130 million passengers this year, and that's very strong growth off -- sorry, 139 million this year.

That's 10 million passenger growth.

An awful lot of our own yield softness comes from our rate of growth.

You see other much smaller airlines that a Norwegian, the Wizz is growing at 10%, 20% month-on-month.

But I mean, their growth, they may add about 4 or 5 million passengers this year.

We'll add double that, 10 million passengers.

So we -- ancillaries are performing strongly.

I mean, that is the major of the work that's being done by Kenny and his team on the digital side and also John Hurley and his team on the lab side.

And we continue to see that profit continuing to grow, but we're not running down the underlying average fare so that we can boost ancillaries.

We will price the average fare at what is the highest price we possibly can as long as we continue to maintain 95% or 96% load factors.

It's just that our number of events at the moment, particularly in the current month such as the impacts of the World Cup, the generally good weather, unseasonably -- unseasonable heat waves in Northern Europe and the uncertain markets, most notably Belgium, Ireland and Portugal where some concern and disproportionate coverage of very limited strikes by very small numbers of our people may be having an impact on forward -- the forward pricing and the pricing of our forward booking, that will continue.

I think it's important if we're going to preserve our low-cost model and our cost advantage over other airlines, is that while we don't want to invite strikes, we want to resolve these issues by negotiation with our people.

We're inviting our people to meet with us.

But if we are being dealt with unreasonably, in some cases, by competitor employees interfering in the process, then the strikes are inevitable and we definitely will take strikes and we've demonstrated already that we can work our way around strikes while at least trying to minimize the impact on our customers.

I would far happier take a hit to our earnings this year, but convey the message that we will face down strikes while trying to resolve these issues negotiate in and negotiate our people.

And Eddie Wilson, Peter Bellew and their team, we are engaged in very active negotiations.

We're down today, for example, in Lisbon meeting with the Portuguese pilots union and the cabin crew unions.

So there is a really large program of work, and we are making, I think, very considerable progress in those works.

We still have an image of -- some lazy media who wants to characterize us as being antiunion.

We're not antiunion.

We recognized in December that we were going to negotiate with unions.

We're open to doing that, and we're open to reasonable, very reasonable accommodations with our people, particularly our very well-paid pilots and cabin crew who enjoy very good conditions of -- terms and conditions of employment and very favorable rosters.

But if we're going to be pushed around by a couple of competitor, if people are trying to distort the profits, then find that it is inevitable that we will take on those strikes, then we will make -- face more strikes during the remainder of July and August.

We're prepared for them and we're ready for them, although we hope to avert them because we want to minimize disruption of our people -- our customers, rather.

Okay.

Folks, I think that's (inaudible) where we are.

Thank you for participating in the call.

If anybody has any further or follow-up questions, Shane O'toole is here with -- and the IR team in Dublin, we'll be happy to answer the questions.

We know roadshow, as obvious, on the Q1 results, but we will continue to communicate with you as best as we can.

And we will, hopefully, lead up to the half-year results in, I think, (inaudible) the end of October.

We'll be on comprehensive roadshow at that date.

Thanks very much, everybody.

Good talking to you.

Bye-bye.

This now concludes the call.

Thank you all very much for attending.

You may now disconnect your lines.