Ryanair Holdings PLC (RYAAY) 2019 Q4 法說會逐字稿

Hello, and welcome to the Ryanair Full Year 2019 Results Conference Call.

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

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

Please go ahead with your meeting.

Okay.

Good morning, ladies and gentlemen.

Welcome to the Ryanair Full Year Results Conference Call.

We are spread across the continent, so I'm here in New York with Shane O'toole.

Neil Sorahan and the finance team are largely in London, and then we're joined by most -- the rest of the senior management who are in Dublin.

As you see this morning, we guided for -- we announced full year profit down 29% to EUR 1.02 billion on the back of principally lower fares.

Over last year, our average fares fell by 6% to just EUR 37.

The good news, however, is that the traffic grew by 9% to EUR 142 million, including Lauda's 3 million passengers.

Ancillary revenue rose strongly, up 19% to EUR 2.4 billion.

And at the year-end, the fleet had grown to 455 Boeing 737 and 19 A320s.

Ryanair Sun, now called Buzz, has traded profitably this first year.

We completed the purchase of Lauda last year, although it has suffered an exceptional year 1 startup loss of EUR 139 million.

We have signed union agreements around -- concluded union agreements in most of our major EU markets without any excessive cost consequences, and we returned over EUR 560 million to shareholders over the last year.

Ryanair remains the lowest unit cost operator of any EU airline, and the good news, and I think what you need to focus on is that the cost gap between us and our competitors in Europe has widened in the last 12 months.

Ex fuel unit cost -- fuel has jumped significantly in the last year.

Oil is up EUR 440 million.

We're 90% hedged for the next 12 months at just under $71 per tonne (sic) [per barrel], so just below where the -- where spot is currently.

Ex fuel unit cost rose 5%, which is better than the 6% previously guided, due principally to the EUR 200 million one-off higher staff cost are -- included the 20% -- a one-off 20% pilot pay increase at the start of last year, a EUR 50 million jump in our EU261 costs due to repeated air traffic controls staff shortage disruptions throughout the last year.

But our airport costs are 35% lower than our nearest competitor, and we expect that trend to continue as the airports are competing to attract our business at the numerous weaker European airlines fare.

The group strategy continues to evolve.

Ryanair Sun, now Buzz, has taken over Ryanair's scheduled bases in Poland and will operate a fleet of 25 aircraft in FY '20 including 7 for the charter business in Poland.

Lauda enters its second year with a larger significantly lower-cost fleet of 23 operating lease A320 aircraft, a target of carrying just over 6 million guests in the next year, up from 4 million in year 1. And we have signed agreements to grow this fleet to 35 A320 aircraft for summer 2020, which would be the third year of operations in Lauda during which we believe they'll carry over 8 million guests and will be trading profitably.

Higher oil prices and lower fares have seen a wave of EU airline failures, and we expect that trend to continue.

In fact, in the recent days, we have seen the financial difficulties in both Alitalia and Thomas Cook over the weekend where the credit card companies are holding on to their cash as being further signs of that consolidation process.

We expect further consolidation and airline failures to continue through this winter, particularly as we expect the lower fare, higher fuel cost environment to continue with many of these competitors are unhedged.

To touch briefly on the Boeing MAX.

We've delayed delivery of our first 5 Boeing MAX aircraft probably to the winter schedule.

We expect to take them in October and November of 2019.

We will also be delaying the 42 aircraft we were scheduled to take over this winter.

They were to start -- deliveries were start -- due to start in August and September.

We expect that we won't start taking those deliveries until probably November, December or January of next year.

We do expect to take all of those planned aircraft deliveries subject to Boeing's ability to deliver them before the summer peak of 2020, and we continue to have utmost confidence in these aircraft, which let's not forget have 4% more seats and are 16% more fuel-efficient and, from an environmental perspective, generate 40% lower noise emissions.

We have hedged these aircraft exceptionally well, and we believe they are key to us to continue to deliver operating cost savings and traffic growth over the next 5 years.

The balance sheet remains very strong.

At the year-end, the group had EUR 3.2 million in gross cash.

Almost 95% of our 455 aircraft fleet is owned, and over 2/3 of these are debt-free.

Last year, we generated over EUR 2 million net cash from our operations.

And we applied those funds in share buybacks; CapEx, principally on aircraft, simulators, engines and hangars; and we repaid more than EUR 400 million in debt.

As a result of that and our confidence in the continuing strength of the model, the Board has approved EUR 700 million share buyback that will commence later this week and will run over the next 9 to possibly 12 months.

We expect to split this, about EUR 500 million will be for the ADRs so that we can continue to reduce the non-European shareholder base in the company and about EUR 200 million in ordinary shares, which we'll operate through a VWAP over the next 12 months.

Turning now to guidance.

As you can see this year, it's a little bit complicated because we disclosed Lauda this year with startup losses as exceptional, whereas next year, they won't be split out from the Ryanair Group income statement.

They will be consolidated.

On outlook for FY '20, we remain very cautious on pricing as we have been throughout this year when others were predicting a price rise this summer.

We said we didn't see it.

We think pricing is going to continue to be a tough environment for the next 12 months.

That's good news for our customers, it's also good news for our traffic growth and it's good news for our ancillary businesses.

It's only bad news for our competitors.

We expect traffic will grow in the next year by 8% to about EUR 153 million.

At the revenue per passenger target, we believe we'll grow about 3%, which will be flat to slightly down on underlying yield, with another strong performance on ancillary revenues.

If revenue per passenger grows 3% this year, then we believe we will report broadly flat group profits of about EUR 880 million.

However, we have a wide range because we have very little visibility on pricing for the next 12 months.

So if revenue per passenger rises just 2%, then profits will fall again to EUR 750 million.

But if revenue per passenger rises 4%, for example, we'll report an increase in profit to about EUR 950 million.

For H1, which ends in September, forward bookings are slightly ahead of last year.

Currently, we're 2% up on the same day last year.

But the fares are lower, and we expect that trend will continue through not just the summer of 2019, but also into the winter when we expect to see further and more substantial consolidation in the industry here in Europe.

We caution, though we have zero H2 visibility, and H1 outturn remains critically dependent on closing bookings during the peak summer period.

Cost will increase as our full year fuel bill jumps by another EUR 460 million due to the fuel hedge, we hedged just under 71%.

Ex fuel unit cost will rise slightly this year, up, we think, maybe 2%, largely due to the stronger sterling, the absence of Lauda's prior year cost in much of H1 and the delivery delays of the Boeing MAX -- the Boeing 737 MAX, which means we won't see those costs -- operating cost reductions we were expecting on the first 50 aircraft, which originally would've been operating in the business for about 6 months of the year now.

We think it will be as little as 2 or 3 months of the year.

However, the guidance is heavily dependent on closing, as you know, peak summer fares; wherever H2 prices fall, and we don't know where they fall, but we expect that it will continue to be difficult; the absence of any significant securities, events; and no negative developments in Brexit at the end of October.

Neil, that's it.

Anything you want to add to that before we open up for Q&A?

Not a huge amount, Michael.

I think you covered it all very well.

Just to reiterate again, the comment on guidance on the profit after tax last year, balance will be very strong with a net debt of EUR 450 million at the end of the year, following EUR 2 billion in cash generated from operations.

The buyback will start in the next couple of days as we get into the open period.

And as Michael said, all guidance for this year is on a full group basis, and we won't be breaking it out on an entity-by-entity level.

Okay.

With that, we'll open up for Q&A.

And as is normal, we're going to confine everybody with just having 2 questions per participant so with only 3 or 4 parters.

Don't ask us where we think the yields would be for the next 4 quarters because the answer is we don't know.

But other than that, those 2 kind of cautions, let's open up to Q&A.

(Operator Instructions) The first question is from Daniel Roeska from Bernstein.

Two questions.

Given the '19 results and outlook for '20, have you had in discussions with the Board or the executive team to change parts of the strategy when it comes to capacity growth of low to active with the peak of the cycle?

And the 2 questions seem closely related.

So what are your key kind of convictions that you want to keep accelerating capacity growth and continue the Lauda access strategy?

And on consolidation, as you pointed out, we've see an unprecedented level of exit at a time the sector is actually at a peak and not a trough.

But Lauda breakeven has been delayed by a year.

It seems there haven't been any big benefits in '19 maybe.

And so what are the mechanics that make you confident Ryanair has an opportunity here and will not just add more planes into the gaps at lower margin?

Okay.

Thanks for that.

Yes.

We've had an extensive discussion with the Board and within the executive team, and our view is we keep the foot to the pedal.

We have -- if I could take more aircraft in the short term because if the aircraft were cheaper, we would.

When you see that reflected in Lauda's growth where last year -- rather, last summer, Lauda operated 9 very expensive, really crazy cost leases which came from Lufthansa as part of the sales.

We've replaced those aircraft now with operating leases that are almost half the price that Lauda was paying Lufthansa for the first 9. We have 23 aircraft this year.

We've already signed to grow to 35 aircraft next year.

Any marketplace that we've been with before, about 4x or 5x times in the history of Ryanair, where I'm surprised that your comments that the sector is at a peak.

The sector is never at a peak when oil prices are high.

It's usually tends to be at a peak when oil prices are low, and this was the year when oil prices were going to be high.

But if we're in a period where pricing is weak, and pricing is weak, and costs are -- basically, oil costs are high, our strategy would be to keep adding capacity as quickly as we can in all those markets where we can.

Will it be painful for a year or 2?

Yes, it will.

But will it shake out more and more of the competition?

Yes, it will.

And I think what will be different in the summer of '20 is you'll see some very large parties getting consolidated out of the marketplace, the 2 obvious ones who are hanging on to their fingernails, are Norwegian and, over the weekend, Thomas Cook.

Those would be seismic in terms of market capacity.

And we would not expect, for example, Lufthansa to step in as they did with Air Berlin last summer and recovered most of that capacity.

And on Lauda, I would agree in part with your summation.

We thought -- when we first bought Lauda, it would be a -- it was a real unique opportunity on 2 points: one, to actually get that high-yielding German market going to and from Palma; and two, it would give us access to valuable slots in the German market, particularly the airports like Düsseldorf and Stuttgart and Berlin's Tegel where otherwise we wouldn't get access.

I think where we were unfortunate with our timing in Lauda though is it has coincided with Lufthansa buying off Eurowings or Germanwings, Eurowings, the former Air Berlin, and using much of that capacity to below-cost sell in the German market.

With the result of Lufthansa in the first quarter this year, they've seen profits of 350 -- or profit of EUR 50 million, reversed to a loss of EUR 350 million.

So Lufthansa are determined to use below-cost selling to kind of push an awful lot of capacity of others out of the marketplace.

We think that's why Thomas Cook and some of the charter airlines are having such severe difficulties in Germany.

If it means that Lauda won't make profits until the third year rather than the recently its second year, we're prepared for that investment.

But we would see -- and the Board and the management are absolutely committed to executing our strategy, which is to grow to 200 million passengers a year by 2024.

Remember, at Ryanair, that growth takes place on very low-cost aircraft.

Once the MAX aircraft are back flying by the end of this year, they deliver us 4% more seats, 16% lower fuel consumption at a time when fuel is by far and away our most significant cost.

And we have bought those aircraft very well, and we have hedged the financing.

So we think we are the structural winner.

We are the lowest-cost provider.

And where we do anything else, like should we start cutting back capacity now because pricing is weak, we would only postpone the day when the competition gets shaken out of the business.

Our next question is from Savi Syth from Raymond James.

This is Savi.

Just wondering, for my first question, if you can say a little bit more like how much of that 2% of the increase is due to sterling?

And how it's split between kind of first half and second half?

And I'm a little surprised that Lauda would be a drag given it's only about 4% of total passengers, and I think second half, you should see probably some cost savings.

And the second question, I know, Michael, you didn't want to kind of give any -- I know you don't have a lot of visibility on fares.

But I'm wondering what you're seeing today.

I'm guessing you have some visibility on the June quarter, and I'm wondering what you're seeing today.

Okay.

Thank you.

Let's field the second one first.

Yes.

We have some visibility on the June quarter, but it's still -- we still -- it hasn't completed.

And the difficulty for us on any of these price guidance is if the pricing is hugely sensitive to the close-in bookings, so the bookings we make over the last few days of May and June essentially can move yield a couple of percentage points either way.

So we're not giving you any guidance on the Q1 yield other than to say, expect yields to be down and difficult throughout the year.

There's no upside on pricing and yield at the moment.

On the 2%, it is mostly due to sterling, the Lauda drag and the delay in the MAX aircraft.

And if you look at it -- you break out, as we have done, the consolidated income statement, you look at the cost that Lauda had last year of start-up -- many of it are start-up in nature, but those costs are now being incorporated.

They weren't incorporated into the Q1 or Q2 numbers last year where it's a more kind of sensible cost basis to incorporate the Q1 and Q2 numbers this year.

It is significant.

I mean I would argue 2% unit cost rightly is not significant compared to a year where we were hedging originally for 6% unit cost.

What it does indicate was that we are getting the unit cost back under control.

This time last year, everybody was worried about all unionization.

The model is broken.

We lose control of costs, fuel.

It would be like all the other European airlines, we won't.

And if our unit cost only rise 2% next year, then the capital widens further with our other principal competitors in Europe whose unit costs are rising significantly faster than 2% ex fuel.

Michael, just to add a little more color on that.

Sorry, Savi, on the sterling, it's probably less than 0.5% would be the sterling impact over the course of the year.

A couple of other little bits and pieces in there.

We grew our crewing ratios and our engineering headcount last year.

There would be a bit of a lap on that as it catches up into FY '20.

But the key drivers, as Michael said, are the sterling, the Lauda loss in the first half of the year and, of course, the delays on the MAX also have an impact on maintenance and the regular cost lines.

Are you able to provide a little color on first half versus second half trend?

Or is that pretty...

No.

We're not going to break that out.

Our next question is from Duane Pfennigwerth from Evercore ISI.

In terms of competitive capacity, would you guys characterize what you see into June and September versus what you've seen in the last few quarters, March, December?

So I'm not sure I understand that question.

Into June and September?

Yes, just the competitive capacity outlook.

It does look like it's decelerating relative to what you've seen in the last few quarters.

It's easier to answer that over 12 months.

We would expect there to be significant capacity taken out next winter.

At the moment, I mean, there's a couple of issues.

The softer pricing at the moment is not all due to excess capacity in the market although it is significant.

I mean, I'll ask David to give you some color on this.

But the 2 weakest markets at the moment are U.K. outbound certainly to any of the holiday destinations.

And then it's just -- I think it is the lack of decision that consumers making decisions given the uncertainty over Brexit over the last 6 months, so Spain, Portugal, Greece, all of those kind of holiday markets.

Now will they certainly start booking -- will booking get stronger now that the prices then ticked through to the end of September or into October?

We haven't seen a change, and we're not expecting it.

We expect pricing to continue to be weak.

And now if something were to happen to Thomas Cook over the weekend, that would change.

We don't expect anything to happen to Thomas Cook, well, until probably the winter because from a cash flow point of view, generally, airlines tend not to go bust in May, June or July.

It has happened, but it's unusual.

And so we think that there will be significant capacity -- sorry, the other weaker market is Germany where there is enormous capacity growth.

You have Lufthansa.

We have -- with heroically adding, particularly short-haul capacity using Germanwings and below-cost pricing.

And that thoughts combines to Lufthansa -- I mean all the Austrian airlines also said they were going to continue to sell below costs because out of the many things because they have so much competition there.

The easyJet in Berlin and Laudamotion at Stuttgart, Berlin and Düsseldorf, but we regard this as a reasonably short-term phenomenon.

We think capacity will be shaken out certainly this winter, although we will be taking out capacity.

I think David has prepared some of the mid-week -- we'll take out some midweek capacity.

But fundamentally, other than delaying the deliveries of the MAX, which I think will affect Q3.

By Q4, we will expect to be taking all those aircraft around the summer of 2020.

David, anything you would add in terms of color on capacity growth?

Sure.

I mean it's always misleading if you look at the total market.

Like this summer is up.

I would say it's the European capacity is up by about 2.5%, which is a mix of April to June at above 3%, and the peak at below 2%.

But when you look deeper, you see that Wizz Air, Jet2 are all around 15% in terms of their capacity growth; easyJet, 6%.

And as you say, the 2 main drags are Germany and the U.K. U.K. is consumer sentiment, and Germany is very, very low fares.

As you said, Michael, Eurowings and elsewhere upstream simply sell below what is feasible for them to sell in terms of pricing.

Yes.

And that bit, reflected in their results.

Remember, we also -- Lauda, we're going to in the next 12 months by 8% to 9% anyway.

We're already the biggest airline in Europe, so -- but at the time, you'll ask, would we slow down that capacity growth because of the core market difficulties?

No.

We will maintain it.

And if anything, we have opportunities with Lauda, we would increase it.

And just for my follow-up on the MAX, just any views you'd have, do you think EASA will coincide with the FAA approval?

What is your best sense for timing right now?

And what compensation, if any, do you feel like you're owed from Boeing?

I think on the MAX, this is not a certain -- and so yes, it's not very certain, and I don't want to prejudge what the various regulators would do.

Our sense, and I think the growing sense in the industry, is the MAX will be back flying in North America probably by the end of June or sometime in July.

We think that it will be EASA and some of the other regulations would probably take another maybe month.

We're not sure they will all be moved with the FAA in June or July, but they could.

We suspect that the Europeans or EASA will approve the aircraft to go back by maybe a month later, so you're talking about August, thereabouts.

And from our perspective, given that we have now taken the aircraft off sales for the entire summer schedule, which runs to the end of October, we've notified Boeing that we are not taking this aircraft until the end of October, November when we will -- they will be useless during the winter schedule because we have to put our older engines into maintenance.

But Pete, I don't know if you want to add any color on that, but I think that's our general -- that's the kind of numbers, that's -- this kind of guidance we're working towards.

Yes.

No.

I think, Michael, that I think your summary is correct there.

And I think the EASA -- we're working very closely with EASA and Boeing, what are the requirements will be for their return service, entry to service for us.

We have slightly different derivative of the aircraft.

It's got 2 extra doors.

So part of the issue for us would be that the FFA will need to get that certified, so -- but I think the end of August looks like the time line.

We have one of the only MAX simulators in Europe, and we're already working on a training program around the MAX that doesn't include simulator training at the moment.

And obviously, in terms of the digits to answer the question on compensation, we are in an ongoing dialogue with Boeing.

And I'm sure we will work something out with Boeing, but whether that's compensation or something on the price of the aircraft, not sure yet.

But -- that's a discussion -- I think that's a discussion that we are having with our partners at Boeing and not -- won't be commented on publicly.

Our next question is from Neil Glynn from Crédit Suisse.

Two questions from me then.

I'm following on, Michael, from your comments on consolidation, just interested in and thinking about it another way.

If you look at your average share currently, it's back where it was in 2010.

So it's not obvious that consolidation has helped your fare levels, just using that simple analysis.

So I'm just interested in as you go forward, would you expect the fruits of consolidation to help your fares in the future?

Or is it more help for your ancillary revenue or your cost efficiency prospects over the medium time if the market consolidates?

And then the second question just on staff cost developments.

As you touched on, obviously, the year-on-year comps are distorted by Laudamotion.

But will the Ryanair DAC or the Ryanair ex Laudamotion unit staff cost actually grow into FY '20?

Any color on that you could provide would be helpful.

Okay.

Thanks.

I mean I think it's -- I mean if you ask if average fares are back to where they were in 2010, yes, but the profitability is significantly higher than it was in 2010.

Now that's largely a function of greater scale but also much stronger ancillary performance.

When I think of the industry, it's moving towards where the North American industry has led 10 years earlier.

We are moving, airlines have been consolidating towards, I think, 4 or 5 larger groups.

Ryanair will clearly be 1 of those 4 or 5 larger groups.

We need -- and I think that would've played out last winter.

We were unfortunate last winter, and the spot oil fell from -- we into the winter at $80 a barrel.

It fell at below $50 a barrel in the winter period.

That rescued our prolonged -- the survival of a number of loss-making unhedged airlines.

We would hope to see oil continue at -- to be reasonably stable in the summer in the mid-$70 a barrel.

Hopefully, that will continue through our winter period.

In which case, there are some very significant airlines out there who have no hedge lines in place who were rescued by a short-term drop in spot oil.

I mean the big 2 were unhedged was last winter.

Norwegian, Wizz, Thomas Cook and others benefited from a very significant drop in spot oil prices when we were hedged at higher oil prices.

Our hedging is now below where the spot is not by much.

But I think if we had some reasonable stability in the spot oil price through our winter, then I think that, combined with significantly lower airfares, will shake out a significant -- I mean, you are back to the famous book, Buffet-Max, I mean it's only when the tide goes out to see you swimming with -- who's in trunks and who's swimming naked.

But I think it's helpful the industry is moving inexorably towards a consolidated outcome as they have in North America in the last 4 or 5 years.

In that consolidated outcome, there will be fewer players.

There will be more -- well, I would say, capacity growth over the medium term and much more pricing power.

Airfares in Europe are materially lower than they are in North America and with a higher cost base.

That will, over the medium term, work its way out of the system.

And I think the great thing is once we get through this phase of consolidation, we would not see a lot of startup carriers because, frankly, when you have an airline like Ryanair, which has 9.99 minimum fares across every market in Europe and some of the neighboring markets to Europe, there is no price point in which a low-fare carrier can enter.

I wouldn't give you any further color on the staff cost or in the other cost lines for the next 12 months, other than to say, we expect unit cost in the next 12 months ex fuel to be up around 2%.

None of that is staff cost.

The little element helps staff cost, which is the full 12 months borne out of the pilot recruitment, engineering recruitment we did through last year, which is by the way, that's already delivering significantly improved on-time cost.

Our next question is from James Hollins from Exane.

Two from me, please.

First of all, can you quantify the expected Lauda losses yet?

You talked about breakeven to a loss of 50.

I think when you talked there, you talked about not making breakeven.

Putting a number on it would be great.

And then looking slightly on a different level, the Labs, you talked about them being very successful.

I was wondering if you can sort of run us through what has been successful.

Clearly, we know that priorities helps and baggage policy and such.

I was wondering what more to come as well, which should help deliver the ancillaries through year '20 or even beyond that.

Okay.

I'll ask Kenny to give you just a quick heads-up on what we're doing on Labs and digital.

But on the Lauda losses for the next 12 months, I don't want to break it out.

We're not going to give kind of a break out because there has been a consolidation of the Ryanair numbers.

But to give you a flavor for it, we expected first year, the year 1 startup loss of EUR 140 million with 4 million passengers.

In year 2, we think the losses for Lauda would be significantly under EUR 50 million.

I gave you a range of something between the loss of EUR 20 million and a loss of EUR 50 million driven by essentially pricing because the costs are now under control.

But we won't be giving kind of segmented or airline breakouts in the next 12 months, so I don't want to give you a specific figure.

Kenny, on Labs, are we going to touch on where we are on Labs and ancillaries there briefly?

Okay, Michael.

I think we talked about Ryanair 3.0, which is the type that we have over the new platform that we're going to have.

Putting that in simple terms, that's our new website, that's our new mobile web and that's our new mobile app.

So currently, those 3 things change considerably in the next 12 months.

The change is going to be it makes it faster, so just the performances, the thing works much faster, particularly on mobile, that makes a difference.

The 3 would be integrated.

So if you're browsing and searching across mobile web, then onto app, then onto desktop, there will be no -- throughout that experience, which is the way Amazon do it, which is just better for customers.

The biggest change, we'll be using data.

So your past purchase data, the type that you're searching, your browsing history and your propensity to purchase different axillary products, that's going to be cloned into the platform.

So that gives us a much more -- a better retail base to cross and upsell different products.

So that's all on the selling side.

That's what we're going to do to deliver more revenue.

On the service side, we're very happy with the progress that we've made in the past 12 months to use digital to reduce EU261 but also to allow customers to take refunds and moves much, much faster.

We did that last week with the French strikes and we benefited from the past 12 months, and that will continue.

Yes.

And I wanted to -- just to emphasize the point as well in terms of the strength of the business model, we've had a torrid last 12 months on airline, on seat pricing.

Seat pricing down as average fares down 6%, but a phenomenal performance by ancillaries where the spend per passenger was up 11% over the last 12 months.

And it's a staggering performance, and it indicates the success of Labs, which is -- I wasn't entirely a believer in Labs when we set it up in-house 6 or 8 years ago, but John Hurley and the team have done a phenomenal job.

And we retain all of this kind of technology and these insights are entirely in-house.

And they are able to adapt, we are able to adapt to changing patterns of customer behavior.

And we're also able to encourage changing patterns of customer behavior.

For example, this year, in limiting the number of carry-on bags being carried on board, which creates not just a revenue source in the new check-in 10 kg bag, but significantly improves the operational performance.

On-time punctuality last year was a real problem mainly as a result of the ATC staff shortages but also had problems in our handling services in France, Spain and Portugal.

We have addressed most, if not all of those.

And over the last number of months, we are consistently beating 90% on-time, which we believe will have a significant impact on reducing our EU261 expenses over the next 12 months.

And our next question is from Jamie Rowbotham from Deutsche Bank.

Yes, Jamie from Deutsche Bank.

Just two from me.

The first is in terms of your nonfuel unit cost guidance of up 2%, I was just trying to understand a bit better what you've assumed exactly for the MAX.

One of your slides shows the 42 MAXes due in the winter, now expected in the summer, and I heard your comments on that.

I mean if those end up being active in service over the winter season, did the efficiency benefits from those aircraft mean potential upside therefore to your nonfuel unit cost guidance?

And the second question from me is just on the progress you've made with the unions this year.

I just wanted to check have the contract labor agreements with the U.K., Spanish and German pilots actually been signed.

Or are they still a few hurdles to get through to get the signature on those CLAs for pilots?

Okay.

Jaime, Eddie Wilson will just give you an update on the union.

So on the nonfuel unit cost today, I'm not going to get into the breakdown of it.

We believe that it will be up 2% for the next 12 months.

Our intention usually around this time of the year will be to beef up staff performance.

And there are some potential upside in it, but I think up 2% ex fuel is a reasonable guide for the next 12 months.

And we're not going to break it out at the moment on the cost line.

Eddie on -- just one for the -- there isn't actually structured the CLA in the U.K., the legislation doesn't work that way.

We have rolled out 20% pay increases to all the U.K. pilots in the first 3 months of 2018.

They voted on that in secret ballot and have accepted that.

That pay is being rolled out, I think, to about 2021, 2022 where there is a CLA labor agreement in -- issue in Spain and Oslo.

Eddie, do you want to give a quick roll through where you are on the CLAs?

Yes.

Just on the CLAs, well, actually, where we're signed at the moment with the pilots, it is in Italy, Belgium and Portugal.

And we are significantly advanced with the German [DC] union where we've already signed modules of that agreement on the main components, such as the pay rates and the last train guidelines, and that will be a 4-year deal, but as you say there -- and we issued within the U.K. and Spain where we have recognition agreements and we are in negotiations with them at the moment.

I mean we're now a unionized company.

These things take some time to do.

But the background of this is that the fundamentals are sound in terms of our pay, in terms of comparisons with 737 low-cost operators, we're significantly ahead.

We've got the best job securities and the best promotional outlets.

And it's taking time to work our way through those.

That's the pace of the negotiations that we're in, and any agreements that we complete will have to take account of the changing for the macro environment of job losses and sort of softening pilot market.

I'll just add some color to that.

I mean where we are at the moment, to give you the kind of a feel for it, we have now completely filled all of our recruitment for summer of '19.

We have also completed filled our pilot recruitment for summer '20 even with the addition of another 50 aircraft over the next 12 months.

We have a waiting list of both direct-entry captains, direct-entry first officers mainly coming to us from airlines that have gotten busted in the last 6 months or airlines that expect to go bust in the next number of months.

And we have pilots looking for jobs in Ryanair where they recognize job security and also that our pay in Ryanair is better than it is among the 737 comparators.

In that respect, we have, I think, grown the attention of our people to various statements made by BALPA in the U.K. in recent weeks where in the case of Jet2 whose pilots are not as well paid as Ryanair, about our offering.

We're discussing the possibility of a pay freeze in return for improved rosters that would bring their Jet2 pilots, is somewhere up to the level of the Ryanair rosters.

And in Norwegian, for example, BALPA, together with Norwegian, recommend to Norwegians Gatwick pilots.

So we think there's over 100 Norwegian pilots in Gatwick that they should either take a pay cut or a 12-month unpaid leave over the next 12 months to assist or to address the losses and capacity cutbacks by Norwegian and Gatwick.

So the backdrop and the environment certainly on the pilot recruitment side has become very favorable towards Ryanair whereas if you go back 2 years in September 2017, everybody was hiring pilots, pilots had lots of alternatives, lots of options.

And there was a lot of movement on the pilot side.

Now there's essential none.

And our next question is from Damian Brewer from RBC.

Two, please.

First of all, coming to the legacy 737s, 737-800s in the fleet,

Two, please.

First of all, could we see the legacy 737s, 737-800s in the fleet, I think in your prepared remarks said this morning, you said you'd already started the process for selling 10 of them for $170 million.

I'm just wondering if you can give any more details about those 10 aircraft, how old they are or whether they're almost fully written down in the book or what they look like on the balance sheet.

And then second question.

Can I come back to it?

And sorry for laboring the question, but the consolidation.

What, apart from Norwegian, which seems to have equity now for about the 1.5 years' cash burn; and Thomas Cook/Condor that might give up 70 narrowbody aircraft, is there out there that can make a meaningful difference in the next 1.5 years, 2 years that you see?

Because it looks like a lot that of the capacity issues appear to be from other airlines which have, how can I put it?

Larger parent balance sheet where the time frame might take a bit longer?

Okay, thanks.

On the legacy 737s, yes, we've reached agreement to sell the first 10 of those aircraft, it's for a figure of over $170 million.

They are -- and they will be going into a cargo refitting -- cargo.

They will be finishing up flying cargo.

They're going to a cargo conversion program for delivery to Chinese operators in the air cargo market, which appears that the 737, the 800s, are particularly attractive for that.

And we're not breaking out the profitability this morning, but they are written down in the balance sheet to less than we are selling them for which would kind of indicate our depreciation policy as well.

These are the 10 oldest aircraft we have.

I think they're between -- the average age is 17, 18 years old.

And we will move I think in the next year 2 to -- subject to the MAX deliveries, to probably be selling the maybe 10 a year.

The difficulty in selling out some of these older aircraft is while we'd like to sell them out, we also don't want to slow down our capacity growth in the current marketplace, so where there needs to be a balance.

But the market seems to be very favorable at the moment, particularly of the second-hand 737 side.

On consolidation.

I mean yes, the obvious ones are Norwegian.

I wouldn't pay too much attention to the equity raise.

That equity raise won't manage 1 year's cash burn for Norwegian, particularly not if oil prices are back up over $75 a barrel.

And we know they have significant payment difficulties both with airports, handling companies and fuel companies at the moment.

And that equity won't get them -- unless there's another very substantial equity raise, that won't get them through the next winter.

Thomas Cook is an obvious one, 2e are also -- the airlines are up for sale.

And then you've got the kind of the other less obvious ones.

So Alitalia, something still needs to be done with Alitalia.

Yes, the Italians will keep kicking the can down the down the road, but we believe once there's a kind of a reformed Alitalia with -- taken over by those legendary airline investors, the Italian Railways Company.

We think it's inevitable that there will be further cuts to Alitalia's short-haul loss-making operations and maybe some investment in Alitalia's long-haul operations.

We continue our dialogue with the commissioners in Alitalia.

We are -- and have offered to feed into their long-haul to help them with their sales and feed into long-haul as a way of encouraging them to reduce their exposure to what is usually loss-making short-haul.

LOT in Poland are using money heroically.

SAS and Norwegian and Scandinavia are losing money heroically in a situation that is being further added to by the rise of environmental taxes in Sweden and in Norway in particular.

And we think TAP in Portugal is also struggling.

So you can see the obvious building blocks, but you're right.

I mean, it's always difficult to predict the time and date when an airline will go bust, other than to state that, this winter, if oil remains up around $75 a barrel and if pricing remains as weak as it currently is, there will be an acceleration in that consolidation process.

And I would expect it to be this winter.

Which creeps us back to the original question, would we slow down our capacity growth, too?

And the answer is no, we wouldn't.

We would expect to do everything we can to assist or accelerate that consolidation process.

And again, I go back to the kind of strategic level.

This has happened before in North America and the North American industry, having fully consolidated into 4 major carriers, is in a much better shape than the European industry is at the moment.

We are going through the these painful throes while the industry consolidates and we just have to deal with it as best as we can.

We deal with it by taking delivery of new aircraft, having the lowest operating cost, mining what is a very profitable ancillary sales stream.

And if we have to suck up lower fares for the next 6, 12 months, we will -- with some degree of happiness, we will suck up lower fares for the next 6 to 12 months because we'll still be one of the most profitable airline in Europe.

Our next question is from Kathryn Leonard from Numis Securities.

Just 2 if that's okay, please.

Firstly on ancillaries.

The guidance you've given for revenue per pax and average fares for FY '20, if I'm correct, would assume an average revenue per pax from ancillaries greater or about 11%, which actually, with the decimal places adjusted, it's a little bit lower than the current year but still significant growth versus last year.

I know you already touched on this, but I just wondered if you could give a little bit more color on what moving parts are there.

Clearly, the historics the last couple of years have been primarily driven by penetration improvements and party boarding and seat allocation.

I just wondered whether you could touch on that and more specifically comment on Ryanair [rims] and what you might need to do to accelerate the profitability contribution of that and the scale of that.

And then just secondly, in terms of your commentary on the recorded Q&A, you talked about the Scandi markets, Michael, and the punitive taxes that have recently been introduced in Sweden and Norway.

I just wondered if you might comment on how you see the industry is moving generally in that context.

Clearly that's been a bit of a buzzword and [Greta in all of her amazement], et cetera.

And I'm hearing from some of the tour operators that they're seeing tangible signs of that affecting confidence in booking.

Do you see other governments in Europe introducing that?

Do you see them as a lead indicator, perhaps, for more contentious kind of government, yes, taxes and so on?

Thanks, Kathryn.

No -- I think we're not going to break out the ancillaries in detail.

We expect [there] to deliver -- I think as we say, we expect -- in our revenue per passenger guidance, we expect to deliver significant growth in ancillaries over the next 12 months.

But a bit like pricing on the seat, we don't have much visibility at the moment.

I would simply point to the outstanding work that Labs are doing to make it easier for customers to select these optional services and for us to convert that into better ancillary services.

Rooms, which we haven't been able to focus on for much of the last, I think, 12 or 18 months while we were dealing with unionization issues, ATC delays, et cetera, et cetera, will now get more focus over the next 12 months and we think will continue to improve.

Scandinavian markets.

I mean, look, the we think the Scandinavian markets are a bit crazy.

It's -- actually, I never cease to be -- admire the contradiction of the Norwegian economy, Norwegian state, which survives on sales of oil, pontificating on about the need for to go green and be carbon neutral, but that the way to do that is to tax air travel.

Taxing air travel does not do much for the environment.

Air traffic counts for less than 2% of CO2 emissions.

But we are where we are at the moment.

I mean, I think our view of the Scandinavian markets, with the exception I would think of Copenhagen, is we are likely to further reduce capacity in Scandinavia.

We don't have a lot of capacity up there.

But in Sweden and in Norway, on balance, we're more likely to reduce capacity than add capacity in those markets.

I think we are growing strongly in Denmark, particularly Copenhagen, and the Danes seem to have enough common sense not to introduce these kind of carbon taxes on aviation.

And if that's the case, then I think we will expect us to continue to grow in Copenhagen.

The only other kind of sign we've seen in recently has been the Dutch government announcing last week -- proposing in 2021, they're looking to move towards some sort of a tax on aviation.

But I mean, it's completely contradictory.

If they were to have a tax on aviation but they would exempt connecting flights across Schiphol, which of course, connecting flights are the most damaging on the environment because it takes 2 flights to get to where you want to go.

But that would favor clearly KLM, which raises issues of state aid, given that the Dutch government is now a significant shareholder in KLM-Air France.

You also would draw the point, which as we have, is the Dutch government, well, if you're going to exempt the connecting traffic at Schiphol, you're somehow exempting the traffic that doesn't travel to and from Holland, the Netherlands, and yet penalizing the traffic your own citizens and the visitors coming directly to Amsterdam and Holland, which would seem to be somewhat shooting yourself in the foot, given the Dutch reliance on their tourism industry anyway.

But there's lots of contradictions in this -- in all of these.

These are simply tax grabs dressed up as environmental measures.

So they clearly aren't environmental measures.

I think our best response to these continues to be our investment in new technology, the MAX aircraft, which again we repeat, delivers 4% more seats with 16% lower fuel consumption and 40% lower noise emissions.

So in a -- I think in general terms, there will be an attempt by governments using the kind of the green environment to grab more tax, but I think we will be better positioned than most other airlines.

So you take KLM for example, they have quite an old fleet, they have a low seat density and therefore they're much more environmentally damaging on the environment than Ryanair with new aircraft, high seat density and high load factors.

But Scandinavia at the moment, I think we would be inclined to -- we're looking at whether we don't reduce our capacity up in Scandinavia into other markets.

Where they introduce these kinds of discriminatory and distortive environment taxes, you will see us, I think, move capacity away from those countries in favor of those countries where there isn't -- they're not taxing air travel.

And if you look across the industry generally, across Europe, we think that if you take the major players, which would be Lufthansa, BA, Iberia, Air France, Alitalia, none of them really are in a position where they can absorb a lot of environmental taxes.

And I think they would have significant influence with their government agencies and authorities, I mean for any governments that -- to have taxes on aviation now going forward.

I would highlight again the experience with the Irish government, who in 2007, introduced an environmental tax on the -- one of the only island nations in Europe.

And so their air traffic collapsed by 1/3 within 3 years from, over 30 million passengers a year to -- down to 20 million passengers a year.

The government sensibly withdrew or scrapped that tax in 2012, but have since seen traffic growth rebound to this year, about 35 million or 36 million passengers a year.

It is quite clear tax -- aviation taxes don't work.

I wouldn't say we have seen no -- I think we have not an impact of these kind of middle-aged, middle-class guilt-ridden angst about air travel.

In the last 12 months, you've seen our traffic grow strongly to 142 million customers.

The one thing we're certain of in the next 12 months is that it will grow again by 8% to 153 million customers.

But I couldn't entirely rule out that some of -- that maybe some of the yield softness might be some kind of environmental guilt.

For those who feel that guilt, we uniquely among the European airlines, a carbon offset, a voluntary carbon offset program as part of the booking engine.

That will generate over EUR 1 million in the last -- in the current 12 months, and we are donating all of those offsets to environmental partners now: Cooking stoves in Uganda; reforestation programs in the [Alcar] after the forest fires of last year; Irish Whale and Dolphin Society; and [Woodlands Troves], I think, which is an Irish environmental partner.

So we continue to invest heavily in new technology, but we're also allowing though our customers to voluntarily participate in carbon offsets which will make a significant difference to our planet partners.

Our next question is from Mark Simpson with Goodbody.

I wondering how to think about a little bit further out FY '21, which I may say isn't too far away.

But if you're thinking about the comment to unit costs back under control, you clearly have the fully restructured Lauda in play, MAX aircraft into the fleet, that's obviously going to have a benefit on the maintenance line.

You got the faster pax growth in the market, which should give you airport deals.

Is it reasonable to think that actually the sort of target of reducing unit cost ex fuel to be achieved in FY '21?

Well, the target is to be flat to slightly down.

So I wouldn't -- and that has -- continues to be -- I mean, we're not far away from that in the next 12 months, but there are some moving parts.

If you take our unit costs up 2%, there's no fundamental cost problem there in the next 12 months, after a year of very significant change to the unit cost base last year.

Fundamentally, think of what are slightly exceptional things at Sterling, Lauda consolidation the first half of the year, delayed delivery of the MAX aircraft in the second half of the year.

We're not far off flat.

And I don't -- anyway -- we believe, and I've said this before, that if you go out over the next 3 to 5 years, particularly with the addition of the MAX aircraft, that we would expect to see unit costs flat to slightly down each year.

And the reason that's important is we'll be competing with airlines in Europe who have no prospect of unit cost being flat to slightly down.

Their unit costs will rise each year.

They keep talking about small rises and they deliver large rises.

So the unit cost gap between us and the competition in Europe will get wider in the next number of years, and the MAX will be a significant contributor to that.

The other point I would bring you back to is, a year ago, there was lots of concern about the staff shortages, tonnage shortages, unionization, model will be broken.

We went through a painful 12 months last year where in order to defend the cost base, we took and faced down, I think, 8 days of strikes.

Now while the narrative was that we were strike-driven all last year, remember, we were run by a river with strikes.

We had 5 days of strikes by less than 1/4 of our Dublin pilots, which on the worst day, we canceled no more than 30 out of 2,500 flights.

But I think if you don't face down those issues and you don't face our people, look, you're well paid, you have very good terms and conditions, in fact, the best of the industry.

But if you're going to be unreasonable, we -- and going to go on strike, we will face down those strikes.

We're not going to roll over.

And so I think I would hope we are, and I think anybody would bear this out, have a better relationship I think with our unions and with our people: One, because we know if we don't treat them well and reasonably, they will go on strike; but two, they know if they threaten us with a strike, we will take the strike and we're not just going to roll over as many of our competitors do and buy our strikes.

So I think our yield -- I am very confident that our unit costs are coming back under control, and that flat to slightly down over the next 4 or 5 years when the MAX aircraft will grow to be 30%, 40% of the fleet, will be reasonably benign on the unit cost front in an industry in Europe where all of our competitors will see rising unit costs ex fuel.

Our next question is from Gerald Khoo from Liberum.

Two questions for me.

Firstly on turnover -- or pilot turnover.

I mean, what was that figure for the past year?

And then how [just] between the captains and first officers, how -- to what extent has that improved versus the previous year after what we've done on pay?

And secondly with regard to the MAX.

Obviously [best is that] those aircraft will be in service for summer next year.

I was just wondering, what the contingency plan is if there are some delays, such as recertification, and they are not available for summer 2020?

To what extent can you -- or would you continue to try to grow with existing aircraft and wet leasing?

Okay.

Thanks, Gerald.

We don't break down staff turnover nor would we start now.

I think it's safe to say though, there had been -- the turnover, certainly among pilots, has dried up to effectively 0. It is certainly below our budgeted numbers for the next 12 months.

Remember this business though, that we have historically always had a reasonable -- we kind of budget in a reasonable turnover of captains.

We promote a lot of captains, a lot of guys and girls who become captains in their early 30s.

And I think there -- if there are attractions to them in going to places like the Middle East and China and tax-free environments for a period of time, and also there's attractions to them in flying long-haul.

So we would always expect to have a build of our flow of captains going through the system.

Now -- but it's a very small number.

And currently, I mean recent weeks or months, the rate of resignations has actually dwindled to effectively 0.

Within that though, we would always have a -- we train, hire and recruit and train up to 1,000 new pilots every year.

Most are the second officers becoming first officers, first officers becoming captains.

I think what was unusual for us if you go back to September 2017, we had -- what was most unusual is we were losing a lot of experienced first officers who would have been the next tranche of captains being promoted through.

That has -- dried, again, dried up to effectively 0 in recent months.

And that's not to say it will continue at 0, but there are really very few -- we have far more applications to us now, direct entry, to such an extent that we -- and we've communicated this with our own people.

We have frozen recruitment for direct-entry captains, for direct-entry first officers for the next 12 months.

We have filled all of the training slots and recruitment slots we need for the next 12 months.

We don't need to hire any more pilots for -- to crew our summer 2020 operations.

And that's really the best indication I can give you of the -- where we are on turnover.

I mean, there are other areas, like the Dublin market is particularly hot.

So for example, Labs, our finance department, those office positions end up -- there's some turnover in those areas, but they're readily replaceable.

MAX, does that mean -- I think, if it helps, but we do -- I mean, firstly, I think there's 2 things there.

One, I have utmost confidence in the aircraft.

We do, as does the rest of the industry.

And we're reasonably confident that the aircraft would be back flying in right -- will be flying in minor colors by, I think, November.

The winter schedule is the appropriate start.

And I am reasonably confident that we will have all -- we will be able to take those 50 aircraft deliveries between now and the peak of summer 2020, so say, July, August, September.

But that's still something that needs to be bottomed out with Boeing, was -- they have the aircraft back flying.

I mean, that Boeing have a huge backlog of deliveries, there's lots of aircraft that they keep manufacturing and rolling them out, so there may be lumps and bumps of that.

Our contingency plant for summer 2020, is if there was significant further delays of our -- based in the numbers of those deliveries, is we would simply have -- we would constrain the growth for summer of 2020.

We don't have much of an alternative, but that would result, I think, in a year of historically by our standards, very low traffic growth.

There would be less capacity growth across the European piece.

And that for a short period of time, we will hope to see upward price pressure on pricing and some short-term spike in earnings and profitability.

And -- but having said that, it would also then sustain our -- some -- the flakier competitors, like Thomas Cooks and the Norwegians and others, some hope that the summer of 2020 would be better than its looking now.

So I think -- I mean, our contingency plan is clear.

If the aircraft are delayed, we would simply constrain the schedule for that period of time.

We hope they won't be, and I would be reasonably confident that won't be, which is why I would be more hopeful -- are of a hope that, that would lead to further consolidation into winter of '19, spring '20.

And our next question is from Alex Paterson from Investec.

I wonder if you could say a little bit more about Buzz.

Do you expect a significant change in profitability as it continues to scale up?

Or were their sort of fares much more fairly set last year, and therefore, they won't see the kind of change of Laudamotion?

And secondly, could I just ask?

For the Boeing 737-MAX, I mean, it's -- you were suggesting it's likely to be certified at the end of August.

Do you expect any demand impact from that?

Do you think any passengers may be reluctant to fly on the aircraft?

Okay, thanks.

I think the Buzz profitability will, over the next year or 2, rise significantly, now in part because -- remember, Buzz last year was just a -- had just 7 aircraft in the Polish charter market.

So it was a very -- it's made a small profit.

But nevertheless, it does demonstrate the quality of the management team in Buzz.

The probability in Buzz will rise markedly over the next year or 2, in part because we have reallocated our Polish-based aircraft into Buzz.

So Buzz will start taking some of the MAX aircraft this winter.

They will be painting it Buzz colors.

We will be branding them.

And Buzz will, I believe grow, I think, make similar -- record similar profitability to Ryanair mainline largely because it will be taking over a significant proportion of Ryanair's schedule flying in Eastern Europe as well as maintaining a presence in the Polish charter market.

Again as I said with Lauda, we won't break out the separate profitabilities.

You'll see that reflected in the group profitability the next year or 2. I think on the MAX aircraft and customer confidence, I would bring you back to the 787 fleet a couple of years ago when it was grounded for a period with the lithium ion batteries, there was certain [transitional] 787.

Once the aircraft is back on flying for a number of months, I think those confidence issues will dissipate straightaway pretty quickly.

And in the aircraft, the MAX flying in America from June, in Europe from maybe August onwards, we will be a number of months, as Peter said, behind that development, partly because we are taking in new.

It's a new variant, so there will be a separate approval process both by the FAA and EASA.

I'm very confident that by the time we get to November, the aircraft is back flying in commercial service for 4 or 5 months, that there will be very little, if any, customer kind of confidence issues.

The customers will love the aircraft, the interiors, the wider seats.

Yes, they will notice if they're getting on an aircraft.

But most even don't notice what aircraft they're getting on.

And when you're booking on Ryanair, we will be able to tell you which flights will be operated by the MAX.

I mean, for the first month or 2, we'll only have 5 MAXes out a fleet of nearly 500 aircraft.

So we don't believe there will be a customer confidence issue.

And in fact, we think in pretty short order, like passengers traveling on the 787, customers will come to love and delight and be delighted to fly on the aircraft.

And our next question is from Johannes Braun from MainFirst.

Yes, 2 for me as well.

So on the sell-down of the order 737 planes that you mentioned in the prerecorded Q&A in the morning.

How would you treat the book gains that you are potentially generating from those?

Would that be in net profit guidance?

Or would that be treated as one-off?

And then secondly, fiscal '19 unit costs are better at plus 5% versus the 6% guidance.

So something must have happened in Q4.

Was there some cost-saving into fiscal '20, which would also explain part of the 2% cost inflation this year?

Or what is the explanation there?

Neil, why don't you take 2 of those for a fair trade?

Take the 737 profit and the fiscal '19 unit cost.

Neil?

Sorry, Neil Sorahan on the line?

Neil is on the line, but he is not answering, which I believe so.

Sale of 737s, there won't be a huge profit on those aircraft, but it won't be taken, it will be treated as an exceptional.

And they will have some impact on depreciation line and the -- but the profit on the sale of the aircraft will be treated as an exceptional item and not taken in headline profit.

I mean, it's not -- but it's not big, it's only 10 aircraft.

On fiscal '19, so most of it was timing.

Yes, come in unit costs are up 5% rather than 6%.

There's nothing significant in the fourth quarter on it.

We just come in a little bit ahead of where we thought we would be.

We continue to drive and manage that, manage it tightly.

I think the one notable cost-saving we did have in the fourth quarter has been, although there is a timing lag on this, there has been a reduction in the -- or a slight improvement in the rate and volume of the EU261 claims as we have invested heavily in the reliability of our operations, our handling, and have significantly -- seen a significant boost in on-time performance in that first calendar quarter, our Q4.

And our next question is from Malte Schulz from Commerzbank.

Two also from my side.

First of all, I mean, what was the narrative in (inaudible)?

You've been beginning to building.

And now particularly Tegel, it's probably one of the very -- one of the markets which have the -- one of the highest growths over the past year.

And my second one is on the EU261.

Can you give us a little bit color of your expectations for the summer?

I mean, the ATC shortage will be there.

Do you see the -- any measures you're particularly confident which will reduce your [predations] from these claims?

I mean, do you also add, like other airlines, significantly reserve aircraft?

Or do you have any other method?

Sorry.

Can you just repeat the first part?

I missed the Tegel question.

What the form of question about Tegel?

Why did you particularly choose now to grow into Tegel, probably one of the most -- the market that have seen the heaviest growth over the past year?

And it's also the reason -- I mean, if you listened to Lufthansa, or easyJet, where they probably have one of the most fees, pressure on yield.

Sorry.

What's the question?

Why did we choose to grow in Tegel, is it?

Yes, in particularly.

Fine.

Okay.

Well, I'll ask -- Dave is here to tell you the Tegel -- I mean, look, we chose to grow in Tegel because Laudamotion had slots there, that if we didn't take up the slots, we would have lost them.

And it is useful for us, particularly given the development of the opening of Brandenburg and the rundown at Schönefeld to have a presence in Tegel.

David, I'll ask you to give some more color on that.

On the EU261, on the color.

It's too early to say yet.

We -- yes, ATC is a mess, particularly the short-staffing in NATS and the U.K., in Germany, the French had strikes, which had the first big French ATC strike in May.

We had 3 of them in May last year.

But trying to predict the number and volume of French ATC strikes is an impossibility.

Nobody knows.

I think what we have done though is we have significantly improved the resilience of our operation.

We are operating with more spare aircraft this summer.

And we are -- we have also significantly invested heavily in our handling operations.

We changed the handler in Spain, in Poland and in Stansted.

In particular, the handling last summer was lamentable.

We have -- there's been significant improvements in that, and you're seeing that on a monthly basis in the delivering on-time profitability of over 90%.

But we're hopeful, I would say, rather than confident that there will be a reduction in our EU261, which is in our faith in market.

And we're hopeful rather than confident that there will be reduction of those in the next 12 months.

David, do you want to give a little color on Tegel?

I mean, I think I've answered why we went in there.

But give him a quick color on your view on the Berlin market.

Yes.

Well, I mean the Berlin traffic is about the same as Dublin, which is ludicrous really, given that Berlin is effectively the capital of Europe.

And it's inevitably going to grow over time.

There's a determined effort, of course, on behalf of the incumbents to keep capacity limited, I believe, by closing Tegel if and when Berlin Brandenburg opens.

So it's a market that is clearly underserved, artificially redirected through Munich and Frankfurt.

That will go on forever and it was important that we weren't shot over this.

And by taking the 4 aircraft days opportunities in Tegel, we added that to our 10 or 11 aircraft we chose to maintain a substantial presence.

And I think we also are figuring kind of a strategic approach to Germany.

Like look, Germany is not a big market for us.

We're about -- I think we have about 7% market share, so it's small, but Germany is clearly a very large market.

Now Lufthansa, having been allowed to break every known competition rule in its purchase of Air Berlin, has a 98% market share of the German domestic marketplace.

So we can afford to lose money in the German market for a number of years without even having a major impact on our bottom line.

Lufthansa, by contrast, reports a swing in Q1 from a profit of $50 million to a loss of $350 million.

So we would say to Lufthansa, "Keep it up, lads." If you want to keep losing a couple of billion a year, sure, at below-cost selling, then frankly, keep going and we'll keep going and we will outlast Lufthansa because it doesn't -- it's not a huge part of our overall marketplace.

But look, Carsten is a sport, sensible guy.

They have a paranoid view that they need to control Germany, Austria, the entire Central Europe.

That's their strategy and that's fine.

But they don't have a low-cost operation.

They never will have a low-cost operation.

You can only admire their response to the air traffic control problems in Germany last year.

Having bought Air Berlin, their suggestion to the German government was that the way to fix this was actually freeze the growth at German airports.

I mean, only Lufthansa would come up with the kind of solutions that would involve freezing growth in airports when they have 98% market share.

Thankfully, even the German government can see through the stupidity of that.

But Germany will be painful for a year or 2. The advantage we have is that our unit costs in Germany are significantly all in easyJet and they're manifestly lower than Lufthansa's and we can keep going at this rate for longer -- for stronger for longer than either of those 2. But I will expect that some rational pricing will return to the German market in a year or 2's time.

And within that time frame, you will see the kind of airline operations at Thomas Cook using [air hub 2E], significantly restructured and significant restructuring in the German market, which will leave Ryanair as 1 of the big 3 players in the German market.

We will be -- in fact, I'm not sure -- we're probably only #2 in terms of market share.

But I expect, given that our growth is based at many more German airports than easyJet, we would be the second carrier in Germany.

Easier to close the Hamburg base and some of their cutting back some of the other German bases in favor of Berlin.

Whilst Berlin is just 1 hub, I think it's 10 or 12 German bases for us.

I think we're running now 1 hour and 15 minutes.

So I think we'll cut this and maybe give another 5 minutes.

So when you ask, limit to another -- say 3 questions.

Shane?

If it's more than one more question?

Oh fine, okay.

We'll have only one more question.

So fine, let's go.

So our next question is from Ruxandra Doser from Kepler Cheuvreux.

Just 2 short clarification questions on your guidance.

First, is my understanding correct that the full year sale guidance assumes an improvement in trends both for the late in bookings in H2 and for the H2 bookings?

Sorry, both for the late in bookings in H1 and for the late H2 bookings, given the H1 trends you have seen in bookings so far?

And second, including Lauda, what tax rate do you expect in 2020?

Okay, Ruxandra.

I would not -- I mean, we -- I would not expect an improvement in trends in the late one -- or in the late bookings in H1 or in H2.

We expect pricing will continue to be soft, in fact flat or slightly down.

Now we say that, that's a complete guess given that we genuinely don't yet know what the close-in bookings will be in H1.

Or -- and we have any sense yet for what the yield trends will be in H2.

H2 will largely be driven by the timing and -- the rate and timing of the consolidation and who fails and when.

And frankly, we haven't a clue.

Tax rate.

I've only -- we're not guiding anything on the tax rate.

I don't know, Neil, if you want to add to that on [that or something] on tax rate?

Yes.

I mean, look, the tax rate last year because of the Lauda deferred assets, was 6.7% for the group or just over 9% for that.

I wouldn't expect huge difference.

It might be slightly higher because we anticipate that the losses will be lower in Lauda, which will reduce the deferred tax asset.

But they won't be materially different to what you're seeing this year, Ruxan.

Coming back to the fare guidance.

Is the fare decline in your current bookings higher than you expect for the full year?

You require the benefit of Easter?

So I believe -- I don't understand that question, Ruxan.

What the -- is the fare guidance higher than we expected?

No.

The fare decline that you currently see in the bookings that you have, higher than the fare decline you expect for the full year?

No.

That's too technical a question for me.

I have a limited intelligence.

Look, the fare, we are ahead on bookings.

What bookings we have in the system at the moment, we're only about 2% ahead of where we were last year, but are average fares that are lower.

No, they're not materially lower, but they're fractionally and marginally lower.

But really, the outcome will largely depend on that yield guidance, where we are in the close-in bookings, particularly as we move into the peak months of May, June, July and August with H1.

I mean, you're asking me to guess about what I'd guess.

A guess upon a guess, and I can't.

And that's the last question?

Okay.

Now so that's the last of our questions.

And you think about it, look, give you 2 quick themes here.

The pricing environment is (expletive).

That's good for our business.

We're the lowest-cost operator.

We have no intention of stepping back our capacity growth because we're adding capacity that is fundamentally lower cost, whereas nobody else is adding capacity that is lower cost or at low cost as the capacity we are adding.

We intend to keep going.

This business model has reestablished therefore over the last 12 months after a hiatus of 12 months that we're just distracted with labor issues and unions.

We have, I think, a much better relationship with the unions and with our people, but putting that now in a much more kind of normalized footing.

So the next 12 months, we start adding new lower-cost aircraft.

Fares will keep falling.

Ancillary revenues will keep rising.

We think the profitability will be flat in the next 12 months, which will be a very good outcome compared to what you're going to hear from a lot of other airline competitors in the last couple of weeks and the next couple of weeks.

And this model will emerge, in a consolidated European environment, as one of the big 4, big 5 airlines.

Possibly the one airline that will have a unique and significant cost advantage over everybody else.

The shares are as close to -- well, I know what they're not.

But the shares are very lowly priced.

And our demonstration in the confidence of the model is that is why we're rolling out a EUR 700 million share buyback.

I would not -- this is not a time when anybody else should be buying shares.

I would will ask you to wait until we've completed our share-back before you start placing your orders.

But we have no doubt that over the next 5 years, these margins will return, unit cost discipline will return.

Unit cost is already returning.

And when we get a clear to stable oil, fares will begin to reflect -- I mean, as they have done in the past, fares tend to lag oil prices typically by about a 12-month period.

We have now gone through a year of significantly higher oil prices.

We will hope to see that reflected in the summer of 2020, which will be our FY 2021.

But I'm afraid I have very good news for you for the remainder of FY '20.

It's going to be low prices, great deals for Ryanair customers traveling on new aircraft with a brilliant digital platform and with industry-leading -- industry, punctuality up over 90% again.

With that, I'm going to say thank you very much for joining us on the call.

We have extensive roadshow teams in Europe, in Ireland, the U.K., Europe and across North America.

If you'd like a one-on-one meeting this week, please.

And you haven't got one, please.

And contact us through [City Davies] or Shane O'toole in our IR department.

And I look forward to meeting you all at some stage over the next 5 days at the road show.

Thanks, everybody.

Talk to you soon.

Bye-bye.

This now concludes our conference call.

Thank you for attending.

You may now disconnect your lines.