Ryanair Holdings PLC (RYAAY) 2020 Q1 法說會逐字稿

Hello, and welcome to the Ryanair Q1 results conference call.

(Operator Instructions) And 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 Q1 results conference call.

Neil is joining us by phone from London, and then I have most of the rest of the team with me here in Dublin.

As you'd have seen this morning, we reported 21% fall in Q1 profit to EUR 243 million.

The key element of that was the 6% decline in average fares, 11% -- thus stimulating 11% traffic up to 42 million guests.

Revenue per guest was flat at EUR 6.55 per passenger, largely due to a better-than-expected performance in ancillary revenues.

We opened up 239 new routes and 4 new bases in Marseille, Bordeaux, Southend and Berlin.

Malta Airlines became the fourth group airline.

The Lauda Airbus fleet has grown to 20 A320s this year.

We have redelivered to Lufthansa the very expensive 9 operating leases we had with them last year.

The MAX deliveries are delayed -- continues to be delayed and are a continuing concern.

Ryanair has become the first EU airline to publish our monthly CO2 emissions, and we have completed just over 100 in the quarter, EUR 100 million of the EUR 700 million buybacks.

I think if there were a couple of key themes we would add to today, it is we continue -- revenues continue to be difficult, particularly the 2 weaker markets were Germany, where Lufthansa continues to engage in the low-cost selling through its Eurowings subsidiary that loses money hand over fist; and the U.K., where Brexit concerns appear to weigh heavily on consumer confidence and spending.

Nevertheless, as expected, though our underlying airfares are down, the ancillaries, driven by stronger priority boarding and preferred seats, continue to grow strongly.

Fundamental to all this, though, remains Ryanair's cost leadership.

Nothing has changed in the last quarter, in the last 12 months or the next 12 months that will alter Ryanair's position as the lowest unit cost airline in the European Union.

In the quarter, unit cost ex fuel rose by 4%, mainly due to the consolidation of Lauda costs into Q1.

They were excluded from the prior year Q1 comp because of the -- they were treated as an exceptional item; and a 21% increase of staff costs, which is the flow-through of the 20% increase in pilot pay we committed to at the start of 2018 and also the cabin crew pay deals we put in place as we concluded union negotiations across most of our major markets in Europe.

Our FY '20 fuel bill is 90% hedged at $71 per barrel.

We've now hedged about 37% of our FY '21 fuel position at about $63 per barrel.

On-time performances in Q1 and into the summer have seen a very dramatic improvement both in terms of on-time performance.

We've improved more than 7 percentage points over Q1 last year.

Excluding air traffic control delays, we are consistently recording over 90% on-time performance.

We significantly reduced the number of cancellations, so we would expect that to be translated into lower ATR EU261 costs going forward, and we hope that would be maintained, though, that we just recorded -- we had a bad weekend this weekend with European ATC delays.

On the Boeing 737, the first 5 MAX aircraft which were due to be delivered in April, May and June have been delayed, we said in the press release, to probably December.

We would, in fact, over the weekend, probably move that now to January.

The latest information from Boeing last Friday was that they expect to be submitting the soft -- the return to service software amendment now in October.

That was previously September.

And I am concerned that the way the MAX return to service keeps slipping.

If we -- if the MAX returns to service in December, we would expect to take the first of our -- the MAX 200s, the Gamechangers, in about the end of February.

If it moves to January, that's probably the end of March and so we're now looking at only being able to take something between now 30, but that may be as little as 20 aircraft for summer 2020, which would significantly truncate our growth rate into summer 2021.

On the basis that we could take delivery of 30 of the MAX aircraft, that will be down from the 58 we are originally scheduled to take in advance of summer 2020.

That would halve our summer 2020 growth rate from 7% to 3%.

We'd carry about 157 million passengers or guests in FY '21 as opposed to the original 162 million guests.

We remain committed to the Gamechanger aircraft.

But obviously, we won't take any deliveries until these have been fully certified as safe to fly by both the American and the European safety authorities.

We believe when they return to flight they will be the most certified, most audited aircraft, and they will continue to deliver 4% more seats per flight with 16% lower fuel consumption, and they will transform our comps and our business and enable Ryanair to continue to grow strongly into the coming years with lower fares and lower -- much lower fares and much lower costs than any other European airline.

Put together, we'd say, for example, the Airbus A321, the MAX 200 kicks them out of the park, particularly at the prices we've negotiated for these aircraft.

The balance sheet remains strong.

Over 60% of our fleet is debt-free.

The Board approved the EUR 700 million share buyback program.

And in Q1, we've returned almost EUR 100 million of that to shareholders.

In terms of the group structure, it's evolving.

This summer in June, Malta Air became the fourth aircraft in the group.

That will take over our Maltese-based aircraft, 6 aircraft currently.

We'll also transfer most of our French, German and Italian aircraft.

We'll move off the Irish AOC onto the Maltase AOC.

This is to meet our obligations with our union agreements in those countries to move to local labor contracts but also local taxation.

By moving the aircraft off the Irish AOC and onto the Maltese AOC, we allow our German pilots and cabin crew to pay their income taxes in Germany, our Italian pilots and cabin crew to pay their income taxes in Italy, and our French pilots and cabin crew to pay their income taxes in Italy (sic) [France].

They already pay their social taxes in those countries, which is the countries where they reside, but it's an important concession, I think a commitment on the part of Ryanair as part of those union agreements that we move towards local income taxes as well as local contracts.

This summer, Lauda's operating 20 lower-cost A321s.

They will help Lauda to significantly reduce its losses this summer, but we expect Lauda will still be loss-making in the second year of operation, largely because of the very low fare environment in Germany and in the Austrian markets.

We are happy to report that Buzz in Poland continues to grow.

This summer is up 7 charter aircraft, 17 scheduled aircraft and it will grow its profitability in its second year of operation.

Ryanair is and remains Europe's greenest, cleanest airline.

We are continuing to roll out environmental measures, such as we've become the first airline to commit to and to publish monthly CO2 emission reports.

In May, we launched our environmental partnerships where we're investing multimillion euros per annum in carbon offset project with carbon partners in Africa, Portugal and Ireland.

It's important to reject these -- this kind of mistaken assumption, particularly in Europe and among some of the environmental lobby groups, that airlines get a free ride.

We don't.

We've paid over EUR 540 million in environmental taxes in 2018.

That will rise to over EUR 630 million in 2019 and equates to more than -- on average, it averages out at more than EUR 4 per passenger or more than a 10% rate of tax on revenues, never mind on our fuel bill.

In Board succession, we are pleased to announce today that Louise Phelan has agreed to take over as the Senior Independent Director in summer 2020 when Kyran McLaughlin steps down from the Board after over 20 -- some 20 years of service, much of it as our SID, and we're very grateful to Kyran for his leadership and guidance over that period.

Looking forward into summer -- FY '2020 guidance.

We continue to guide broadly flat at PAT.

We haven't altered the range, it remains within a range of EUR 750 million to EUR 950 million.

As the current weak fare environment has continued into quarter 2, we expect H1 fares to be down approximately 6%.

We have almost zero H2 visibility, but our FY '20 fare guidance is towards the lower end of our guided minus 2% to plus 1% range for the full year.

We do not share the kind of unbridled enthusiasm and optimism that was reported in recent weeks by Wizz and easyJet on their conference calls.

We would remind everybody that back in January, there was also a shared sense of unbridled optimism about summer fares from both of those competitors, who within 3 months were guiding down their -- or toning -- reining back that unbridled optimism.

We think we are cautious on pricing into the winter.

Brexit and the risk of a hard Brexit has significantly materially increased, we think, with the new government in the U.K. We don't expect there would be a disruption to flights because we expect that the European Union and the British government will have put in place those interim arrangements which we expect will last for a 9- to 12-month period will be restored and -- restored or reissued if there's a hard Brexit on the 31st of October will protect the winter flights and probably next summer's flights.

But thereafter, there will be material changes, I think, in flight rights and in ownership rules.

We already have had our ownership rules mitigation measures tested and approved by our regulators, so we are in pretty good shape, but the U.K. domestic routes would come under question.

We've set up the Ryanair U.K. AOC, but there will be a program over the next number of weeks.

We are working actively now on -- base cuts and possible base closures.

We need to accommodate the possibility of taking 30 aircraft for summer 2020 instead of 58.

That 30 may become 20, may become 10 if the MAX deliveries are further delayed.

And that is -- I think we're going to initiate discussions with our people and their unions, certainly over this week and the next couple of weeks about this winter schedule, where there will be material cutbacks and into next summer, where there will be material cutbacks.

And we would not rule out redundancies and job losses, which will be inevitable if these MAX -- the MAX delays are as presently envisaged or get worse.

Having said that, the ancillaries continue to support our revenue per passenger growth guidance of plus 2% to plus 3% for the full year.

Traffic, we expect this year will grow to 7% to over 152 million passengers, just slightly back off the 153 million previously guided, mainly due to the MAX delivery delays.

Costs, we're doing slightly better than we had originally envisaged, even as the fuel bill grows by EUR 450 million.

We expect ex fuel unit costs will rise by just 2% for the full year.

We are sticking with that guidance despite the fact that originally, much of that 2% rise was contingent upon operating some 50 MAX aircraft in the second half of the year.

So we're coming in with a slight beat on the unit cost.

However, all of this guidance remains very heavily dependent on closing Q2 fares, H2 prices, on which we have very limited visibility at the moment, the absence, obviously, of any security event and no negative Brexit development in H2 and -- which cannot be ruled out at this point in time.

And Neil, do you want to take us briefly through the MD&A?

And then we'll open it up for questions, please.

Sure.

There's not a huge amount to add to what you've already said, Michael.

I'll just, I suppose, point out this is the first quarter that we had IFRS 16, the lease accounting standard.

The impact, as expected, was fairly modest to the group.

It impacted net debt by about EUR 220 million, that will grow to about EUR 330 million as we take on more leases.

By year-end, and the P&L impact will pretty much de minimis.

The balance sheet continues to be in a very strong position, which, as Michael said, over 60% of the fleet's debt-free.

And I think, importantly, the cost guidance retained at just 2% shows that we continue to be very disciplined on the costs in the business.

And I think, Michael, you covered everything else, so we can go to Q&A.

Okay.

Thank you.

We'll move to Q&A.

Now for obvious reasons, please don't ask questions about what we think the yield will be in the second half of the year, because we don't -- the answer is we don't know.

But other than that (Operator Instructions).

We'll dip through this as quickly as we can.

(Operator Instructions) Our first question comes from the line of Duane Pfennigwerth of Evercore.

So you've had a history of opportunistic aircraft purchases in the past, stepping up at a time of crisis, for lack of a better word, to lock in an aircraft ownership cost advantage in the future.

I'm just wondering why you're not doing that now.

Is it some of these uncertainties that you're talking about, Brexit, et cetera?

Or is it something that you're not seeing from Boeing currently?

Okay.

Thank you, Duane.

I'd answer 2 points to that.

We've been very opportunistic.

I think within Lauda, we've gone from 0 to a fleet of 30 very low-cost, secondhand A320s for summer of 2020.

That will be almost 10% -- not far off 10% of the fleet next year.

We're looking at other opportunities there for our low-cost operating lease A320 aircraft, particularly the older generation of ceos, which seem to have had their monthly lease rates devalued.

We are in dialogue with Boeing about a new aircraft order, but obviously, the discussion with Boeing at the moment is hindered by their inability to get the aircraft, the MAX aircraft, back in service.

Both Boeing and Airbus have long tailbacks -- or long tails in their order books that essentially run out to '22, '23.

And we haven't -- we are not yet in a position where we've agreed anything on price with Boeing or indeed with Airbus.

We've had discussions with them on deliveries past 2022, 2023.

Airbus are pricing very aggressively at the moment.

The world has moved in their favor given Boeing's production issues.

And Boeing, I think, are not yet at the point where we see value yet in a new aircraft order for the periods for 2023 onwards.

Next question, please.

And then just on your...

Yes.

Go ahead.

Yes, just on your margin level and defensibility.

It wasn't that long ago we were in sort of the low 20s.

This year, you'll be low double digits, maybe 11%.

How do you think about the long-term margin level of the business?

And when do you see margins expanding again?

I think the long-term margin of the business here is 20% after tax.

It has been compressed over 2 or 3 periods in our history, usually as oil prices have taken off, which is what we'd been facing last year and this year.

I think we would have handled reasonably well the one-off step up in salaries, pilot costs and cabin crew costs, but we're running through a period, 2-year period, where we've had very volatile and rising oil prices.

This year, we're in a year where we're paying $71 per barrel.

That's up from just over $40 a barrel 2 years ago.

If we have a stable oil price over a 2- or 3-year period, I will remain confident this business is and will continue to deliver 20% after-tax margins.

But we are -- next year, I would expect us to see some margin improvement if we can hedge out the remainder of the year at or below $60 per barrel.

At the moment, we're 37% hedged at about $63 a barrel.

We are looking for opportunities to continue to hedge at under $60 a barrel, but we haven't seen them yet at the moment.

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

Two from me.

I think 2 weeks ago, you said you'd give a little bit of color, if you could, about what the delay in the Boeing deals means for: one, on your thinking on pricing next year, i.e., slower growth.

Should that be better for pricing?

And then potentially, just any color on what that means also for costs for 2021.

And then the second question -- or maybe it's the third, you can decide then.

Any update on potential for summer staff disruption and what deals still need to be signed?

Okay.

I mean, it's very difficult to deal with the Boeing delays because they keep getting delayed further and further.

It's only on middle of July, the 16th of July, we issued a press release saying we now no longer expect to be able to receive, take delivery.

Up until the middle of July, we were expecting the Boeing aircraft to be back flying in September, as did the rest of the industry.

We're now saying it now looks like January next year.

As recently as last week, Southwest moved -- took the MAX out of their schedules until January 2020.

There's a number of different ways you can look at it, but we're within in the realms of speculation.

I think there is going to be significantly less capacity in Europe in summer 2020, in part because of the MAX delays.

We would have less capacity growth ourselves.

I think in major parts because there's going to be some very significant and substantial airline failures this winter.

We already know, for example, Norwegian are going to cut or close between 6 or 8 bases in October, November this year, almost all of which where they compete with us.

So there will be more failures this winter.

There are some airlines out there who cannot sustain the losses they're making with oil up at $65, $70 a barrel, who don't have a balance sheet.

And we understand that some of the credit card companies are already delaying release of payments to a number of our airline competitors at the moment in Europe.

Now the timing of those failures, I don't know.

And it depends on what happens to oil during the winter period.

We expect that there will be significantly less capacity growth into the summer of 2020.

I will at this stage be modestly optimistic about pricing into summer 2020, given that we will have less capacity growth.

Most of our competitors are already announcing that -- cutting back their capacity growth, most notably Lufthansa and Eurowings, which continues to lose money hand over fist.

And even Lufthansa, at some point in time, have to be able to demonstrate that buying everything that moves in Germany has some kind of underlying business proposition, which they've manifestly failed to do thus far.

And if a larger -- one of the larger airlines, say for example, a Norwegian, fails in the next number of months, that would obviously have a transformative effect on capacity into summer 2020.

But I can't be specific.

We are not very good at -- we can guide you, but we can't give accurate forecasts as who fails and when.

Costs in 2021.

Overall at this stage, clearly, oil looks like it will be somewhat a benign environment.

We would expect to be able to continue to hedge into FY '21 at or below $60 per barrel.

I think it's instructive at the moment, given all the uncertainties in the Middle East and the Straits of Hormuz, that oil is still hovering only in the low 60s, and I think that is because of the strength of U.S. shale production continues to be the major swing producer.

I think over the medium term, we are looking at a period of sustainably more modest oil prices or lower oil prices, because I don't believe that the OPEC and the Russians can continue to cut production, given their -- the fiscal constraints that they're facing at home.

But who knows?

And the other one that I missed, the last question?

Staff disruptions.

Staff disruptions, we don't expect -- we have repeatedly tried to say we don't expect staff disruptions during the summer period.

We have gotten through July and certainly the first half of August without staff disruptions.

We have been surprised by a number of press releases that have been issued by unions in the U.K. and in Ireland talking about resumption of -- threatened strike actions by pilots or cabin crew at the end of August or into September.

I mean, it seems to us that these are, even by the standards of some of these trade unions, chronically ill-timed and ill-judged, given that, that will be -- coincide with the period in the next number of weeks where we're going to be announcing base cuts, base closures, job cuts driven by MAX delivery delays.

But we are in active negotiations -- we are in active dialogue with all of these people.

And while we don't expect strikes, we have continuously advised our investors that where we have unions, we can't all -- we can rule them out, but we have demonstrated, certainly over the last summer, that we are very good at managing our way around these strikes.

And I think in a -- at this point in time where we have now announced a 21% decline in Q1 profit, we have significant MAX delays.

We are now looking at base cuts and closures as early as October and a significant number of pilot and cabin crew redundancies, if there are certain people who want to go on strike in the midst of that, against that backdrop, then frankly, God bless them and we will manage our way around them.

We will not be making concessions at this point in time, either on pay increases or costs, where we are looking actively at job losses, pilot and cabin crew job losses, base cuts and base closures.

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

Just a couple of questions from me.

A bit of a follow-up on Jarrod's.

Given the MAX uncertainty, I wonder if you can compare your [key] position to the last time growth was stalled, I think back in fiscal year '12 to '14, just kind of implications for earnings.

And I think you alluded to this a little bit.

Is there an ability to maybe grow the Airbus side to make up for it?

And then just the second question.

I wondered if you could comment on Peter's kind of exit here, what seems to be more of a parallel move for kind of at easyJet and what it might mean for, kind of management roles at Ryanair.

Okay.

Look, it's very difficult -- discussing the MAX, Savi.

Look, I mean, the situation that we are today, we were originally expecting 58 aircraft for the summer of 2020, that's now 30 at best.

It may well move to 20, it could move to 10, and it could well move to 0 if Boeing don't get their (expletive) together pretty quickly with the regulators.

Now obviously, we are working actively with Boeing and the assets.

Safety is our #1 consideration.

And as one of the airlines that has the MAX simulators in its fold, we are -- everything we do will be driven by ensuring that this aircraft is safe to fly, when it is approved to do so by the American and the European authorities.

And we will not take delivery of any MAX aircraft unless it is certified as fit to fly and we are satisfied that the authorities have certified it to be fit to fly.

So but -- and while we will continue to be opportunistic on the Airbus side, we're not going to run out today and suddenly sign up another 58 Airbuses for next summer, where we simply -- there aren't -- there isn't that kind of availability, and we would simply start bidding up the cost of secondhand A320s.

But we have already committed to growing the Lauda fleet from 20 aircraft to 30, 32 aircraft for summer 2020.

We are building that into -- if we can only take 30 Airbus -- or 30 MAX aircraft, that gets us another 10.

Lauda, some of those aircraft in Lauda may well be charged with operating some Ryanair bases outside of Austria and outside of Germany in the summer of 2020, those kinds of opportunities are there.

But we would not expect -- I think our best estimate at the moment is that the traffic growth next year, instead of 162 million into FY '21, it will now be 157 million.

And that number could move lower.

It could be 155 million, it could be 153 million, depending on the certain -- the MAX aircraft being recertified to fly.

Departure of Peter Bellew, obviously, I cannot for legal reasons, I can't comment on anybody's -- any individual's contract or termination or anything else.

All I will say is what we have said to investors last week and say it again this week.

All of the senior management in Ryanair have pretty long termination or notice periods in their contracts.

In Peter's case, that's currently 6 months.

And thereafter, they have a pretty extensive noncompete agreement, which arise from the share option schemes that they have agreed and received over a period of time.

So I would not expect any senior manager in Ryanair to be moving to a competitive airline for a reasonably long period of time.

And that applies to me, it applies to all of the senior management team.

And I really can't comment other than that there will be a -- we are in dialogue with Peter about his termination period, but there will be no movement from us on what are reasonably extensive and noncompete agreement after the termination period as well.

Next question, please.

Our next question comes from the line of Daniel Roeska of Bernstein Research.

I'll try to coax something out of you for the fares in H2 anyway.

You won't.

As I look at your RPP performance kind of you've guided to, it looks challenging, right?

And given your comments around the environment, I'm just wondering what I'm missing.

And possibly you could comment on what actions, positions, projects you are putting in place that will benefit fares or ancillaries, specifically in H2.

Kind of how are you thinking, what are you having the organization do right now to kind of bolster what you can for H2 on that performance?

And then secondly, on Buzz.

I was just wondering if you could shed some light again on the key reasons for branding the Polish operator not as Ryanair.

Are you -- will Buzz try out different product strategies, different ancillaries?

Were there legal or labor reasons?

Kind of what are the key decisions around not branding it Ryanair, whereas you already have a sizable Ryanair presence in Poland, which, I guess, will now be rebranded into Buzz?

Okay.

Thanks, Daniel.

I mean, obviously, you're not going to squeeze any further detail out of me on H2 fares, because frankly, we have almost no visibility.

I will give you a couple of themes, though, that we would focus on why we're not kind of moving the H2 fares down or the revenue per passenger down for the full year.

And that is an amalgam of 3 different influences.

One, we have very weak prior year comparables on average fares into H2.

Two, we are -- but we're not quite sure yet how we factor in things like Norwegian closing 6 or 8 bases in this winter.

Those bases are generally in the U.K., Spain, Italy.

The Dublin base, for example, is going to be reduced from 6 to 1 aircraft, so it's effectively being closed.

Quite how that plays across, we're really not sure yet, but it must be reasonably helpful for H2 pricing.

And I think the third issue we would see is that we're about to, in the next week or 2 weeks, roll out a number of base cuts, route closures, cutbacks ourselves, which are driven by the MAX delivery delays.

And why that affects this winter is there's a number of -- if we were saving 58 aircraft next summer, we would have a lot of new routes and growth at certain bases, and if we don't have that kind of momentum next summer, then it doesn't make sense to go through the winter suffering losses, short-term losses, at some of those winter bases.

Those are the 3 of kind of the upsides, good for average fares in the second half of the year.

Running against that, and it should not be underestimated, is the real risk now of a hard deal -- a hard Brexit at the end of October.

It seems the U.K. government are determined to leave without a deal.

We don't believe there will be any move by the European Union to assist them or help them.

If they are determined to leave without a no deal, we believe the European Union would say good luck, because it is a political issue, not an economic issue for the European Union.

So this is a time, I think, for great caution.

It is why I would like to separate ourselves yet again from the more optimistic statements coming out of some of our competitor airlines in the last week or 2. They have a history of making optimistic forecasts on average fares and yields, which they subsequently set -- have to walk back.

We generally have a high history of being more pessimistic.

Sadly, in the last year or 2, we've tended to be more right.

But it is where it is.

We don't have the visibility.

We don't think it will be any worse than we're guiding, and there may be some move to the upside.

But there [ought] -- would dramatically alter that.

If Norwegian goes bust in September or October, which I think is a distinct possibility, I wouldn't suppose any higher than that, that would transform pricing, costs, pilot supply, airport deals, et cetera.

So we're in a very challenging environment, and out of that challenging environment will come lots of opportunities if you are the lowest-cost operator, and we are the lowest-cost operator.

Moving to the Buzz brand in Poland.

I think it's important as we move to the group structure, and for a group structure to be effective, the individual airlines have to have a loyalty towards the individual airline.

People who work for Lauda are proud to work for Lauda.

The people -- and we want to have a separate identity in Poland, less so when it was a charter airline as a Ryanair Sun.

But now as it has built that charter presence, and it's important that it does have a separate identity and presence in the Polish market.

It now operates 7 charter aircraft and 17 scheduled aircraft.

And we think and believe that the people who work for Buzz will be proud in the future to work for Buzz.

They may be a subsidiary of Ryanair -- of a greater Ryanair Group, but we do want to encourage competition between the individual group airlines for the allocation of resources, and we should encourage the individual airlines to compete aggressively against each other.

I think IAG has demonstrated the effectiveness of that with separate brands -- I mean, they have separate brands even within Spain.

They have Vueling, Iberia Express and Iberia.

I think Vueling has done some excellent work in transforming the comm space of those Spanish airlines using those multiple brands.

And I see there's no point in us moving to a group structure if all we're going to be is Ryanair, Ryanair Poland, Ryanair Malta, Ryanair Austria.

We do actively want and we intend to encourage those group airlines to compete against each other to help us lower comps and improve efficiencies.

Next question, please.

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

Two things.

Just beyond Peter, can you just talk about the different airlines in terms of management structures?

I saw you had an advert there for the Ryanair DAC ops CEO job and just how that's progressing in general with the management teams at the different airlines.

And the second question, could you just maybe give us some color on ancillaries and how do you see that progressing, particularly with the work done and being done by Ryanair Lauda in terms of personalization and things like that?

Okay.

I'll do the first.

I might ask Kenny to just give you a flavor on the ancillaries.

So different airlines, the management structures they're evolving very -- actually quickly.

We have a good management team in Lauda led by Andreas Gruber.

We have a very good team in Buzz, operating profitably led by Michal Kaczmarzyk.

I can never -- my Polish pronunciation is not at its best, so Michal K. We have just appointed Diarmuid O'Conghaile here from Ireland as the new Chief Executive of Malta Air.

And we have rolled out the advert for the CEO for Ryanair DAC, the Irish airline.

The ads appeared last week.

We expect to conduct applications, that will conclude by the end of July.

We expect to do the interviews through August.

The original timetable for having a new CEO for Ryanair DAC will be the AGM in September, and we're well on track to do that.

With Lauda, since Peter has announced he's stepping down, we used that opportunity to roll out applications for Director of Ops in the same ad, and we expect to have a replacement for Peter in place certainly before the end of September.

So the management structures are evolving well, and I think we will give much more color and detail on that on the half year results road show, which is -- will be held at the end of October.

On ancillaries, again, I'll ask Kenny just to give you a flavor, but the uptake continues to improve.

Much of that is being driven by the 2 we've highlighted, which is the reserved seating and the priority boarding.

The work that John Hurley and the team at Ryanair Labs are doing has -- is making these additional services much more customer-friendly and easy for customers take them up, particularly on the mobile.

Kenny, do you want to give some flavor and color on that?

Yes.

As you said, over -- looking back over the quarter in seating and priority boarding, where we have made changes in terms of removing clicks, making it more targeted, just making it easier for customers to purchase.

Stephen, over the next 6 months, it's really into the winter and the second part of the winter, so the new year, that we'll really be rolling out the stock that we are now working on behind the scenes.

So that's a much more data-driven approach.

Again, taking out clicks, making it more targeted in terms of the products that we are pushing in front of customers.

So the story and the plan hasn't changed there.

And as always, we'll work on it over the summer, and we'll release it market by market, bit by bit.

An act -- the potential for an active trip, starting with mobile and then coming onto desktop, but it's too early to say more than that.

You will see it coming in the months ahead.

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

I have 2. Ex fuel, unit costs in the Q1 were plus 4.4%.

If you strip out Lauda from that, could you tell us what the like-for-like trend was?

And following on from that, what lines helped you deliver that plus 2% overall for the year?

And then second question, you have in the past talked about Lauda losses in the range of EUR 20 million to EUR 50 million for this year.

I'm just wondering if you could just update us on that range.

Okay.

I might ask Neil just to comment on that, but we won't be stripping out -- we're not stripping out the Lauda number from the like-for-like cost trend.

And Lauda, this year, there's been no change to the -- our general guidance, is that the losses will be in a range of between EUR 20 million to EUR 50 million for the second year of operation.

Neil?

Yes.

So as Michael said, we're not going to strip out the Lauda in the quarter.

So the look of the kind of movement in costs over the rest of the year and where we're getting some benefits to ensure that we're only staying at plus 2%, looking at the likes of the various cuts that happen over the winter periods, that will help from an accruing ratio perspective, but more importantly, we invested quite heavily last year in our on-time performance in the EU261, so we anticipate over the second half of the year and indeed, in quarter 2, that we'd see savings coming through on the EU261, some savings on the marketing.

And then there's a couple of bits and pieces that we're doing on the maintenance side which will also come through the back end of the year, Mark.

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

If I could ask you, please, first of all, I know you don't generally split out region by region pricing, but I wonder given that you've highlighted the U.K. and Germany/Austria as being particularly weak, would it be possible to confirm whether you are seeing stability or even growth in any markets across your network?

I'm just -- I think it's important context to think about the winter following on from the summer's underlying, ex U.K. and Germany.

And then second question, you obviously touched on the [price] with Lauda earlier, so I appreciate that.

But just the 200 million guest guidance for FY '24, you haven't actually updated that since you acquired Lauda.

And I'm just interested, should we expect this to be raised at some point?

Or has there been a tempering of ex Lauda plans?

Interested in how you think about medium-term growth in that context.

Okay.

Neil, as you know, we never break out pricing by region, and we're not going to start now.

I mean, the reason we've specifically -- we're trying to give a flavor of where -- which markets are weakest and why and that's Germany and the U.K. And we've explained why they are weakest.

But we're not about to start detailing which regions are doing better or which is best, which is strongest.

It's not something we do and it's because obviously, it's commercially sensitive.

We haven't altered the 200 million number for 2024 partly, again, because of the MAX uncertainty.

And also we're not quite sure why Lauda -- we have a back of the envelope kind of guidance.

Our growth for Lauda might grow to 30 aircraft in summer '20, 40 aircraft in '21, 50 in '22.

Really, it's opportunistic.

And we're -- it's not significant.

It's not going to be that significant that it would require a material alteration to the 200 million guests guidance.

I -- I've seen some analysts out there, usually on the sell side, "Oh, the 200 million won't be met." I see no reason why the 200 million won't be met by 2024.

But obviously, it is contingent upon the MAX delivery happening.

I think the reason why I would disagree, I know Bernstein, for example, were quite negative on the 200 million.

I mean, the bit that they have factored out is who's going to go bust this winter, and that will fundamentally change and alter the dynamic of traffic growth in the next number of years.

I continue to be strongly of the view that by 2024, there will be 4 very large airlines in Europe.

I -- my guess on that, it's going to be Lufthansa Group, IAG Group, the Air France-KLM Group and Ryanair.

I see that all of them will be running something of the order of about 2 -- between 150 million and 200 million passengers annually each and that between the 4 of us we will account for over 80% of the air travel, certainly short-haul air travel within and to and from Europe.

That is pretty much the same way consolidation has played out in North America 10 years ago, and I see no reason, substantive reason being judicious management, why that won't continue to be the case.

But really, until we can, I think, see a way through to the MAX back flying, how that affects the MAX delivery, production and delivery over the next, certainly, 2 years, we are not in a position to get to 200 million, but I would be reasonably confident -- in fact, I will be stronger than more reasonably -- I'd be pretty optimistic that we will be carrying 200 million passengers annually by 2024, if not slightly more than that, but now is not the time to be giving you buoyant medium-term growth numbers.

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

The first was just on your German strategy.

Clearly, you posted numbers or ambitions in the past of what your market share should be.

I'm just wondering, given everything that's going with Lufthansa, obviously, the MAX issues, your sales only growing 3% next year, what -- where Germany would play out in that?

Is it still massive growth?

Is it pared back?

Or is it just in line with everything else?

The second one, just on the MAX issue, slightly sort of bigger existential question.

Do you think there's a lot you need to do in marketing the MAX as and when it does come in, in terms of protecting the consumer perception of flying on it?

I mean, I think our German ambitions are undimmed.

But you remember, I would always caution here with Ryanair, I mean, our ambitions as stated are usually always subject to negotiation and opportunities.

I can't foresee any way Lufthansa will continue to sustain the level of losses that they are meeting in Germany and some of the explanations being produced by Carsten and the team are just laughable.

I mean, as recently -- it was apparently that the whole -- Lufthansa is defending its home market.

From what, I'm not quite sure.

But we're trying to move Lufthansa or [Eurowings] out of the German market.

Nothing could be further from the truth.

We have a reasonably small footprint in Germany.

We have a significant number of bases there, but they're all reasonably small.

And Lauda in the last 12 months has expanded in Stuttgart, Düsseldorf and Vienna.

Now Vienna will clearly -- that expansion will continue.

We have seen a retreat by Level.

Wizz, they're not growing as fast as they originally planned to grow in Vienna.

Because Austrian is kind of shoveling as much capacity back into Vienna from the regional airports in Austria as fast as they can, presumably trying to block off slots.

But every time we give you a forecast -- I can't remember which forecasts you're predicting, but in whatever market share we'd have in Germany in 5 or 10 years' time would always be subject to opportunistic -- us moving capacity around opportunistically, because we get to all of these markets eventually.

I mean, we're growing very strongly, for example, in Central and Eastern Europe at the moment.

We're finding -- we're undercutting Wizz and LOT and Karun in those markets.

Some airlines in those markets will keep promising that A321neos are going to give them a lower revenue [RPM], CASM, that Ryanair sometime in the year, 30, 35.

But every time we come up against them, they tend to retreat away, because they're not able to compete with us on the price per seat or on airfares per seat.

So I mean, I think we will continue to see expansion in Germany.

We would not rule out some -- now you know, there are some German airports, for example, that we're looking at cutting routes.

We may even look at 1 or 2 German base closures this winter.

They will be driven by the short-term MAX delivery delays, not any change in our German strategy.

And where we're able to add some Airbus aircraft with Lauda, we will expect to continue to expand some of their German capacity as well.

On the MAX, I mean, I think we take the view that once the MAX returns to flying, it will be very clearly signed off by the safety authorities in America, in Europe and Canada and others.

It will be the safest aircraft flying.

It will certainly be the most audited, inspected and everything else.

We believe that once it returns to flying, passengers will have very little -- will have no fear about flying.

Honestly, this is a great aircraft.

The interiors are superb.

The performance is superb, and the fares will be lower because it has 4% more seats and 15% lower fuel consumption.

And I believe that when it does return to flying, not unlike -- and I know the circumstances were somewhat different, but the 787 was grounded for a short period of time because the lithium ion batteries and the same questions asked about the 787s.

Two years later and many thousands of flights operated, the 787 is probably one of the most popular aircraft flying.

Will we do any particular marketing on the MAX aircraft?

No, we won't.

Are we -- will we be able to tell passengers which is a MAX and which is an NG aircraft?

No, we won't, because, frankly, aircraft allocations are done on an overnight basis, not kind of 3 or 6 months in advance.

But we don't believe there will be anything other than passengers will love the MAX aircraft and they will be able to take great confidence in the fact that it has been approved and safe to fly by -- after extensive testing and retesting by the safety authorities in the U.S. and in Europe.

Next question, please.

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

Two questions, please.

First of all, coming back to MAX.

I'm sorry, it seems to preoccupy the call, but when you made the initial announcement, you suggested you could come back and give us a better feel for what happens with CapEx with the MAX.

So if you've managed to rework that, could you give us an update on that?

And in particular, maybe just on the 28 planes less, what that does to the CapEx?

And then secondly, and again, sorry to labor it, but your outlook at least implies sort of average fares will be up about 3% in the second half.

Now layering that into what you said about the sort of mix and sort of base closures or route cuts, could you give us a feel maybe for Q1 what, how much, if any, of the network lost money?

And therefore, where you get a mix effect from cutting that out will come from?

Okay.

I'll ask Neil, but I guess, as to the CapEx, we feel that on the outlook or the implication of the outlook, we haven't given you an implication for average fares.

We've given you the implication on revenue per passenger for the full year.

I don't want to mislead people with some -- any indication or outlook on average fares.

There are potentially upsides in the second half of the year.

There are also potential curveballs, not least of which is the no-deal Brexit.

I think our outlook at the moment should be reasonably cautious.

I mean, that, I think we separate ourselves from the, what I thought was kind of somewhat optimistic upside being communicated by Wizz and easyJet in the recent number of weeks.

And I hope they're right.

If they are, then we will all have a bumper winter.

But to me, they seem to be unduly optimistic given the challenges that are out there.

How would Q1 play into the second -- into H2?

It wouldn't.

I mean, Q1 is generally a period where you're launching the summer schedules.

We tend to have a lot of recruitment at pay there, a lot of new bases and new routes are starting.

The second -- whereas Q3 is entirely different and it all depends on what routes and bases get cut or closed within that period of time.

Neil, do you want to do a quick update on the CapEx, assuming no MAX aircraft until, say, February, March or this year -- or excluding them from the -- from this year altogether?

Yes.

Damian, it's difficult, clearly, to put numbers on this.

But assuming we get the 30 MAXs in, we'd be looking at maybe a EUR 300 million positive move on the CapEx this year, which has been primed into next year.

But it's extremely difficult to give exact figures given that we don't have exact reschedules, which impacts the timing of PDP and everything else.

But our best guess is that it's kind of EUR 300 million there or thereabouts based on what we're planning for at the moment of a positive impact.

That hasn't changed, clearly, if it goes just 20 deliveries or 10 between now and year-end.

Our next question comes from the line of Kathryn Leonard of Numis Securities.

Two, please.

Just going back, I'm sorry, to the average fare outlook and thinking along a similar line to others, but in terms of forward bookings, and I know previously you've said -- you talked about the H1 forward bookings hedge year-on-year.

I'm just wondering where you are so far, maybe for Q3 year-on-year in terms of whether it's trending above the forward curve.

I think, previously, you should be around 20%, 30% sold now.

So in terms of your Q3 visibility, does that then support that quite positive outlook you have?

And then secondly, just in terms of holidays, I wondered if that plays into the elements you brought in the pipeline and whether you -- how you're feeling about that and what the prospects there might be?

Okay.

Average fare, I mean, again, if I look into Q3 or the remainder of Q2 and Q3, bookings are materially ahead of where they were this time last year for Q2 and for Q3, but pricing is weaker.

We have been more aggressive on forward pricing.

We are materially ahead in terms of forward bookings from where we were this time last year.

And we noticed -- I think it was more than a week ago on the easyJet conference call, that their forward bookings were materially behind ours.

Now that has in recent quarters proven to be somewhat disadvantageous in that some competitors have arrived closer to the date of travel and they've been opening up what would have been high prices closer in, because they are badly booked and they panicked, particularly the tour operators, the holiday operators and we've seen a bit of that out of easyJet as well.

And we think maybe that was some of the justification where they were talking about being better booked or higher fares, is that now their load factors are trending down.

We are not.

We are booking aggressively but -- and we are also pricing aggressively.

If I've given an indication here that I have quite a positive outlook on pricing, I want to disabuse you of that notion straightaway.

I do not have quite a positive outlook on pricing.

I have a very cautious outlook on pricing.

I think we are -- my -- if you look at our average revenue per passenger guidance for the full year, it has moved slightly to the lower end of our current rates.

It was previously plus 2% to plus 4%.

It's now plus 2% to -- plus 1% to plus 3%.

I can't understand how that could in any way be a positive.

I think we should be cautious.

There are potentially positive events that could help pricing, but you'll see those as soon as we.

Like if Norwegian goes bust, you'll know as quickly as we'll know.

But absent that, I think now is the time for caution.

And the second part of the question, I actually had written down 'hold', it was -- oh, holidays.

Look, holidays is a (expletive) market and a (expletive) product.

Again, despite some of the kind of the announcements you hear out of competitors, holidays -- holidays has now replaced big data as the new sexy kind of thing that some people kind of refer to.

I look around at the TUI and Thomas Cook and all the other operators, and I can't see any great upside in holidays because holidays and packages are being blown away by excess capacity and lower pricing on low-fare airlines into all of those big markets: Spain, Portugal, Italy, Greece, et cetera.

We have a holidays product, it's reasonably small -- oh no, sorry, we used to have a holidays product, but we closed it.

It was small and didn't go anywhere, and it's not something that I would waste any more time on.

Our next question comes from the line of Malte Schulz of Commerzbank.

Two questions, also from my side.

First of all, on the MAX fleet for -- if you look at next year, I mean, how many can you fleet in during the next fiscal year?

Is there any kind of restriction?

Or would you limit yourself to 10% growth?

Or will you pick up all the kind of delays from this year -- next fiscal year already?

And the second question would be on route kills.

I mean, how important is result optimization, so closing the most unprofitable routes versus some strategic rationale, like pushing against weaker airlines or pushing against Lufthansa in Germany to defend a little bit your standpoint on your market share?

Okay.

The only reason of restriction we see with the MAX aircraft is clearly, we would not from a kind of a -- historically or from the safety point of view, want to take delivery of any more than between 6 to 8 aircraft a month.

Historically, having the -- the most we ever did is about 8 aircraft a month.

With a new variant, we would want the first month or 2 maybe take 5 or 6 and then we'd get to 8 a month reasonably quickly.

Now obviously, that was also being -- we want to take those in the spring.

So we are operating at the moment, 30 aircraft will arrive in, at something of the order of about 4 months -- 4 months at about 8 aircraft a month, so that we would be able to take that kind of February, March, April and May.

We wouldn't want to take a lot of aircraft in June or July because frankly, we're busy and we haven't been able to sell them.

Thereafter, we wouldn't want to take any aircraft in July, August, September, October, but we would clearly want to take 8 aircraft a month in November, December, January, February [that way] into the following summer.

So it's an imprecise, non-scientific -- what can we take in advance of June of 2020 for peak summer 2020?

We are presently operating on 30 aircraft.

That will leave us with 28 aircraft short, and we have about 50 aircraft to take in the winter of 2020, the spring of 2021.

Could we take -- in other words, there's 28 plus 50 -- 78 aircraft over that period of time?

Yes, we could.

But that means at the outer envelope, just giving us 10 months at 8 aircraft a month, that will just about take about 80 aircraft.

Would we want to take them at that kind of speed?

Again, it would depend on how fast Boeing can make them.

Boeing's own production is going to -- if the MAX -- they said themselves, I think if the MAX deliveries get delayed -- if the MAX deliveries get repeatedly delayed, it runs into their own production schedule.

So there's work to be done once the first aircraft gets back flying.

And frankly, at this point in time, all you can focus on is summer 2020.

We'll work -- we'll worry about the winter 2020 and summer 2021 once we've sorted out summer 2020.

In terms of route closures, we're having a review in fact this afternoon, based on the 30 aircraft, but possibly that might be 20 aircraft.

Mostly, what we would be looking at, the heads behind me, partly the -- obviously, do we look at which area -- what drives that is, what growth commitments and new base commitments have we got for the summer of 2020 that we don't want to compromise?

And thereafter, then what loses most money during the winter period?

And we would -- we will be issuing notes -- briefing notes to our own crews in the next week or 2 about -- to more bases that we will need to close and more routes that will need to be closed, because then we'll have the discussions that have to be held with them in the next couple of weeks around that.

But mainly, the focus will be on those routes that lose most money over the winter or that are going nowhere into summer 2020.

An obvious one -- to give an example, an obvious one would be, if it's a hard Brexit in -- at the end of October, 3 U.K. domestic routes, which we were originally going to protect using Ryanair U.K. They would readily fall out straightaway because while they make money during the winter, if there's a longer-term question mark over those in a hard Brexit, well, we wouldn't really be -- I would want to protect some airports in Germany, some airports in, I don't know, in Italy or Spain, where we have already had growth commitments and growth incentives that David and his team have already negotiated.

But frankly, we don't have those growth incentives because we're not growing in places like Edinburgh or in Glasgow or in Belfast.

So there's a debate to be held, and there are different factors running across them.

But mainly, the decisions will be made on which route, which bases lose the most amount of money during the winter period and where do we have longer-term issues.

And clearly a hard Brexit will be a longer-term issue for those U.K. bases, the Ryanair U.K. AOC.

Our last question comes from the line of Gerald Khoo of Liberum.

Just given the challenging market conditions in Germany and Austria, why are you so confident that if there is a major competitor, like Norwegian, that disappears in the near future, that, that will actually be positive for pricing beyond the very short term?

And why does the market not backfill the vacuum left by that competitor, just as in the case of Air Berlin?

Well, generally, because Norwegian has a very small footprint and almost no footprint in the German and Austrian market, it wouldn't affect it at all.

I mean, most of the base closures Norwegian have already announced in October are in Italy, Spain, the U.K. and Dublin.

If Norwegian goes bust, which I think is a real -- it's a potential prospect, not a probability, there will be a huge collapse in capacity in the Spanish, Italian, U.K., Irish market -- David, anywhere else that Norwegian has a reasonable-sized footprint?

Obviously, Scandinavia.

And Scandinavia, obviously.

Now will there be a rush to backfill that capacity?

Frankly, I don't think so.

Because they -- Norwegian has accounted for a huge amount of the excess capacity in places like Spain and Italy in recent years.

And where they've already announced those base closures, I think is an attempt by them to reverse out some of that excess loss-making short-haul capacity that is losing money hand over fist.

But the one market that it would have very little impact on would be the Austrian and German markets.

I mean, they -- the Austrian and German market is largely driven at the moment by the kind of crazy -- Lufthansa bought Air Berlin, instead of taking out 50% of Air Berlin's capacity, I think they were kind of petrified that everybody was going to run in and take up slots in German airports.

So they have all this Air Berlin capacity, Condor capacity flying around, losing money hand over fist, ridiculous excuses coming out.

So like Laudamotion is putting, unduly targeting Condor.

I mean, I've never heard this nonsense given that Condor is potentially a long-haul airline.

Lauda doesn't compete with it at all, but they kind of -- they blurt out all this nonsense on their kind of investor calls that make no sense.

Lauda is targeting Austrian, yes, because Lauda has a very big presence in the Vienna marketplace, but the response of Austrian has been a very Germanic one.

That is, quick, collapse all the capacity at the regional Austrian airports, shovel all that capacity back into Vienna, where I think the boss of Austrian said they will lose whatever amount of money it takes to defend their position in Vienna, which again, given that it's the dominant airline in Vienna, seems to be, again, more below-cost pricing.

But it is what it is.

The reason I'm confident in Germany and in Austria is because the combination of Ryanair and Lauda has lower operating costs than any other airline, be it Eurowings, easyJet, Wizz, Austrian, et cetera, and lowest costs wins.

It will be painful on pricing for a year or 2, but if we have reduced the year 1 losses in Lauda from EUR 140 million year 1 to something under EUR 50 million in year 2, the trend is moving very dramatically in the right direction.

And that's why we're reasonably confident over the medium term.

And I think until Lufthansa can explain to their investors how their quarter 1 profit last year of EUR 50 million returned to a loss of, was it, EUR 250 million quarter 1 this year, EUR 300 million swing, how are they going to turn that around?

I understand this morning, they're announcing they're moving to a group structure, ala Ryanair, but they'll need to do a lot more than that.

Ultimately, there's too much capacity in Germany, but the sole author of that capacity excess in Germany is Lufthansa.

It's not anybody else.

Okay, folks, again, since that was the last question, thank you for the questions.

Obviously, as usual, we have done a presentation on the website, Neil and myself.

Shane O'toole, the Head of IR, is here and available to take questions and answers at the Dublin office for the remainder of the day.

The next, you will see some announcements coming out of us, in the next week or 2 about base cuts and base closures.

These are being driven by the MAX delivery delays.

And as soon as we have any relevant information on the MAX aircraft, we'll try to keep you briefed and updated, but I think it is moving in the wrong direction at the moment rather than moving in the right direction from a summer 2020 point of view.

Other than that, I think the key takeaways today are that airfares are not getting any worse, but it's a fairly grim environment out there.

Ryanair has continued to excel on ancillary revenues, which is kind of covering our revenue per passenger guidance.

And on unit costs, we are doing marginally better than we had originally guided, despite the fact that we don't have the benefit of the MAX unit cost performance in the full 12 months.

And on the industrial relations side, Eddie Wilson and his team are continuing to dialogue with the unions and our people.

But obviously, the nature of that dialogue has been constrained in the last number of weeks because we were in a closed period and weren't able to divulge what our plans will be.

We will be releasing more information to the unions and to our own people about base cuts and closures and job losses and redundancies, which are coming, regrettably, at the end of October, over the next number of weeks.

Okay.

Thanks very much, everybody.

Talk to you soon.

Bye-bye.

This now concludes our call.

Thank you for attending.

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