Ryanair Holdings PLC (RYAAY) 2022 Q4 法說會逐字稿

Hello and welcome to the Ryanair FY '22 Results Conference Call. (Operator Instructions) Just to remind you this conference call is being recorded.

Today, I'm pleased to present the Group CEO, Michael O'Leary. Please go ahead with your meeting.

Good morning, ladies and gentlemen. You're very welcome to Ryanair Full Year Results Investor Conference Call. I'm here in London with most of our -- many of our team: Eddie Wilson; Neal McMahon; David O'Brien, CEO of Malta Air. Neil Sorahan and Tracy McCann, Peter Larkin are on from various different points. We have an extensive roadshow in place across Ireland, the U.K., Europe and in the States this week. So if you'd like a meeting, please let us know. Contact us through Peter Larkin and the investor team. As we have -- sorry. You've seen we issued the press release this morning. There's a comprehensive Q&A up on the website so I'd refer you all to ryanair.com and while you're there, make a booking. I have a couple of quick themes for this morning. I think we're a bit more cautious than many of other airline competitors that have been out in recent weeks.

There is no doubt that there is a strong recovery underway at the moment. I would characterize that recovery as Q1, we are back up at kind of 90% load factors. We hit 90% load factor in April for the first month since COVID that we got above 90%. But pricing is a little bit softer into Q1 that is the April, May, June quarter. Most of that I would blame on the Ukraine invasion -- the Russian invasion of Ukraine in the last week of February. Easter looked like it was going to be very strong and it kind of fell over because bookings plummeted for about 4 or 5 weeks following the Ukraine invasion. That has affected pricing into April, May. There's a reasonable recovery into June, but nevertheless pricing. There will be a strong traffic recovery in Q1, but pricing I think would be down maybe modest single-digit percent of where we were pre-COVID.

Q2 at the moment and where forward bookings are running about 10% behind where they were this day for Q2 pre-COVID, but pricing looks stronger. We expect to see load factors return to the low to mid-90% into Q2, that's the July, August, September quarter. Pricing at this point in time looks like it will be modest single digit above where it was pre-COVID. But we're slightly concerned at the risk, the risk is to the downside. If there's any negative news flow either on COVID or on Ukraine or Icelandic volcanic ash, that could fall over again. And we're kind of scarred with the experience we had with Omicron which kind of damaged Christmas at short notice; Ukraine, which damaged Easter at short notice. Generally speaking, we think the summer will be reasonably strong as long as there is no adverse news flow out of COVID or out of Ukraine.

We then move forward into the 2 winter quarters, the December and the March quarter, and we have very little visibility to those 2 quarters. There's a general view that there will be a significant economic downturn if not recession across most of the U.K. and Europe in the second half of this year. Ryanair is poised I believe to do very well. If there is a recession, we are by some distance the lowest cost producer and the lowest price operator in Europe. And in a recession, the low-cost providers whether it's Primark, IKEA, Lidl in the supermarkets or Ryanair in air travel will do better. People will fly, but they will trade down from the higher cost providers to Ryanair. And so because we have so little visibility in the second half of the year, we're not willing to give a guide or a guidance on full year profitability at this time. We said we can say no more than we expect to be a modest profit recovery.

We're not sure whether we'll get back to pre-COVID profitability, which will be something north of around EUR 1 billion after tax. We should have a reasonably strong first half of the year, but it all depends how much of -- what the losses would be in the second half of the year. Those are the kind of fundamental -- those are the fundamental drivers of the business for the next 12 months. Around that, we are taking delivery of just over 70 new Gamechanger aircraft this summer. Unlike almost every other airline, we will operate at 115% of our pre-COVID capacity through this summer. Major expansions of capacity in markets in Dublin where there's a COVID recovery scheme, in Italy where Air Italia has reduced capacity, in Portugal, in Vienna where we've seen off most of the other kind of low fare competitors in the last number of years. It's essentially Lauda, Ryanair and the Austrian Airways.

And in Central and Eastern European markets as well where we're seeing very large market share gains in Hungary, in Poland, in Romania and in others. We're also very fortunate that for the next 12 months, we're very well hedged on fuel. I would ascribe that more to dumb luck than supremely Intelligent management. But nevertheless, we have 80% of our fuel purchased forward out to March 2023 at less than $70 per barrel. We are unhedged on the remaining 20% and that will be a cost challenge through the next quarters. But nevertheless, we're in a much stronger position on fuel hedging than any other airline in Europe. So we have a combination of new aircraft capacity, burning 14% less -- 16% less fuel, very well hedged on oil, we have a lot of really good airport deals done, we're opening 15 new bases and more than 700 new routes and we believe that we are poised to be the major beneficiary from the post COVID recovery.

But we caution at this stage that recovery is fragile and it is exposed to adverse news flows. We continue to perform well. We're very proud of our continuing commitment to our environmental strategy and also our social strategy. On the environment, we're pleased that the Climate Disclosure Project has increased. Our climate protection rating has improved from a B- to a B. We're well on track we believe to get to an A rating within the next 2 years. We are industry leading in terms of there's no other airline rated higher than a B in Europe. And we're very pleased Sustainalytics recently upgraded Ryanair. We are the #1 ESG airline in Europe, #2 in the world and we continue to invest heavily both in our -- not just in our environmental programs, but also in our social and governance programs as well. Labor has been an issue for a number of our competitors in recent months.

I think we are -- have been the beneficiary of some of the decision-making we made during COVID. We committed to all of our pilots and our cabin crew that we would not make them redundant during COVID. We kept them employed. We did participate in furloughs or in the kind of employment support schemes. But what was critical is that we kept our pilots and cabin crew current. So we kept them all flying at least once a month. We kept them current and we kept them employed and that means that we're not seeing the same employment pinch points as a number of our competitors here in the U.K. who are short of cabin crew and are either cutting flights or are taking seats out of their aircraft. We have enough pilots and cabin crew to get us through the summer. It is tight in the U.K. because of the very inflexible labor market post COVID, but we're in reasonably good shape and we expect to operate all of that capacity through this summer.

Much more flexible labor markets in Europe and again we have more than 1,000 pilots being -- our cadet pilots being trained at the moment and more than 2,000 cabin crew going through recruitment and training programs not just in this summer, but also into the winter. We're looking forward next week to taking delivery of another 55 Boeing 737 MAX aircraft as long as Boeing can deliver them and the jury is out on whether Boeing will be able to deliver those aircraft next winter. That would gear us up well for growth to 185 million passengers through the summer of 2023 and into fiscal year-end March 2024. I've seen a number of reports out recently from analysts who should know better questioning the business model and the exposure to higher oil prices into FY '24. If oil prices remain at these elevated levels, you're going to see fuel surcharges from Europe's legacy airlines this year.

You'll also see significant fuel or air fare increases from airlines around Europe who are either unhedged or who are in inferior hedge positions to Ryanair and a lot of those airlines are withdrawing capacity for where they compete with us. I mean BA last week announced 100 fewer daily flights mainly on market -- short-haul markets: U.K.-Italy, U.K.-Spain because of labor tightness. And I think that's an understandable and a sensible move, but it does play to our business strategy over the next 12 to 15 months. But to those analysts who are out there kind of oh well, oil might be higher in the summer of 2023. It may well be higher in the summer of '23. But if it is, airfares will be significantly higher as well and we are poised to be I think one of the pretty -- one of the main beneficiaries of higher fares into summer of 2023. But I think for the moment, our investment -- we're investing heavily in our people.

We've had significant progress. As you know, we engaged in pay cuts with our most of our pilots and cabin crew. We have made -- scored some successes in recent weeks and in recent months. We have been engaging in pay restoration negotiations with pilots and cabin crew. I'd say at about 1/3 or 30% or 40% of our EU markets, we've agreed pay restorations where we're trying to bring forward those pay cuts. We're bringing forward both the timing from July to April or May. And also instead of restoring 20% pay cuts at the rate of 6%, 6%, 8% over the next 3 years; we're inverting it and bringing it forward to 10% this year, 6% next year, 4% the following year with a commitment that if we get back to pre-COVID profitability this year, we'll combine that 6% and 4% pay restoration over the next 2 years and bring it forward to July of 2023.

We remain committed to restoring the pay of our people as soon as our business returns to pre-COVID volumes and profitability. There are some unrealistic expectations out there around Europe that COVID's over, give us back our money. COVID is not yet over. It's not yet and that's reflected in both our load factors and in our airfares I think for the foreseeable future. But we're very hopeful that there will be -- the industry will not suffer any negative news flows and we will see a strong post-COVID recovery maybe over the next 12 or 15 months. We've committed in our negotiations with our people and their unions that if we recover to pre-COVID levels, we will restore the pay to pre-COVID levels but only as profitability is restored.

I think we've kind of got to ask Eddie Wilson just -- the CEO of DAC. Eddie, any additional comments you'd like to give us in terms of color? And then hand to Neil Sorahan for something on the balance sheet and on the finances. Eddie?

Yes. I think the big call out here is the growth in market shares and that's built up leveraging our operational resilience because we kept all of our pilots and cabin crew employed. And we were able to open 15 bases this year and again leveraging off the low cost deals and growth deals that we did at most of our major hubs, which actually puts us in a good position to grow not only this summer, but into next summer as well where we will continue to be opportunistic and with no difficulty in terms of we've already sort of inked out exactly where those aircraft are going to go for next summer. Obviously we haven't communicated that to airports, but again it will be opportunistic. And it is -- they'll be done off sort of low-cost deals within. But I mean, the real callouts on market share are places like Italy where we're up at 40% with again poor sort of incumbent carriers there in terms of EASA.

Spain has done particularly well for us as well. I think it's indicative of Ryanair really being the only show in town in terms of growth particularly in tourism economies of Southern Europe. We were at a recent event in Spain with government ministers in attendance where Ryanair is contributing 1.2% of Spanish GDP. We're contributing EUR 15 billion in terms of tourist spend and increasingly, we're seeing governments who are trying to restore their tourist economies in particular only looking to Ryanair. We're the only ones that have the aircraft coming, another 55 next year as part of the 210 aircraft orders. So costs are in place at the airports. Michael has touched on the union deals that we're doing at the moment. Clearly our people there have been through a lot of pain over the last 2 years.

What has happened there is that at least we've kept everybody employed. And I think the difficulties that we saw at the early stages of COVID where we -- actually to keep people current was a huge task when we were flying very few passengers. We could only imagine what our competitors are going through at the moment as they try to use scarce training resources while passenger numbers are building. So we will continue to work with the unions and our people in restoring that pay and we hope that we will get -- that will cross over in terms of profitability returning and pay restoration.

Okay. Thanks, Eddie. And Neil, you might just touch briefly on the balance sheet and then go to CapEx for the next 12 months because it will come up in the Q&A.

Sure. Yes, it's an obvious question. The balance sheet, we've had good progress over the course of the past year. We finished with EUR 3.6 billion in cash despite EUR 1.2 billion CapEx in the year just ended. So very pleased that we saw our net debt position reduce from EUR 2.3 billion to just under EUR 1.5 billion. Over the next couple of years we're into a peak CapEx period. We expect to have about EUR 2.3 billion in CapEx in the current financial year. That will dip largely down to about EUR 2.1 billion to EUR 2.2 billion the year after that. But our objective over the next 2 years will be to manage down the net debt position on the balance sheet. We're broadly net cash, net debt positioned over a 2-year period.

Good. Okay. With that, thanks Neil. We'll open up for Q&A, please. We are reasonably tight for time because we've got to be out of here at 11:00. So okay for 2-part questions and we'll keep it as zippy as we can.

(Operator Instructions) Our first question comes from the line of Jaime Rowbotham at Deutsche Bank.

Last month at Airlines for Europe, you hopefully accurately quoted saying you'd be disappointed not to do somewhere north of EUR 1 billion in profits in the next 12 months. It sounds like we should interpret today's outlook as more cautious. Is that simply because of all the macroeconomic warnings you're reading about or is it also due to tangible changes in the data you've started to see in the last 4 weeks? Second one, would it be fair to say you're seeing better demand for summer beach destinations than for city breaks? And linked to that when we think about competition out of Stansted, do you think we're in the sort of environment where the kind of package holidays that Jet2 can offer could start to be quite a material advantage to them? And if I may, just an observation on the CDP ranking. Is there a reason you leave off IAG who I think have an A- rating?

Firstly a, I was misquoted at the airline. I said what I hope for is not a forecast and nor is it guidance. That was also what my -- again I would say it again today, I hope in the next 12 months we will see a restoration of profits back to pre-COVID levels, which would be somewhere north of EUR 1 billion. But what I hope for and what I get are 2 different things. I think there's a reasonable prospect of a strong profit recovery in the first 2 quarters of this year. But that can -- and I keep coming back to the point, it is fragile. If there is negative news flow on Ukraine or COVID or anything else between now and June, July, the school holidays, that falls over again as it did at Christmas and it did at Easter. If we got a fair run, we could well get back to pre-COVID levels of profitability. But I would also be -- I think there is a much greater risk of an adverse COVID variant as we move into the winter. You see the COVID situation in China is not -- if there's another variant out there, there could be a vaccine resistant variant.

We have to be very cautious about what the second half of the year looks like. We may also be dealing with a recession in the second half of the year. And we are expanding our capacity meaningfully. We're running a 15% capacity expansion this summer and that will continue through the winter. In fact we may step up our expansion during the winter to take advantage of airport incentives that will be improved certainly during the winter period and in the run into summer of 2023. So look, I think it's reasonable and we've done our best. This morning we're saying what's our outlook on profitability for the next 12 months? We expect modest profitability. It could be significantly better than that. I don't think we're looking at a loss in the next 12 months, but I think modest profitability. The real challenge for us is could we give you a range of profitability outcomes that we would be able to and willing to stick to? And the honest answer is I can't.

It could be something significantly north of EUR 1 billion, it could be something significantly south of EUR 1 billion. And until we get through the first half of the year and have some better visibility into the second half of the year and that probably won't be until the half year numbers at the end of October is we really can't give you any accurate range. Is demand better for the beach than the cities? No. I mean we've seen a very strong recovery in business traffic in the last -- short-haul business traffic in recent months. People repairing their supply chains, focusing more on European supply. There is no doubt in my mind though that the beach demand for European beaches is very strong in the second quarter. The only reason if you take the city kind of traffic, a lot of that is we have a very large domestic operation in Spain, we have a very large domestic operation in Italy, we have a large domestic operation within the U.K. A lot of that just books -- but not for the U.K., but a lot of that just -- I mean Ireland is U.K.

A lot of that books later, it doesn't book 2 or 3 months in advance. So that marketplace is still -- will still be running behind the average system like forward bookings. We do expect it to book strongly and it will book late and it will pay slightly more. But it is also subject to falling over if there's -- as it did at the end of February. I mean we saw our bookings fall off by -- we lost about 1 million bookings during the last week of February, the first couple of weeks of March just because of the Ukraine invasion and it's very hard to recapture those bookings. If people don't make those short decisions to book, then we don't see them. So I think we're looking -- I mean again I think it's a reasonably accurate guidance we give you. Traffic will be strong in Q1, but at prices that will be I think modest single digits behind pre-COVID pricing and traffic I think based on what we know though will be strong in Q2 at prices that will be mid-single digit above pre-COVID pricing. And then we have no visibility on Q3 and Q4.

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

Just I was wondering if you could talk about what you're seeing in terms of the uptake of the various ancillary revenue purchases. Namely are you seeing any changes as demand picks up here and what your expectations are for at least kind of the first half of this year? And then for my second question, you mentioned taking more MAX aircraft in the summer and even over the winter having possibly an aggressive plan, but your kind of passenger targets haven't changed. Is that just a reflection of the uncertainty or are you planning to kind of retire more aircraft and the aircraft is not that different?

Okay. I'll ask Eddie to just to give you a quick insight on ancillaries and I'll deal with the MAX aircraft and passenger numbers. Eddie?

Yes. I think on ancillary revenues like the 3 main pillars we have are on the -- we've got the bundles, we've got seats and we've got priority boarding and bags. So we are well advanced on priority boarding in terms of dynamic pricing and we're still quite crude on some of the other tools that we have in terms of managing bags in particular and the relationships within those and also the relationships within control groups within different markets and different itinerary types. So I would -- like it returned strongly as passenger numbers returned on particular load factors, particularly for priority boarding, and I would see that getting more sophisticated. So I think ancillaries are quite strong and resilient and I think we're going to be able to build on those as we put in dynamic pricing models. So I think there's some way still to go on this.

Don't forget the duty free, which is building -- 2, 3 days are building on all of the U.K. routes to and from the U.K. On MAX aircraft, we're going to take 673 MAX aircraft this summer that's if Boeing actually delivered them to us. We're still struggling with Boeing's delivery issues. But that's 73 aircraft against an original forecast of 65 aircraft. So like ultimately that may be we would try to accelerate the timing of those deliveries over the next 4 or 5 years. But ultimately the order number is still 210 aircraft. It doesn't fundamentally alter the ambition, which is to grow traffic by 50% to 225 million passengers by FY '26. That stays in place. But there is no significant movement between the years in that. We have been -- we've made no progress at Boeing on the follow-on MAX order. The management of Boeing in Seattle is very poor.

I would -- I noted some commentary to the leasing industry recently that Boeing and Babcock that it was not entirely complementary of Boeing management on the civil aircraft side. I would wholeheartedly endorse that. I think they're losing market share hand over fist to Airbus and don't seem to be responding appropriately. And moving the headquarters to Virginia from Chicago while it may be good for the defense side of the business doesn't fix the fundamental underlying problems on the civilian aircraft side in Seattle and Seattle needs a reboot, it needs a reboot quickly. Nevertheless, we are out there whether or not. We've an RFP out there for up to 50 secondhand aircraft. We're looking at secondhand Airbus and 737 aircraft.

I think we've been impressed with the pricing that's available at the moment and we may try to do something I think on more aircraft over the next couple of years. We may look to the secondhand leasing market where there's opportunities to do so. That might around the edges accelerate traffic growth through FY '24 to FY '25 if we could secure a package of between 30 and 50 additional secondhand aircraft that's if Boeing don't step up with some additional orders. But at the moment we think the Boeing manager running around like headless chicken not able to sell aircraft and then even the aircraft they delivered, they're not able to deliver them on time which is disappointing. But we keep working with them, we're their largest customer. But they need a reboot or a boot up the (inaudible) somewhere in Seattle and hopefully Calhoun will deliver it.

That's from the line of Duane Pfennigwerth at Evercore ISI.

Can you comment on the capacity outlook you see intra-Europe? Any surprises with fuel at these levels and how do you see the summer playing out from an industry capacity perspective?

I mean we've long had the view that short-haul EU capacity would be down between 10% and 15% this summer. I think I would hold to that. It may be towards the lower end of that or closer maybe to 10% to 15%, but it's continuing to evolve. We see huge capacity taken out. I mean the headlines would be like Norwegian's capacity is down about 60% of where it was pre-COVID and Italy is down 50%, TAP in Portugal down about 30%. Thomas Cook, Flybe, all those guys have disappeared. There's also significant labor shortages in the U.K. I mean we've seen that in recent weeks play out at BA announcing cutting about 100 daily flights on its -- from its short-haul flying program, mainly U.K.-Spain and U.K.-Italy, where they try to -- where they're competing with Ryanair.

EasyJet has come up with a remarkable initiative now taking seats out of the plane to try to reduce the labor or to try to address labor shortages there. And Wales continue to remove aircraft from Vienna, Central and Eastern Europe. We noticed more recently they signed up a joint venture in Saudi Arabia. Maybe they're going to send their aircraft to Saudi Arabia where I would be reasonably confident they won't have to compete with Ryanair. They can take more aircraft away from Western Europe where they're not able to compete with Ryanair. But I still think that the European short haul is likely to be down I think a low double-digit percentage this summer. And into that market, we are growing by 15% over our pre-COVID volume. So as Eddie said, like we are seeing enormous market share growth in big markets like Italy, Portugal, Spain, Austria.

Budapest, we're going to remarkably overtake Wizz this year in their home market where the idea of Wizz arriving in Dublin and overtaking Ryanair won't happen in this lifetime or any other lifetime. So I still think the -- and I think that's what's driving what would appear to us to be reasonably strong pricing into the second quarter this year. How that sustains into the winter period? I don't know. But I would certainly -- I think we as a group of airlines would be talking to our airport partners about aggressive capacity growth into the winter where we have -- we're taking delivery of new aircraft from Boeing. And a large number of those airports are incentivizing us to accelerate our capacity growth into the winter with fairly significant and deep winter discounts because the airports want to recover or recapture their pre-COVID traffic.

And then just for my follow-up. Any commentary on your nonfuel unit cost, Michael, specifically as we get back to pre-COVID capacity levels? What sort of targets are you hoping for this year?

Neil, you want to take that?

Yes, I'll take that, Michael. As you saw, Duane, last year we saw a good reduction in unit cost down to EUR 35. This year we're starting to get load factors back over 90%. We're taking in the Gamechanger. So I would be hopeful that we start to track down towards the kind of EUR 31 per passenger that we would have seen pre-COVID. So we'll start moving in that direction strongly hopefully over the next number of months.

That's Alex Irving at Bernstein.

So I've got 2 on labor, please. First, on your own and then that of your suppliers. So on your own labor, I mean you've been very clear that pandemic pay reductions will be restored to pre-COVID levels as profitability returns, but I'm wondering whether that will be enough as inflation rises and unions seek to keep pace with the cost of living? Obviously you've got a lot of restructuring in the mix relative to your pre-pandemic state too. So how should we think about that developing over the next couple of years, please? And second is on your suppliers' labor as you ramp up capacity. Clearly you kept your own pilots and aircraft current, but are the airports and other service providers to Ryanair ready for this too? We've seen reports of charges in hiring around airports in particular. How worried are you about this?

I give you what we see at the moment like the labor. The pay restoration has gone reasonably well. We are willing and we're in advanced negotiations with a number of the unions. We've agreed deals at about I'd say 10, 12 of the EU countries where we employ pilots and cabin crew. In some cases unions have moved faster, in some cases the unions have moved slower. Where the unions have moved slower, we have made less progress. Will it be enough? I think it will. Fundamentally, we have reasonably high pay within Ryanair both pilots and cabin crew. They're not kind of entry-level pay. We're not talking about retail or hospitality levels. They're paid significantly more. We don't have a lot of labor turnover at the moment either on pilots or on cabin crew. We have seen others trying to come -- trying to pinch some of our cabin crew, particularly in the U.K.

And while we've lost 1 or 2, really people seem much happier working for us now. I think they're aware of the way that some of our competitor airlines just dumped their people during COVID whereas we didn't, we kept them employed and more importantly current. And that's not -- and I think some of the deals we've already done. To give you a flavor, I mean our pay cuts if you take the kind of -- the pilots were 20%. It was 20% pay cuts for the last 2 years and then the restoration was going to be 6%, 6% and 8% over the next 3 years. Where we've done those pay restoration improvements, we've now agreed 10% this year. We're bringing that forward from July to April or May depending on how fast their unions get the deals done and it's now 10%, 6%, 4%.

So it is significantly accelerated with an understanding there that if we get above pre-COVID profitability or north of EUR 1 billion in the next 12 months, the 6% and 4% will be accelerated to next year to 10%. So you could get 10%, 10% and full restoration over the period of the next 12 or 15 months. And those are deals we're willing to do. We want to restore people's pay as quickly as we possibly can as long as the business restores itself. But I would put that and contrast that with a number of our competitors who have restored all the pay cuts that they did during COVID, but that's because they're short of labor and they sacked a load of their people and can't get them to come back to work or can't get them back to work at all. So I think we're in a fundamentally better space. Across much of Europe, we are high pay employers in Spain, in Italy, in Portugal and almost no turnover of labor.

There are pinch points there. I wouldn't underestimate how difficult it is to hire people and train them in places like the U.K. for example. But again I would point to Stansted, which is an area where we have reasonable labor stability. We are the largest employer in Stansted and we kept our people employed during that. We did use furlough schemes, but we did keep the employee during COVID whereas competitors in Gatwick and Heathrow seemed to just fire everybody and then they're kind of surprised that they can't get them all to come back immediately now that the market is recovering. Supplier labor remains a challenge. We've seen pinch points: security in Berlin, security queues at Dublin Airport, check-in security at Manchester. And I would also -- the people who are filling the in-flight bars, the duty-free, that kind of stuff where you have kind of low labor rates in those kind of frontline areas.

Yes, there have been pinch points there. But again I would point to we worked kind of collaboratively with the bigger airports -- bigger airport suppliers in Chaleur, in Stansted, in Bergamo, in Dublin. We are seeing less issues at those airports despite a very strong recovery. And remember, at those airports where Ryanair is operating, they're now operating at above pre-COVID traffic levels whereas airports like Heathrow and Gatwick, they're still operating at below pre-COVID traffic levels. So I think we and our -- but I think supplier labor will continue to be an issue. I don't -- I think it will get resolved pretty quickly in Europe because there's reasonable labor market flexibility and the ability to recruit people pretty quickly. The U.K. will continue to be very challenged. The labor market is very inflexible post Brexit. You can't bring in young Europeans.

I smile although with some disappointment at the number of ardent Brexiteers like Lord Wilson in Next and Tim Martin in (inaudible) Wetherspoons who now are calling for [amass] of these issues so that they can hire staff to run their businesses. It's a pity they didn't think of that when they were campaigning for the (inaudible) Brexit 2 years ago, but we are where we are. I think the U.K. will continue to be challenging. But the U.K. while we are seeing modest traffic growth for us in the U.K., mainly market share shifts from U.K. competitors to Ryanair, most of our growth is taking place in Continental Europe and in Ireland where we still have reasonable labor flexibility and our suppliers have reasonable labor flexibility as well. Eddie, anything you want to add to that?

Yes, I think just 2 points. I mean the first one is that where we have completed deals with unions, we've also the incentive as well for them to deal with restoration is that we have agreed modest pay increases beyond there as well by years 4 and 5 as well, which gives the incentive for some of the unions actually to complete deals so they've got long-term stability on pay. And then the second thing I'd say is that anywhere where we have self-handling operations in the U.K., Poland and Spain; we've had no labor difficulties. Again that is redolent of what we did with pilots and cabin crew. We were planning for the return from the 17th or 18th of March back in 2020. And so we are seeing some labor shortages, but again they are in third-party handlers.

And I would have some -- to be fair, I would have some sympathy for easyJet and BA in that it is very difficult. I think they may have overdone the job cuts during COVID, but I don't underestimate the extent of how difficult it is to recruit people here in the U.K. given the inflexibility of the labor market post Brexit. It will continue to be a challenge not just for the airline industry, but for all businesses in the U.K. for the next number of years until somebody in government wakes up to the fact that you're going to have to have visas are beginning to attract more labor here in the U.K. if you're going to keep consumer prices down and not add to the recessionary environment by having dramatically increased pay because of the scarce labor here in the U.K. But it's just another one of those damaging dividends that have been delivered by Brexit and we expect more of them here in the U.K. Thankfully in Continental Europe, I think the labor market is more flexible and more responsive.

That comes from the line of Sathish Sivakumar of Citigroup.

I've got 2 questions here. So firstly, on the APC and airport related staff shortages. Where do you see actually the biggest challenges within your network? And then the second one on the pent-up demand. What the implications are for a potential say summer holiday season extended beyond to late September and October? Do you see any like early signs in the bookings?

Okay. 2 quick answers. The biggest challenge with airports, I think the biggest one is the one where we don't operate thankfully is in Heathrow. The other ones in the U.K. would be Gatwick, Manchester and I think Bristol there are significant labor challenges there. Other than that, we don't -- I think the rest of the airport system in the U.K. is in reasonable shape. On the continent of Europe, we've seen pinch points at Berlin Airport has been a challenge. Poland although the labor remains a bit tight in Poland because the demarred economy is recovering so strongly and the entry-level labor that would be in baggage handling and check-in is attracted to the property market where it's on fire in Poland at the moment as well. But generally speaking, there's I think less issues around Continental Europe and they have a flexible labor supply, a free movement of people across Europe. I think it will be addressed pretty quickly. I think the U.K. will be much more difficult and inflexible. I'm sorry, I think the U.K. will be more challenging.

Within the U.K., it's been Manchester, Gatwick, Heathrow would be the ones we'd point to. Any chance of the summer holiday season being extended? I don't really think so. I mean I think ultimately it's driven by school holidays, children go back to school in September. I think there will be -- probably I would like to hope that there will still be strong demand and constrained capacity through September into October. But it's too early to say yet. We have very little visibility on bookings into October, November, December. I think there will be -- people will continue to fly. I think they will get more price sensitive in the second half of the year particularly if there's a recession or economic downturn in the U.K. and inflation will continue to be a challenge. But I would believe that Ryanair as the lowest cost, lowest price provider certainly in the air travel space will continue to be a beneficiary of an economic downturn or recession in much the same way that Primark, Lidl or IKEA will continue to be a beneficiary of a recession in the U.K. and/or Europe over the next year or 2.

That's James Hollins at BNP Paribas.

Two for me. The first one is just on where you're seeing capacity reductions. I think you've pulled out some capacity at Lisbon, as we know you pulled out of Frankfurt Main. I was wondering as we look at sort of slot issues or pricing issues, maybe this is for Eddie, are there any other sort of key airports or wonder if there's any of your larger airports where either you're not getting deals done as you wanted and potentially were looking at other capacity coming out? The second one is I'm a little bit confused, which isn't uncommon, little confused on the fleet plans. I mean you're ripping into Boeing, which is fair enough. But to me, it looks like they've outperformed on deliveries ahead of the summer. Is there anything in particular that's making you worried beyond the summer on deliveries? And just for clarification, is the 50 aircraft RFPs about accelerating the current guidance you have on the annual passenger numbers that are in the presentation?

Okay. You sneaked in about 5 questions there, but let me come back quickly. We have very few capacity cuts anywhere other than there were 3 aircraft that we had in Lisbon for the winter. We couldn't get slots for those for the summer because TAP is allowed to block slots it won't use. I mean in our overall environment, that's nothing. We reduced -- we closed the Frankfurt Main base. It was down to 5 based aircraft there. Some were redeployed to Frankfurt Hahn, which is not a like-for-like development. But I think there has been a trend of increasing airport costs in the German market for the last year or 2 and we are very happy to redeploy those aircraft into markets like Italy, Poland, Slovakia and Central Europe where we're taking significant market share from competitors. Overall, this summer we'll operate 115% to pre-COVID capacity and if we could take more aircraft from Boeing, we would.

Moving on to Boeing. Yes, we've got -- I mean we have got -- we increased -- I mean the challenge with Boeing at the moment has been the delay in the deliveries. We did increase. We said to Boeing -- Boeing wanted to know early this year if they could deliver us more aircraft, which by the way remember, they manufactured pre-COVID before the MAX was grounded. If they could deliver us more aircraft, would we take that and the answer was yes. The challenge for us is we wanted all those aircraft delivered before the end of April and we will probably only get the last of those deliveries in June, which it doesn't sound like a big deal except we already had those aircraft on sale in April, in May and in June for the summer schedule. And we've had to go back in because of really unexplained delivery delays for aircraft that were manufactured (inaudible) 2 years ago. We've had to go back in and take out short-haul capacity. Now you wouldn't notice it in the overall.

But simply because Boeing weren't able -- failed to meet their delivery commitments at the -- in mid-April, in mid-May. So we got to take out a couple of hundred thousand seats out of our summer schedule in April and in May and we had to go back in about a week or 2 ago and take them out in June as well. It probably cost us about 600,000, 800,000 seats in May and June, which is disappointing and still unexplained by Boeing. I can understand why there may be various challenges manufacturing new aircraft, but aircraft that you built and made 2 years ago, which all you had to kind of do is put petrol in them and (inaudible) fly them to Dublin. Really I don't understand why it's taking you -- you're taking 2 and 3-month delays on that. But it is resonant of I think the very poor management performance in Seattle both in competing for market share against Airbus and then just (inaudible) honoring your commitments and delivering the planes you promised to deliver. We are not the only airlines who've been critical of Boeing delivery delays.

There's a number of other airlines out there and we know our customers who are critical of what are unexplained delivery delays. Now they would say, "Well, we have people out with COVID." Look, we all had people out with COVID, we're still able to deliver the summer schedule we proposed. All you've got to use deliver aircraft that you built 2 years ago and it's been disappointing. It's been very disappointing to see Boeing lose existing customer orders. Jet2 have converted to Airbus, Qantas on the short haul have converted to Airbus. Boeing should be winning that business. Boeing should be out there competing. And there's a lot of I think management speech coming out of Seattle and not a lot of delivery and we need more delivery in Seattle. If they get their (inaudible) together, we would be willing to take more aircraft for summer of '23 and summer of '24 because we think there's there is growth there to be won. And we're certainly willing to restart negotiation with them on the MAX 10.

But at the moment, the MAX 10 still isn't certified and if it doesn't get certified by the end of calendar 2023, it may have to go back for a redesign at the MCAS the computer system and that could -- God knows how long that will delay the process. So Boeing need a management reboot in Seattle and either the existing manager needs to up its game or they need to change the existing management will be our view of life and it's up to Calhoun to meet those challenges. We're very happy to work with the existing management, but they need to bloody well improve on what they've been delivering to us over the last 12 months. So that's where we are with Boeing. We're a willing customer, but we're struggling with slow deliveries and an inability to do a deal on new aircraft despite the number of white tails they have sitting on the (inaudible) ground in Seattle. You wonder what the hell their sales team have done for the last 2 years and frankly most of them seem to be sitting at home in their (inaudible) jimjams working from home instead of out there selling planes to customers.

That's from the line of Muneeba Kayani of Bank of America.

For the bookings for this summer, can you give us some color around kind of countries where you're seeing the strongest demand and where it's weaker? And then just following up on summer pricing of a single-digit price increase. If I remember correctly, I think earlier in April you had mentioned in the press that you were expecting something like a 5% to 10% price increase for the summer. Is that kind of how we should be thinking like higher single digits?

Okay. 2 good questions there. Let me tell you about the summer bookings. Like it's very hard across the piece. When we're so big across all Europe, where is strong, where is weak. Generally speaking across the system, certainly demand to the beaches: the Canaries, the Balearics, the Greek Islands, Italy is all strong into the summer. I will struggle to come up with any year where there's weakness although clearly a lot of the bigger domestic operations, the booking are generally later where they come through in strong volumes but closer in. The only notable development was immediately following the Ukraine invasion, there was a falloff in bookings into Central and Eastern Europe. There was a significant decline of bookings into Poland, Romania, Slovakia and the Baltic states. There was a kind of impression, (inaudible), there's a war going on over there. That has righted itself, but it undoubtedly took a hit there.

We see strong demand out of the Central and Eastern European countries into the summer; the beaches of Bulgaria, Greece, Turkey and also I think to Spain and Italy during the summer. So really we're a very big beast and we -- I would struggle to come up with any particular pockets of weakness compared to strength other than to point to those examples, weak into Central and Eastern Europe in the immediate aftermath of the Ukraine invasion and the summer to the European summer beaches are very strong. Pricing in April, I mean we were talking about pricing in April. Yes, we were looking to the first half of the year being up between 5 percentage points to 10 percentage points. Again Q1 got hit by the invasion in Ukraine and that's why I keep coming back to this point. There's a strong recovery underway, but it is fragile. Easter was largely in the middle of April.

The Ukraine invasion probably cost us anything upwards to about 800,000 bookings in Easter and it took -- I'd say the Q1 yields would have been small -- marginally positive and it went marginally negative because we had to respond quickly to maintain the Easter and the first half of May bookings. June -- second half of May and June are building nicely. The second quarter, July, August, September looks strong. But again if there's any negative news flow emerges in the next couple of weeks, they will fall over again. So what we're trying to convey today is there's a very strong recovery underway. We are very confident that we get to 115% traffic growth pre-COVID through the first 2 -- in H1 of the current year, but we're not sure of where pricing will finish up. It could be better than we expect if we get a reasonable news flow. It could fall over again if there's negative news flow. It is really very difficult to call it.

But we know that we have the -- if you like, we have the benefit or the luxury of being very well hedged on fuel competing with other competitors across Europe who are either unhedged or less well hedged than we are. So we have a huge cost advantage over them. And if there is any downturn or negative news flow, we would simply open up on pricing -- maintain our traffic growth, but open up on pricing. But that will then reflect itself in yields and profitability going forward, which is why we are slightly uncertain today on both yields and profitability into the second half of the year.

That's from the line of Carolina Dores of Morgan Stanley.

Probably for Neil. I guess on the hedging and the exposure that you have, usually you should do just forward on jet fuel. Are there now an exposure to the crack spread? So have you been hedging on oil or the exposure to the hedging continue to be purely on jet fuel? And my second question on the RFP that you're doing. Assuming that you could take Airbus, would you buy those aircraft or you just lease it for until you can get enough points to make up the fleet?

Sorry. Tom Fowler might be on the line, but Neil, why don't you deal with the fuel hedge?

Yes, very happy to deal with the fuel. Carolina, there's absolutely no exposure to the crack spreads where we're hedging as we've always done the underlying jet commodity and so it perfectly correlates us from that perspective. Michael, if you want to do the RFP?

Okay. On the RFP, we have an RFP out there for up to 50 short-haul aircraft. We are willingly happy to look at Airbus and/or 737s. We have Airbus in the Lauda fleet and 737s all over Buzz and Malta Air and Ryanair. We're happy to buy or lease as long as whichever would come up -- whichever would offer us the better financial return. I think the likelihood in the current marketplace though is we're probably looking at leasing anything between 30 to 50 new aircraft for delivery for summer of '23, '24, '25. I would like to see that as an acceleration of growth over that period of time. In addition to the 50 aircraft deliveries we take -- the MAX aircraft we take from Boeing assuming Boeing can actually deliver those aircraft. And it could be Boeing or it could be Airbus or 737s. The Airbus market is undoubtedly tighter. Airbus have been significantly more successful than Boeing over the last couple of years at selling the neos than Boeing have with the MAX aircraft. Obviously the MAX sales was disrupted by the grounding for 2 years.

But we've been very disappointed at the rate and frequency at which Boeing has been signing up MAX orders over the last 12 months when the MAX have been ungrounded. Not only they've not been selling up, they've not been doing deals. They've been losing MAX customers to Airbus competitor. But we're open-minded, we would be happy to take. So it's likely I think in the current marketplace, we're looking at probably 7 to 10-year leases, reasonably young secondhand Airbus or 737s and whichever would come out or we might take a mix of both. We could grow if we take additional Airbus in Lauda or Malta -- or Lauda Europe, which is based in Malta or 737s we take through Ryanair or Malta Air or both. And it would be -- as always, we'll be opportunistic. And who's to say like Boeing might get their (inaudible) together and decide they want to sell us some additional white tails and they have a lot of them sitting around parked up in the U.S. So we're as always opportunistic, but I think there's an opportunity to add more low-cost capacity into a marketplace where there's going to be over the medium term 2, 3 years a strong traffic recovery in Europe.

That's from the line of Jarrod Castle at UBS.

Just a question I guess for you. I mean -- and I don't know if there's much you can say on it. But it was obviously a different environment when you kind of struck a deal for your EUR 10 million option incentive program. So I guess could we see the terms revisited or are you confident there's a fighting chance that you can deliver on the vesting requirements before 2024? And then secondly, also something you previously said, I think at the half year results initially you said you could possibly get to -- get neutral 12 to 18 months then kind of firmed it to 24 months with the 3Q I guess with the trading update. I mean could we see a situation where it's sooner than March 2024 because your working capital seems very strong at the moment?

Sorry, Jarrod. Can you repeat the second half of the question? You kind of broke up at the start. What was the second question?

Well, it was just around your net debt kind of getting back to the -- I mean could we see it sooner than March 2024 just given that you've got this very strong working capital inflow and you're ramping up quite quickly now.

Okay. Let me say one first. I mean you could see net debt. Like with a fair wind and an optimistic outturn, you could see us returning to net 0 sooner than the end of FY '24. Will we get there by FY '23? I don't think so unless there's a -- unless we start to make very significant -- unless profitability runs ahead of our expectations for the next 12 months. It's possible, but I think it's unlikely by FY '23. I would be...

Can I jump in there, Michael? I mean, Jarrod, I put EUR 4.5 billion worth of CapEx guidance into the market there at the start of this call. So you have to remember that the EUR 4.5 billion worth of CapEx has to be funded over the next couple of years. So we're reasonably happy that over that 2-year period, that will come down. I think it would be unreasonable to expect that we would have all of that covered out by the end of the current financial year.

Yes, I don't disagree. But I mean I think we will certainly be at 0 net debt -- sorry, based on everything we can currently see, we will be at 0 net by the end of FY '24. We might get there a little bit earlier, but it won't be by the end of FY '23. On my contract, I would point out by the way although everybody continues to miss it. I took a pay cut from EUR 1.2 million, went down to quarter -- EUR 250,000 over the last 2 years during COVID and we have not yet hit any of the targets for my EUR 10 million incentive. Am I confident I will get there by 2024? No. But I'm cautiously optimistic that we will hit 1 of the 2 if not both targets, that would be a net profit of EUR 2 billion or a share price I think it's EUR 20 or EUR 21. I think there's a reasonable fighting chance into a post COVID recovery we could get to one or other or both of those by FY '24, but the gap is -- window is closing and if I don't get there, well, then shareholders have had the benefit of my leadership at a (inaudible) deeply discounted rate for the last 3 years.

I understand I won't starve, but nevertheless the downside of these share option schemes is if the company doesn't perform, I would in our defense say that wasn't a management failing, but none of us envisaged (inaudible) COVID grounding the business for the last 2 years. But I have undoubtedly been the worst paid CEO in the airline sector in Europe for the last 2 or 3 years, but that was part of the downside of the deal I did. The upside is if we can hit the targets, I do well out of share options. The down side if I don't hit them, I take a hit on the underlying pay. And I think I would say don't cry for me, Argentina. The truth is I keep working away here trying to hit these ambitious targets on behalf of our shareholders and our people because if we get to those targets, our people get the pay cuts restored too. That is much more important to me than my share options over the next 2 years.

Thanks, Michael. Hopefully, both happen.

That's Harry Gowers at JPMorgan.

I'll be quick. So just some comments. Maybe if we do enter a recessionary environment, some color on what you've seen previously when there's been a weak environment. I mean maybe can we see some trading down on the leisure side, but maybe also the corporate passenger side as well?

Yes. In all of the last 3, 4 recessions over the last 20 years, Ryanair as the lowest cost provider grows faster generally and more profitably in recession. What will maybe different this time around is if there's a recession this winter, what happens to oil prices? And energy is the real kind of the unknown quantity. I mean I'm personally of the view I don't think Putin can sustain kind of the war in Ukraine for another 6, 9, 12 months. That gets resolved before the end of this calendar year. That means there's a much more kind of sort of there's a -- I think there would be a significant fall in energy prices, but I don't know when the timing of that will be. We do run the risk that you could have a very deep -- or a recession into the winter of this year allied to high energy prices as we move into the winter and there's still scarce supply. But ultimately Russian natural gas and oil will find an outlet somewhere even if it's only into China, it is a commodity. And the greatest cure for high oil prices is high oil prices. I think the shale -- U.S. shale production, Iran and others may be encouraged in to increase production.

The Southeast might add -- the OPEC Gulf countries may add to production, but who knows. All I do know is that if oil prices remain at these elevated levels, you will see fuel surcharges this summer in Europe. Competitors like Wizz who are completely unhedged and are -- and easyJet are less well hedged than we are into the winter will be under significant pressure to up airfares and we will have a significant headroom in our area. The difference between our airfares and competitor airfares through next winter and there will be both at the corporate side and on the leisure side of the city break, people will trade down to the lowest cost provider and that will undoubtedly be Ryanair. So I would be optimistic that we will grow stronger and more profitably if there is a downturn or a recession this winter or into the summer of 2023. And I would add to that, we will be operating a fleet actually summer 23 of almost 120 aircraft, we're carrying 4% more seats and burning 16% less fuel. So we will be much better positioned than any other airline in Europe to weather higher oil prices through a recession.

And that comes from the line of Mark Simpson at Goodbody.

Two for Neil actually. Neil, FX policy I mean you're hedging, any guidance for FY '24? You're well positioned I think for the current fiscal year. And then just on the accrued expenses and other liabilities, the unearned revenue line at the end of March?

Okay. As I said, well hedged on the currency in the current year at over EUR 1.17 just over about 65% of the currency on the OpEx, very well hedged on the CapEx where we've locked out the aircraft order book at EUR 1.24 on the euro-dollar. The hedging on the dollar into '24 would be reflective of the quantum of hedging that we have on the jets, Mark. So we tend to do those more or less in parallel with each other. So not a huge amount into FY '24 other than the CapEx, which is well locked away. And yes, you're right your crude expenses at unearned income are in fact the big movement that you're seeing there. There is a jump up obviously for increased activity in the business, but you're also seeing strong (inaudible) coming through in that number as well and moving up to that EUR 1.7 billion year-on-year.

That EUR 1.7 billion is mainly the unearned revenue at that year-end?

These accruals in there. There's accrual movements in there as well, Mark, but there's the unearned as a big chunk of that also. It's always the bulk, Mark.

Currently we have no further questions in the queue.

Very good. Okay. Thank you very much, everybody, for participating in the call. If I could leave you with a couple of parting thoughts. One, there is a strong recovery underway this summer. Ryanair is poised to recover I think far more strongly than any other airline in Europe. We have lower costs. We have new aircraft capacity coming to us at lower prices. These aircraft are very fuel efficient. And we are very well hedged out to March of 2023. The share price is under significant pressure as the sector has been for the last couple of months. This is a unique opportunity for those of you who are brave and look to any of the medium term to invest in Ryanair at something under EUR 14 per share. I think there will be a very strong rebound.

We just can't tell you whether the rebound will be this summer or next winter or the summer after that. But I think there will be a very strong rebound in the share price. If you are not a European holder, please do not buy our ordinaries, please only buy the ADRs. The ordinaries we will continue to disenfranchise and if there are non-European shareholders appear on the share register owning the ordinaries, we will force you to sell those shares. So please invest in our stock, but do so only if you're a European shareholder in the ordinaries and if you're a non-European in the ADR program. Eddie, anything else? I'll ask maybe Eddie and then Neil Sorahan, any parting thoughts?

Well, just on the opportunities that are out there for growth and the strength of the 15 bases that we opened this year and we've got strong demand from airports for the allocation of aircraft for next summer. So costs are under control, those that we can control and looking like we've got the aircraft, we've got the people and we've got the airports. So looking forward not just to the end of this summer, but into next -- into summer '23 as well.

Neil, any parting thoughts?

Just to remind everybody, we have a rock solid balance sheet BBB rated with 90% at least unencumbered. So that gives us huge flexibility in what we do. As Eddie said, costs are well under control and fuel is particularly well hedged for the next 12 to 15 months and a very strong competitive advantage from that perspective.

Okay. Thank you very much, everybody. We have, as said, an extensive roadshow underway for the remainder of this week. We have I think about 12 roadshow teams on the road. If you want a meeting with us, please let us know either through [cities or days] and we'll be happy to facilitate it, whether it's in Ireland, U.K., Continental Europe or in the U.S. In the meantime, we look forward to meeting you all. Thank you for your support over what has been a very difficult last year or 2 and we hope you'll see the benefit of that support over the next 12 or 18 months with significantly improving operational and profit performance and share price performance. Thanks very much, everybody. Hope to see you soon. Bye-bye.

This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.