Ryanair Holdings PLC (RYAAY) 2023 Q1 法說會逐字稿

Hello, and welcome to the Ryanair Q1 FY '23 Results Conference Call. (Operator Instructions) Afterwards, there will be a question-answer session. (Operator Instructions) Just to remind you, this conference call is being recorded.

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

Okay. Good morning, ladies and gentlemen. You're very welcome to our Q1 results conference call. We're here with the senior team, me, Eddie Wilson, Neil Sorahan is on call from London where he's covering the media stuff this morning; Tom Fowler, our Director of Sustainability; and Tracey, our -- the Ryanair CFO; with Peter Larkin the Head of Investor Relations.

You've seen this morning -- so we released earlier this morning both the Q1 results. We've done the usual video Q&A. It's all available on the ryanair.com website, and I assume we'll take that everybody has seen that.

So I'll just give a couple of comments here and a couple of themes and then we'll open it up to Q&A as quickly as we can.

So this morning, obviously, into a reasonably strong post-COVID recovery. We've seen -- we've reported a Q1 profit after tax of EUR 170 million. I would point out that was well below the pre-COVID Q1 profit after tax of EUR 243 million in the equivalent quarter in FY '20, but nevertheless, ridiculously ahead of last year's -- the EUR 300 million loss in the same quarter or the same quarter of last year, which was heavily disrupted by COVID.

A couple of highlights. And the number of EUR 170 million excludes an EUR 18 million exceptional unrealized mark-to-market net gain on jet fuel caps.

Couple of headlines in the quarter. Obviously, traffic is recovering strongly to 45.5 million from 8 million in the prior year. That would have been better if April hasn't been badly damaged both in terms of passenger numbers and yields over the Easter holiday period by the Russian invasion of Ukraine in late February.

And I think that's a theme I'll return to in the Q&A. We are clearly seeing a strong recovery. There is clearly pent-up demand, but it is very fragile and capable of being damaged at very short notice if there is adverse COVID or adverse Ukraine development, as we suffered in Q2 -- or in Q2 and Q4 of FY 2022.

Nevertheless, we're performing very strongly this summer. We've taken delivery of 73 of the B737 Gamechangers ahead of the summer peak. We have -- our peak summer capacity through July, August and in September is on sale. We're running at about 115% of our pre-COVID capacity. We seem to be the only airline in Europe that's running significantly ahead of their -- certainly the only major airline really significantly ahead of pre-COVID capacities.

And unusually, we're well staffed to cope with that. So we're not seeing the same disruptions or flight cancellations that many of our competitors have suffered this year, although we are suffering material disruptions to our schedules mainly because of abysmal performance by European air traffic control and some airport staffing shortages, airport staff disruptions.

Nevertheless, the key to the earnings for the remainder of this year is fuel is very well hedged. We're 80% hedged for the remainder of FY '23. We've also materially increased our FY '24 fuel hedging. It was at 30% last week, we're up to 35% this morning at around $92 a barrel. I would also point out we're very well hedged on the currency so that all of our CapEx out to FY '26 is hedged at $1.24, $1.25 to the euro, which will be a major cost saving to us going forward. Whereas competitors who are not hedged on their CapEx will be paying significantly higher cost for their aircraft acquisitions.

And a notable development in recent weeks is we've now extended the majority of our Lauda's A320 leases for a 4-year period from 2024 to 2028, a very significant lease -- monthly lease rental savings running at around between 25% and 33% for the next 6 years.

Touching on a couple of themes. I think our environmental and sustainability themes continue to be front and center. We're very pleased, this summer we are operating 73 as a new Gamechanger aircraft. They are delivering 4% more seats but burning in actual effect between 17% and 18% less fuel and notably cutting noise emissions. In fact, the -- most of the positive feedback we are getting from customers and crew with how quiet it is to travel on the aircraft.

We continue to invest heavily in the Sustainable Aviation Research Center with Trinity College. And in the quarter, we announced a partnership with Neste to power up to 1/3 of all of our flights from Schiphol, Amsterdam with a 40% SAF blend. In April, Sustainalytics ranked Ryanair as the #1 airline in Europe and the #2 airline globally for our ESG performance.

In terms of the social, I would touch on the fact that, again, the commitment we made with our people and our unions during the COVID pandemic was that we negotiated pay cuts with the majority of our unions as an alternative to mass head count reductions. And I think that's -- as a result of that, we were able to keep most of our pilots and most of our cabin crew employed and, more importantly, current during the COVID-19 pandemic.

And I think that's one of the reasons why Ryanair has recovered so strongly into the post-COVID recovery, is that we're not having to retrain loads of the pilots and loads of cabin crew unlike a number of competitors who let go thousands of pilots and cabin crew, we kept our people employed. We did obviously participate in furlough schemes, but the critical thing is we kept them current.

So by flying them once a month, in some cases, on flights that were largely empty, we had the pilots and the cabin crew ready and available to us this summer so that as the market began to rebound very quickly, we're able to run not just our pre-COVID volumes but also 115% of our pre-COVID volumes through the summer, but avoiding the kind of staff shortages that many of our airline competitors and, indeed, many of the airports around Europe have suffered in the run into summer of 2022.

And we expect that will continue through the peak summer. We are fully staffed. And I think that has vindicated the decisions we made at the time to keep people -- or try to keep people employed but negotiate those pay reductions, which were critical to our ability to keep them and people employed during the COVID pandemic.

We've made very significant progress during the last quarter, and that continues, on accelerating the pay restoration agreements which we reached with the union. To date, we've now reached deals with over 80% of our -- the unions representing over 80% of our pilots. The only ones now left outstanding as a result of agreements last week were the French pilots and the Spanish pilots are -- we have the Belgian pilots and the Irish pilots.

And it's a matter of significant regret that the unions in Belgium and Ireland are sitting on their hands, are playing games as a result of which our pilots in Belgium and in Ireland are not participating in the pay restoration that 80% of their colleagues across Europe have agreed and negotiated.

And we would again call on the [ADS] Belgian unions and the somewhat less intelligent Irish -- IALPA Union to get onboard these pay restoration negotiation. We want to see the pay of our people restored. And we are disappointed that these restoration are being held up by small unions playing games, which really have no upside to them.

Cabin crew restoration negotiations have already made significant progress, and we would hope that, that will continue. There has been a lot of PR about strikes and disruptions this year on Ryanair. Actually, it's been more PR and noise than in reality. We have continued to operate more than 99% of our flights through June, July and expect we'll do so into August. There were some minor disruptions over the weekend in Belgium. But again, more than 50% of the Belgian-based pilots and cabin crew reported for work. And we operated more than 90% of our schedules this weekend.

So the delivery on the ground and on the day is very good. And I would caution investors that a lot of the PR is just a PR by a bunch of -- by unions in Belgium and Ireland who should know better and should explain to their pilot members why their members -- why the pay restoration of our pilots in Ireland and Belgium are being delayed by their game playing when the pilot unions in Italy, Spain, Portugal, Germany and everywhere else around Europe have now already agreed these pay restorations, and our pilots are participating -- and are enjoying those pay restorations. We want to see that continue.

Touching again on the operating performance. Again, the decision to work with the unions on the pay cuts has been vindicated in recent months because we're fully staffed at a time when most of our airline competitors, also airports and handling companies across Europe, appear to be short staffed. We expect that to continue and we see no reason why we won't be operating at 115% of our pre-COVID capacity through the 2 peak months of July and August.

Over the last 2 years, as numerous airlines have gone bankrupt, many legacy carriers, most notably Alitalia, TAP, SAS and LOT, have only survived as a result of really radical reductions in their fleet and their passenger capacity. And this has seen, I think, a once-in-a-lifetime jump in our market shares.

We are making extraordinary market share gains in Italy, where we're now up above 40% market share; in Hungary, where we entered the market competing with Wizz, we're now up to 30% market share, in fact, market leadership; Poland, we're growing strongly; Ireland, we're up to 56% market share; and in Austria, where you remember in Vienna, 2 or 3 years ago, it looked like everybody wants to be going to Vienna. Now it's essentially down to Ryanair and Austrian Airlines, and we are again making remarkable market share gains.

Boeing, we expect -- Boeing, those gains will continue. Boeing are scheduled to deliver over 50 more Gamechangers to us this winter ahead of summer 2023. We are concerned about Boeing's ability to make those deliveries on time. Already, they're kind of mumbling about delivery delays, which we don't understand and won't accept given that Boeing have already confirmed they're producing 31 aircrafts a month from June of this year.

So they'll produce more than 200 aircrafts between this and the end of the year. And out of that, we are slated to deliver us 21 aircrafts. So we will not accept any excuses from Boeing on delivery delays when our deliveries account for just about 10% of what they already confirmed they are producing, But Boeing remains a major area of concern for us.

Approximately 50% of summer '23 capacity is now on sale. And we recently announced a new base in Belfast International, a fourth based aircraft in Venice this winter. We're adding capacity in Vienna and we're also -- we've commenced flights from Bologna-Forli, which is our 30th Italian airport, all of which are booking well and strongly. Again, thanks to the 210 Boeing 737 order book and the extension of the A320. We believe Ryanair is well on track to grow from 149 million passengers pre-COVID to over 225 million passengers by FY '26.

Just to touch briefly on the quarter, again, a couple of highlights. I wouldn't underestimate the extent to which the first quarter was badly damaged by the Russian invasion of Ukraine. Easter, which was in the -- in the middle of April, suffered a big hit to passenger numbers and also to fares as passengers kind of recoiled from air travel on the back of the Russian base of Ukraine. As a result of that, average fares were down 4% in the first quarter. Ancillary revenues, though, continued to perform strongly as traffic builds and has now risen to over EUR 22.50 per passenger.

I'm pleased to say that the -- as the numbers this morning indicate, lower costs, we continue to be very efficient. We're seeing significant improvement in our unit cost. A lot of that is being delivered by the 73 Gamechangers where, again, we have 4% more seats but 16% less fuel consumption. And we have bought those aircraft from Boeing at very competitive prices. We're pleased to say that in Q1, we saw the unit cost per passenger drop to just under EUR 30 per passenger, which is a very significant milestone for us.

Our FY '23 fuel requirements are 80% hedged at 65% jet swaps at $63 a barrel and 15% capital at $78 a barrel. I'm pleased to say we've taken advantage of the recent softness in oil prices to increase our fuel hedging. As of this morning, we're up to 35% hedged into FY '24 at approximately $92 a barrel. Yes, there will be a modest increase in our oil prices into FY '24, but we think it's certainly manageable and certainly in the context of the kind of underlying airfare growth we're seeing at the moment.

I never thought at a time when we are delivering -- when Europe's largest airline is delivering 15% capacity growth, we would also be seeing double-digit fare -- underlying airfare increases into the peak summer period. But some of that is the very strong pent-up demand. And we are also seeing significant passenger transfers from other airlines who are canceling flights at last minute.

The only concern I have, in that is our bookings still have not required -- the advanced bookings are still not recovered to where they were prior to COVID. We're still running 7%, 8% behind where we were today for July, August and September. But the gap is closing and we would hope that it will continue to close as we move through the period.

I think what we're seeing is load factors though continue to build strongly. We saw in May, for example, a load factor of 92%. In June, the load factor rose to 95%.

And we think we're going to hit 96% for July, although we still have a couple of days left to go to the end of the month. So there is still a strong underlying recovery with double-digit capacity growth, huge market share gains and double-digit airfare -- underlying airfreight growth during the peak month. The real challenge for us is whether that will be continued into the winter.

The balance sheet as a result of that remains -- has strengthened materially. Net debt at the end of quarter end of June fell to EUR 400 million or EUR 0.4 billion, which was down from EUR 1.45 billion at the year ended 31st of March. 90% of Group's fleet of Boeing 737s are unencumbered. And despite peak CapEx this year and next and also the obligation to repay 2 bonds, one in March '23 and one in August '23, we still expect to improve the balance sheet to a broadly 0 net debt position over the next 2 years.

And it's the strength of our balance sheet, which ensures that the group is well positioned to exploit what are very significant growth opportunities that exist in a post-COVID Europe, where many of our competitors who are unhedged are simply unable to compete with us on cost, withdrawing from competition with us in our markets.

That said, and that's the good news, the outlook is cautious. And again, I can't expect -- the current performance in Q1 is good. The performance in Q2 is strong. But it is hugely dependent on there being no more adverse news flows either on COVID or on Ukraine into the second half of the year. I go back and I would draw your attention to the fact that when we -- Omicron last November dealt us a huge blow across Christmas, December, January and February.

We carried 10 million passengers in November. That fell to 9 million passengers in December. We were down to 7 million passengers in January and only 8.7 million passengers in February. And that's the point we keep making, is that the recovery is very strong, both at the volume level and at the pricing level, but it is hugely fragile.

Now I remain optimistic that because of the high vaccination rate in Europe, we hope that there won't be any further negative COVID developments. But we can't ignore the risk of new COVID variants later this winter. We see in Australia at the moment a large flu. This seems to be a combination of both flu and COVID at the moment. And we don't know what's going to happen in Ukraine. It seems to be of a war of attrition over there now.

But, I mean, as long as it is confined to Ukraine, then we could see a strong -- continuation of the strong recovery into Europe, But I think it is sensible at the moment to foresee some adverse developments on COVID or to watch out for some adverse developments on Ukraine. And that's why really we can't give any guidance this year for the full year.

Nevertheless, I think into the second quarter, there is strong pent-up demand, strong volume growth, strong underlying airfare growth. And we are clearly benefiting from capacity shortages and staffing shortages. And I think that Ryanair is making significant market share gains, one, because of our capacity growth; but two, because we are clearly providing much more reliable service than many other airlines and airports through to the second quarter. But when the schools go back in September, again, we will be significantly exposed to the -- any adverse news flows on COVID and on Ukraine.

Second half of Q2, we have limited visibility. And that's because we are heavily dependent on what is the average fare that's being paid by the people who are booking late and people are booking later into Q2 than they did pre-COVID. We've zero visibility into H2. We typically lose money in the second half of the year. We don't lose a lot of money -- We don't expect to lose a lot of money in the second half of this year as long as there is no adverse news flows on COVID or on Ukraine.

We are, however, and we do expect to grow FY '23 traffic to 165 million passengers. That will be up 11% on pre-COVID. We'll continue to be load factor active, yield passive in all of our markets, and we will continue to take significant share from competitors in those markets.

Despite being one of the best hedged airlines in Europe, high oil prices will lead to increased costs on the 20% of our fuel that's unhedged into the second half of FY '23. And therefore, given the later booking profile and the lack of visibility, volatile oil prices and our nervousness at potential adverse news flows on COVID and on Ukraine, we can't give you any meaningful guidance here for the full year. But we would hope to be in a reasonable position to give some kind of more accurate or some kind of guidance for the full year when we get to the second half results, which will be in late October, early November.

Other than that, business is performing well. Operationally, we're doing well. But I think caution is the keyword for the remainder of this year. Neil, anything else you want to add to, and then I'm going to ask Eddie Wilson here just to give -- do a quick update or commentary on the pay recovery discussions and the union -- the union relationships. Neil?

No, not a huge amount other than just to echo that the cost base is in a very strong position. We're seeing the benefit of having the 73 extra Gamechangers in the fleet this summer, not only on the fuel line, but equally on the ownership and maintenance side of things. Balance sheet has well improved, as Michael highlighted, down to EUR 0.4 billion net debt, but we do have significant CapEx into the second half of the year. But we expect the cash flows to remain strong for the balance of the year and very well hedged, and nothing really else to add, Michael.

Okay, thanks. Eddie, do you want to give us a quick update on unions and pay restoration any other items you want to highlight from an operational point of view?

Yes. I mean it's the -- just on the union discussions, what we have is the -- on the pilot union side, we had the developments last week with the SEPLA, the Spanish pilots union; and SNPL, the French pilots union signing up to this or agreeing -- coming to an agreement with us on pay restoration. And largely, that means after 20%, they get 10% back straight away. And then the other 10% is scheduled for next April and contingent we get through that fragile recovery.

So I think they are sensible discussions in terms of pay restoration. And you'll always have disagreements with unions in terms of the timing of this, but I think they have progressed very well. And as Michael alluded to there earlier, I mean, like things like that are happening in Belgium where 50% of the pilot showed up for work this week.

And then because of the large amount of inbounds into (inaudible) from elsewhere in the network, particularly with some destinations, like 90% of the schedule operated on time. And we should -- or operated, and they should return to those discussions.

So I will be hopeful that we'll be able to close the remainder of those discussions because every month that goes by, unions that don't conclude deals are leaving money on the table. And so we will continue to work with them to do that restoration.

Just on operational resilience. While we are fully crewed across the network and in those bases where we self-handle, we have -- we are also fully crewed. But we still -- operationally, like we've got much lower punctuality than we've had at this time of the year, and that does put strain on moving crews around.

But nevertheless, having the right number of crews has helped us to get through that. But I wouldn't underestimate the difficulties that we've had with ATC this year, which have caused almost 12 -- taken almost 20 percentage points of our punctuality. And we would hope that, that would change for summer '23. But it is challenging in terms of operational resilience, but we are confident that we're going to be able to complete our schedules as the way we've been for the peak summer period.

And joining us is Tracey McCann, the Ryanair DAC CFO. Tracey, you want to add on in terms of cash flows? Or...

Well, just to reiterate what Neil said, cash flows have been very, very strong. We finished cash over EUR 4 billion, net debt fell to EUR 0.4 billion that's despite EUR 400 million of CapEx going as this year. There's another EUR 2 billion scope for the remainder of the year and just over EUR 2 billion next year. So we're on track to get to that net debt stay well positioned over the next 2 years.

Okay. Thanks, Tracey. Okay. With that, I think we'll open up to Q&A, please.

(Operator Instructions) Our first question comes from the line of Savi Syth from Raymond James.

Just 2 questions. On the Lauda's front, I was just kind of curious, pre-COVID, there was an expectation of Lauda is not profitable and getting to breakeven. Curious with the changes that you're making how that operation is looking as profitability recovers.

And then for my second question, just curious on capacity. 15% above precrisis at this summer. How is that looking for the winter and then kind of early expectations for next summer?

Okay. Thanks. Savi, thank you. We've never made any commentary Lauda profitability and don't propose to start doing it now. There was significant material changes, and I think the challenge faced by Lauda at the moment is there was a huge capacity growth in Vienna. You had lots of kind of people entering the Vienna market. We had Austria, Lauda level the BA subsidiary with easyJet, with an Austrian AOC. And Vienna is an expensive airport and materially lower airfares. I think we see now a very bright future for Ryanair. I mean, and we operate in Vienna under the Ryanair -- we sell under the Ryanair banner, but most of the capacity is delivered by Lauda.

But I would point Lauda operates from 4 bases, it's Vienna -- sorry, Vienna, Stansted, Palma, Zagreb and Zadar. About half of Lauda's capacity is in Vienna. We see very strong growth in market share and profitability in Vienna but not getting into specific numbers.

And I think there will be -- like in Vienna, at this point in time to almost like Italy competing, I think, with Austria which is incredibly highly -- high cost and inefficient. It is a bit like competing with Alitalia over the years in Italy. I would expect us to continue to take meaningful market share from Austria and Vienna. And we have set ourselves an objective of overtaking Austria to become Vienna's #1 airline over the next 2 to 3 years.

In terms of capacity, we will run through this summer with the peak month at 115% of pre-COVID capacity. I would expect that we won't run -- we will trim some capacity in the second half of the year. I wouldn't want -- I mean, only because we don't want to expose ourselves to the 20% of unhedged fuel. It's a bit too early to say yet, but I now would expect second half of this year capacity to be run at high single-digit growth over pre-COVID but not 15% above pre-COVID.

And then it all depends on whether we get the 50 aircraft delivered at Boeing are scheduled to deliver to us. And I am very worried about what's going on in Boeing. They are already mumbling about delivery delays. We're due 21 aircraft this side of Christmas, which should be of no issue to Boeing, given that they're going to produce 200 of these aircrafts between June and December. And already, they're mumbling about possibly not being able to meet those schedules. They can't deliver 21 aircraft to one of their largest -- to the second largest customer in the world, then I worry. And we are demanding explanations from Boeing. If you're making 200 aircraft between now and the end of December, there's no reason why we can't get our 21 aircraft at least by of December and 30 aircraft between January and April.

But as I have said on previous calls, the Boeing management in Seattle are -- do not merit much. I have very little confidence in the Boeing management in Seattle. I have a high regard for Calhoun, but unless or until something is done about the management -- the management into delivery in Seattle, then I would continue to be a worrier. And someone asked us, well, where are we on pricing on the MAX 10s, we're nowhere haven't heard back from them. They're not of any kind of competitive pricing at the moment, but we would hope eventually, they'll get there.

The next question comes from the line of Alex Irving from Bernstein.

Hope all is well. Two for me, please. First, on close-in bookings. I'm wondering whether the media reports on disruption airports are having a dampening effect on closing demand? And clearly, your fare guide looks good, but is that more from the strong performance in earlier bookings? Any color you can provide on that, please?

The second question is on pay deals. So I appreciate you've been restoring pay with your unions, but does that end with restoration? Clearly, inflation is running quite high. We've seen other unions economy-wide asking for pay increases to keep pace with that. You're having similar conversations with your unions, and how should we think about staff costs going forward?

Okay. Thanks. Our close-in bookings, no. I mean, I think, if anything close-in bookings and close-in fares are being materially moved upwards as a result of the kind of media reports of disruptions -- they're not media reports. A lot of our competitors are suffering material disruptions and are cutting back capacity. There were analysts out there earlier in the year who were predicting that capacity would run this summer at 100% of pre-COVID. We believed it would be down around 80%, 85%.

And I think we've been somewhat vindicated. While we're running at 115%, almost every other airline in Europe seems to be cutting capacity, particularly peak capacity, including some of the other sort of not so low-cost carriers. All seem to be operating at around 80%, 85% of their pre-COVID capacity.

There has been -- I mean, if you take some of the U.K., we've seen a notable strength in our close-in bookings at airports like Stansted, at Bristol, Manchester, Glasgow, Edinburgh, all those bases. Partly, I think refugees fleeing from either Gatwick, Heathrow, and probably I'd say this weekend from (expletive) Dover and Felixstowe as well, realized the only safe and reliable way off the island in a post-Brexit world is Ryanair at Stansted.

And also, I think there seems to be a significant strength in airfares at some of the regional airports, as I said, Bristol, Manchester. In those cases, they seem to be, as a result of disruptions at competitor airlines. In many cases, a number of competitor areas who are canceling sites under 14 days are booking Ryanair flights, are booking their passengers -- disrupted passengers on to Ryanair flights.

So in actual fact, we see that the strength of the euro and we're saying low double-digit price increases through the second quarter, if anything, is a result of concerns -- media reports about disruptions at other airports and at other airlines rather than we're seeing no slacking off in our bookings. But we still need -- sorry, Eddie, you want to comment on that?

Yes, no, I just -- no I was just going to comment on the pay deals? Whatever, sorry? I didn't...

Let me take on the pay deal. Look, there's a sequence of this thing, yes, sorry, so firstly, it's pay restoration. And then when we get -- we don't pay restoration, then we'll go on to pay more medium, longer-term pay. Eddie?

Yes. On some of those deals already what they -- we've -- what we've locked away is that pay increases for April '24, April '25 and April '26. So they bring us out until March '27. And they're in the order of approximately 2%.

Yes. So the pay restoration deal already includes pay increases built in and negotiated with them. But our concern remains just those 2 countries, not because of any issue with the unions, but just that our pilots are suffering, are missing out on pay restoration because of those 2 unions who are playing games. And we wish the game paying would stop.

I mean, if you look, for example, in Ireland, they want to go to the WRC. We have no business going to the WRC yet. They haven't even entered the negotiations with us. But while they're fasting around in the WRC, our pilots are losing out on the pay increases in July, the pay increase in August, the pay increase in September. They should get on and agree to pay restorations first but it will be pay restoration first. The pay restoration deals include pay increases.

And what drives all of this would still be -- is getting back to -- remember, within the pay restoration themselves, if you take we've restored -- if you take the 20% pay cut on some of the pilots that was agreed during COVID, the restoration was 10% this year and then 6% and 4% over the next 2 years. With an understanding that if we get back to pre-COVID profitability this year, and that's anything north of EUR 1 billion profit after tax, then we would accelerate that we bring forward the 6% and 4% and pay a second 10% in April of next year.

So somebody is going to ask me, what does modest profitability this year mean? And the answer to that is we don't know what modest profitability is this year. But everything we're driving towards is, hopefully are trying to work profitability back up to north of EUR 1 billion this year, so that we can accelerate that pay restoration. The critical thing that drives this year to try to get back to pre-COVID profitability so that we can enhance or accelerate the restoration to pay and put everybody back at least to where they were pre-COVID by April of next year.

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

I have 2 questions. First, on ancillaries. It looks as though you're kind of hitting a level which is sort of a higher base than you had anticipated. And I'm just wondering with dynamic pricing, load factors hitting mid-90%, next year, could we go higher still? I mean, are we seeing a better performance on ancillaries with better momentum looking into next year?

And on the balance sheet. Yes, obviously, a fantastic kind of net debt number, EUR 400 million at the end of June. We saw accruals plus unearned income of about EUR 3.8 billion at that time. I'm just wondering if you kind of take the concept of net debt with own cash, which has been historically when you've paid out dividend or done buybacks kind of circa EUR 2 billion, that looks like the number at the end of this year. Are we getting close to a position where your balance sheet allows you to start buying back or paying out dividends?

Okay. Neil, why don't you do the first one on the ancillaries, gives a view on that, and I'll ask Tracey just to comment on the balance sheet.

Okay. Well, Mark, ancillaries, as you said, performed well, EUR 22.50 in the quarter. And we would be hopeful that as we track up towards 165 million passengers in the year, that we'd retain somewhere between the EUR 22, EUR 22.50 for the full year. Beyond that, you're right, we do continue to look at various other initiatives and dynamic pricing. But we're a long way away from looking at our budgets for next year. So I think I'll be just happy to deliver EUR 22.50 this year, and then we can talk about next year when we get to that place.

Tracey, balance sheet, net shareholder return, when do you think we'll be looking at returning some money to shareholders?

I think as we said, we're on track to get to that net 0 position by the end of FY '24. And I think until we prepare the balance sheet, I think we can't see returns until beyond that. So I think it's all dependent on when we get to that net 0, and then we look at it when we return to shareholders.

Yes, I agree with both of those. I would just point out on the ancillaries, we expect kind of there is a big performers in the last couple of years, which is the priority boarding, reserve seating to level out at current penetration. We have high hopes for duty free sales on U.K. flights. That's about 40% of our flights touch the U.K. But so we would expect to see something there on, hopefully, duty free sales might come through in the next year or 2. But I think the reasonable outlook is that it will level out at around EUR 22.50 until there's some new -- we do some new developments.

And I agree. I mean, I think on balance sheet, again, there's a very strong kind of recovery in the cash flows this year. As long as that is not disrupted later on this year by adverse COVID and our Ukraine developments, we would expect to get back to net -- 0 net debt in the next 2 years. But that -- bear in mind, that covers the period when we have over EUR 1 billion in CapEx each year for the next 2 years...

EUR 2 billion each year.

EUR 2 billion.

EUR 2 billion each year. We also have that in repayment, we have an EUR 850 million bond to repay in March of 2023, and it's EUR 750 million in August of 2023. So there's a lot of -- we're generating a lot of cash, but we have a lot of debt and CapEx to fund over the next 2 years. And I think, again, much higher up in our list of priorities would be the pay restorations and dealing with pay with all of our people.

Once we're sure we're back to kind of -- again, if we don't have negative kind of COVID and Ukraine this winter, pay restoration and looking at pay increases going forward for the next couple of years would be number one; CapEx, number two; the bond repayments, number three. And I'm afraid shareholders will just have to wait in line. But I wouldn't expect anything on the shareholder return side until we get back to 0 net debt by FY '24.

The next question comes from the line of James Hollins from BNP.

Just coming back on the Boeing issues. Now you gave a pretty lively response last time we asked about it. And I'm just wondering, I mean, that seems to have kicked them up the a** and they have actually outperformed on deliveries ahead of the summer. I'm just wondering what's going on here, why you're now suddenly very pessimistic on their ability to deliver, I think it's only 20 aircraft by end of calendar year, whether this is just your way of giving a further kick.

And then secondly, strategically, probably for you as well, Michael, just wondering if there's any particular areas you're kind of putting your boot onto the throat of some of your competitors in Europe as you see the floundering or whether kind of these price increases would suggest there's no sort of price wars going on across your network.

Okay, James, thank you. Firstly, I don't want get too pessimistic about Boeing, but I would certainly come back at you that Boeing outperformed on deliveries this year. They didn't -- if any, I mean, we were supposed to get all of our aircraft by the end of April. We eventually finished up taking about half of the deliveries through May and into the first half of June. I wouldn't get the last aircraft until about the 15th of May, 16th of June.

And that's really painful for us because we had all those aircraft on sales through May -- at the end of April, May and June. We were actually canceling flights to take capacity out of the system. We delayed aircraft growth in places like Zadar and Zagreb and in Vienna because Boeing were short -- delivered short on the aircraft.

Now they did deliver 70. We took deliveries of 73. We're originally supposed to take 65 aircraft. That's because Boeing asked us could we take some of these additional aircraft. Remember, these were the aircraft that Boeing had built pre-COVID or during COVID but that were grounded because of the MAX capacity. They've been grounded and not delivered. So they were late delivering aircraft that were built 2 years ago.

Now the -- and that doesn't inspire confidence. They are now -- next this winter, we have to take aircraft that haven't been built. We are very supportive of Boeing step-up in production and we're -- took a lot of confidence from the fact that they've stepped up to 31 aircraft a month. In fact, we received -- we had a meeting with Stan Deal and David Calhoun himself here in Dublin back in May, where we were assured that the Ryanair deliveries with this winter would take priority, that we wouldn't have a rerun of these delivery delays.

And in the last 2 weeks, we're getting letters out of Boeing telling us there might be problems with 21 aircraft this side of Christmas. But I don't understand why there's going to be probably 21 aircraft this side of Christmas if you're going to make 200 of these planes from June to December. But it's all part of the same. The management in Seattle is always long on talk and big on assurances and short on deliveries, and they need to get their finger out.

I think there needs to be new management in Seattle, but that's not my decision. That's David Calhoun's decision. And we've heard nothing back from them as far as the last week. And they had a recently good week, 100 aircraft to Delta and 30 aircraft to Qatar. Didn't exactly set the world on fire. But these are aircrafts, the MAX 10s, which Boeing isn't even sure it's going to get certified before the end of the year, in which case they may have to go back on a legislative change in Congress. The cockpit have to be redesigned, which will not deliver commonality. So I am -- remain worried. I don't want to be too pessimistic on Boeing. The right thing is we remain worried about Boeing and Boeing delivery, Boeing are great on talk and short on delivery. And what we want to see is less talk and more delivery.

Growth in Europe, I mean, again, look, we have never been an airline that goes after market shares, where do we -- but the fact is that the airports around Europe, I mean, we put 25 new aircrafts into Italy this year, where -- in a marketplace where Alitalia has reduced its fleet by almost 40%. We think it's logical that ITA would be sold to Lufthansa, but that means there will be no growth by ITA in Italy. It will just be serving the Frankfurt and Munich hubs.

We've seen significant growth in Portugal. We've -- again, where TAP fleet has been reduced by 40%. We've opened basis, a new basin Madeira. We're adding capacity in Porto. And we'd like to add more capacity in Lisbon, but again Lisbon capacity remains artificially constrained. And remarkably, despite the fact that the EU required TAP to give up 16 daily slots, the 16 daily slots went to easyJet, an airline -- who has not been growing in Portugal.

In fact, it's been retrenching in Portugal. And we fail to understand why the TAP slots go to an airline that is not growing in Portugal. But other than because TAP don't want to have any more competition from Ryanair down in Portugal, continue to call for the opening of Montijo Airport in Lisbon, which is the second airport in Lisbon. The government keep kicking it back. Remarkably, they're more interested in protecting TAP from competition than they are in growing the tourism business in Portugal.

But we are continuing to see very strong growth in Italy, in Spain, where Norwegian have cut significant capacity; in the U.K. where Thomas Cook [Flybe] and cutbacks by easyJet and BA, this summer are assisting our growth. And very dramatic growth in Central and Eastern Europe.

Even in a post-COVID environment, we're growing very strongly in Hungary and Budapest. In Wizz's home market, we've now overtaken them. In Poland, we're seeing very strong growth. TAP loss has not returned to its pre-COVID capacity. In the Baltic state, in Romania, in Slovakia, very strong market share growth. The fares are higher this summer. I'm not sure whether that's short-lived.

But I think if there is no adverse COVID or Ukraine development, we are going to enter into a period, I think, of 3 or 4 years of modest airfare growth. It is inevitable. We're well hedged this year and into next year. I mean, I think there's going to be significant capacity cuts by a lot of our competitor airlines this winter because Wizz, easyJet and others who are not as well hedged as we are simply would blow their brains out based on their planned capacity given that they're unhedged.

So I think you're going to see material capacity cutbacks into this winter, which should sustain a reasonably strong underlying fare environment. And I think that capacity constraint over the next year or 2, allied to a higher oil prices and continuing environmental probably taxation, should see, I think, a medium-term period of upward airfares in short-haul European air transport marketplace, particularly where a lot of this capacity has been taken out is never going to return.

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

I just wanted to touch on ex fuel unit costs. You're EUR 30 per passenger now, which is broadly in line with where you were pre-COVID. And you're obviously putting in a lot higher capacity. You've spent 2.5 years taking out costs. So are we going to see a lot of improvement, I guess, in 2Q? And I also noticed just related to that, your crude expenses are very high, EUR 800 million versus normally EUR 100 million, EUR 200 million for the quarter. So I'm wondering if there's a lot of ramp-up costs in that number.

And then just the second question on pricing. You're selling summer '23 50% on sale. What would you normally be selling? And I know it's -- the answer is probably going to be no, Michael. But any color on directionally is pricing better than where you are at the moment or flat or down? Anything on rates?

Thanks, Jarrod. I would -- I don't want to undersell our cost performance in Q1. It is below EUR 30 It's not the same as it was because we were at EUR 31 before COVID. So it is kind of notably down. And that's only with the load factor in the first quarter because of the impact particularly of Ukraine in April. The load factor over the first quarter was only at a 92-ish percent. Pre-COVID, that would have been up around 96%, 97%.

I do think we will have a strong performance in the second quarter. The load factor will be higher. We would hope to get to 96%. We expect to get 97% in July. I hope you get to 96% in August. September will come off a little bit again. And all of that is on the assumption that there's no negative news flows. And so I would expect our cost performance in the second quarter to maintain or improve slightly on what we did in Q1 ex fuel.

Over the medium term, I think our cost performance will be materially better than any other competitor airline. The Gamechangers are delivered -- we are delivering more traffic at materially lower fuel consumption. I think that will be key going forward. We have locked in significant airport and cost reductions over the medium term for the next number of years.

I think we will and want to see -- I think there will be some upward movement in staff costs as we conclude the pay restoration negotiations, and we want the pay increases over the next medium term in 2 to 5 years. We want to reward our people who are delivering this industry-leading performance. And I think our first priority into a post-COVID -- once we get back to pre-COVID profitability and growth, I think it's our staff and our people with where we would be directing most of our energies first.

So I would see staff costs rise a little bit over time. But airports and handling charges, we expect to be -- remain reasonably stable. Fuel is in the lap of the gods, although, again, I think we are hedged materially better than our competition and will continue to be so because with the balance sheet to be more aggressive on hedging going forward. I mean, we're still hedging at $92 a barrel into FY '24, whereas Jet spot at the moment is still up at $120 a barrel.

So by having the balance sheet to be able to go out well into the future, I think we're making material savings. Route charges, I think, will continue to rise despite the abysmal performance of ATC. I mean, I would have a considerable sympathy for a lot of our competitor airlines this summer who are taking a lot of unfair criticism about their punctuality and cancellations when it's not their fault. An awful lot of this is -- has been caused by air traffic control, the French, as only they can decide to change the systems in the middle of the summer peak not that they were ever particularly efficient in the middle of the summer peak anyway.

Depreciation marketing, others will be materially down in the next couple of years because we're adding newer aircraft at reasonably low cost. And we will not see the kind of EU261 cost this year. We have no significant disruption costs because of our superior operational performance. And so I think this year or the remainder of this year, we would expect to see -- keep cost below EUR 30 ex fuel on a unit cost basis, although some of that depends on what happens with load factor and capacity growth into the second half of the year. And we will be staffing up in the second half of the year for our growth into summer of 2023. Pricing, go ahead.

Sorry, Michael, I was just going to jump in there. I mean, you touched on a couple of issues into the second half of the year. We will see most likely route charges increase after Christmas, as we always do. We will start taking staff in into the fourth quarter of the year ahead of the summer peak for 2023.

So I think, Jarrod, just say you don't run away with yourself, if you were to put a EUR 31 or just below EUR 31 in your full year model, that would probably be fair. And we'll try and beat that. But I think that would be a reasonable forecast.

Okay. Well done. And on pricing, yes, look, 50% on sale for next year is more than we would normally have particularly on the growth capacity, but there's no indication on pricing yet out to summer 2023. We can't even tell you what the pricing will be for the second half of August of 2022, never mind summer of 2023.

All we can tell you is that at the moment, through what we've seen in July and August, it looks like the prices are rising by a low double-digit number. And I feel that is -- I don't ever remember a time before in this industry where we were adding 15% capacity growth off a base of 150 million passengers and seeing it double digits, Normally, you see a double-digit price reduction.

So it is unusual. That could lead to a very strong profit recovery this year if there's no adverse COVID or Ukraine developments in the second half of the year. But frankly, we expect some adverse news flows just because this is a (expletive) industry that is afflicted with bad news whenever about -- whenever you get things are recovering well, you get bad news. So I would be cautious on pricing, although we are well in control of the cost.

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

Just reading -- you looked at -- let me just go back to aircraft, reviewed 737NG leases and decided to extend the Airbuses -- the A320, so just might -- just talk through that process. I'm wondering as well with the leases going out to 2028, then presumably the growth of the airline could go beyond 225 million passengers, which tells me that you're not in any rush do another deal with Boeing on the MAX 10. And then just on that MAX 10, even if it gets certification, where would hypothetically a larger aircraft like some competitors of A320 want where would that be operated like slot-constrained airports or longer sectors?

Some of that -- more into about 6 questions as far as I can tell. But anyway, still, we went out to the market to see what was in there. I mean, we're being opportunistic. And we're surprised, secondhand calls on the 737NGs were reasonably expensive, which I think validates our own depreciation policy on our existing fleet, partly because they're very attractive aircraft into the cargo conversion program into China and into Asia. We were surprised at the cost opportunities on extending some of the A320 leases.

But there does appear to be quite a split in the marketplace on pricing that the Airbus neo has been such a successful program that there's less demand, it appears for the older CEOs on the A320s. I think there's also -- if you went through the lessors of the Airbus, there's 29 of those were aircraft, 2 of those going back at the end of this year and end this year.

So we're down to 27. We think we'll extend leases on maybe 25 or 26 of those. For example, we're fighting with on price reductions with a couple of the lessor. So we aim probably to extend 24, 25 of those aircraft. And we're looking at rate reductions of about 1/3 on the monthly lease rentals.

It's very meaningful and also -- but I think a lot of that is also based at a lot of the leasing companies want the Ryanair Group on their kind of customer list and are willing to kind of aggressively price to be able to stay there as a lessor to Ryanair or to the Ryanair Group. So we have seen a very material reduction in those lease rates not just for the 4 years' extension but for the last 2 years of the existing leases as well. So that's material.

And I think what it reflects is that the strength and the success of the Airbus program. You want to buy new Airbus neo, now you're looking at delivery in '27 or '28, which, again, think highlights the reasonable -- the relative underperformance of Boeing. They can't get the MAX 10 certified at the start of the year. I would hope that Congress would look favorably on any of those extensions.

I think we welcome the order from Delta for 100 in Qatar for Turkey, but I'm fairly sure they'll have walked away right if the MAX 10 doesn't actually -- it doesn't have a common fleet. So really, everything in Boeing depends at the moment on getting the MAX 10 certified by the FAA. And that has to be done either this side of Christmas. And if it's not on this side of the end of the year, then they need a congressional legislative change.

And I hope that we will be into midterm elections in November. This is not looking good. And meanwhile, they -- we're dealing with Boeing who are mumbling about delivery delays on just 21 aircraft out of the 200 that they confidently say they'll produce this side of Christmas. Much more important is the 30 aircraft that they're scheduled to deliver between January and April of next year, which will be critical to our summer 2023 growth. And we are not willing to put up any more delivery delays from Boeing or excuses coming out of Seattle when all we've had for the last 2 or 3 years been excuses out of Seattle. So let's wait and see.

Where would we go with those? I mean, if we got the MAX 10s or we took more Max 8, look, we're not -- we've never been that key -- We've never been in a situation with Boeing of when do we desperately want to need aircraft. We want to need aircraft whenever there's a pricing opportunity to order aircraft.

We didn't order any aircraft between 2014 and 2019. We've ordered a bundle of aircraft, I think, over 400 aircraft, between 2019 and 2020 -- or 2018 and 2020. If we never order another aircraft from Boeing, we -- certainly, we would probably - I think we will comfortably exceed our 225 million passenger target by 2026.

But I don't want to get into racing target because we're not in that business at the moment. We set it to an objective there to get 225 million by FY '26. We're confident we'll get there. Certainly, the extension of the Airbus leases will help that process. But we have to see what Europe looks like by FY '25, '26. I still believe there will be very significant consolidation in Europe. I still believe that by the time we get to '25, there will only be 4 large airlines in Europe, which will Lufthansa, Air France-LM, IAG and Ryanair. That means that somebody is going to take out easyJet, Wizz, TAP, Alitalia, and probably SAS will be given away to somebody over that period of time.

And then you may be in a different environment not unlike North America, where there's less capacity growth, more mature markets and more upward pressure on underlying airfares, particularly if in Europe we're going to continue to tax air travel or constrain food production as our response to global warming. So 225, Stephen, over the medium term, is the objective.

But clearly, the very advantageous lease extent on the A320 facilitate that. Where -- if we did do a deal on Max 10, we would have no difficulty operating those MAX 10s in almost every market in which we operate. I think the challenge faced by some of our competitors, most notably Wizz, whose load factors have fallen by 10%, is they're simply unable to compete with us in places like Italy where their load factors are materially behind or behind Ryanair. They're entering into a marketplace where Ryanair has lower fares, much more established presence.

And Wizz have no presence in the Italian market that we can see and are out there desperately engaged, slashing airfares but operating with load factors that are typically 20 percentage points behind Ryanair in the Italian marketplace with bigger aircraft. They are not able to fill those bigger aircraft in markets where Ryanair has lower cost and Ryanair has lower fares.

And I know there would still be idiot analysts out there later on today, producing research that says, Wizz will have lower cost than Ryanair. And it won't happen in this decade or the next decade or the decade probably after that because what nobody factors in is the materially different price at which we buy our 737s compared to the ludicrous prices they pay for A321. And that gap is never going to close.

Next question is from Sathish Sivakumar from Citigroup.

So I've got 2 questions here. So firstly, on the demand recovery. So you said that the booking curves at the group level is 78% below 2019. Is there any market where you're actually seeing the booking curve being weaker than the group level or even stronger than the group level?

And then the second one on the wage deal. You're done with 80% on pilot, while on cabin crew, it's around 70%. So the remaining gap, i.e., for the cabin crews, is it similar to the markets likely what we are seeing for pilots in terms of Belgium and Ireland?

Thanks, Sathish. I'll take the first. I'll ask Eddie just to comment on the wage deal. On demand, look, I mean, we wouldn't get into that kind of granular analysis of different markets. Some markets are stronger, some markets will be weaker. It's easier to look at it in the overall context. At the start of January, we are running 20% behind pre-COVID volumes. At the end of -- start of April, we were running around 12% behind pre-COVID volumes. At the start of July, we're about 7% behind our pre-COVID volumes.

The gap is closing but we're still behind. We are -- and therefore, still exposed to (inaudible) bookings, and that's why we are worried about the fragility of the recovery if there's any negative COVID or Ukraine development through September -- through the third and the fourth quarter. Eddie, wage deal and cabin crew?

Just briefly, I mean, I think what you see is that as each of the pay deals in terms of restoration, and we've already answered on that is that as they've come through, I think, the remaining unions are coming under pressure, I think, from their own people because every month that goes by, there's less of that restoration.

And we're talking to all those groups. And we're going to the end of the summer, we're entering into the winter, and I think that we will be in a good position to close out the majority of those deals. There's nobody that we're not talking to at the moment. As Michael alluded to earlier, there are a number of -- we've had some difficulties in Belgium and Spain but they're disproportionately portrayed in the media.

And I think people are beginning to see this -- that other groups in other countries have -- they're well underway to restoration and there's a framework for getting all of their money back over the -- hopefully, by next April. So that's -- so I think the majority of those are moving in the right direction and would be closed there.

The next question comes from the line of Jamie Rowbotham from Deutsche Bank.

Michael, just one from me. At the end of the prerecorded materials this morning, you understandably encouraged people to ignore the short-term news flow, focus on the long-term growth opportunity. In terms of that opportunity, what do you say to the people who worry that the achievability of growth gets tougher for Ryanair given already high market shares in developed markets, like the 40-odd percent you talked about now having in Italy?

I mean, there's always been the naysayers. The last -- there's always been somebody who 10 years ago thought easyJet had a better product -- sorry, 20 years ago, with BA -- we'd would never be able to compete with BA, nobody would ever transfer to Ryanair. Five years ago, easyJet had a better product. We'd never be able to compete with easyJet. For the last 2 or 3 years, we keep hearing this stunning (expletive)(expletive) that some Hungarian airline is going to have a lower cost base than Ryanair by --- on a one that they could be on the per kilometer basis sometime in 2035.

So -- and yet we just keep delivering. I mean, I think, if anything, the growth opportunity for us is getting easier and will be easier as a result of -- I think the remarkable job that the wider management team in Ryanair have done during COVID, means we have gone through COVID keeping everybody, the pilots and the cabin crew current, keeping the engineers, keeping the aircraft current, the strength of the recovery.

During COVID, we significantly renegotiated the price of the Boeing aircraft. We have done remarkable long-term airport cost deals that lock in -- with pretty ambitious growth targets there. But all of our bigger bases at [Stansted], at Charlotte, at Bergamo and others, our cost base is locked away until 2028, 2029. And yet you look across the piece and you have Heathrow, an airport that couldn't run a piece up in its own brewery, are out there looking for 50% price increases this year and 50% price increases next year. [Gatwick] I think, would be shortly following along.

So there -- we have taken out remarkable cost out of the system. There -- are there cost pressures going forward? Yes. Fuel will probably be up a little bit in the next year or 2, but we will still do materially better than those because we can be more aggressive on hedging. Staffing, I think there will be pressure across Europe on staff generally. Labor will rise a bit.

But I mean, I still believe that there's so much cost pressure on so many of our competitors, particularly the legacy guys. Airfares will rise over the next 4 or 5 years, and I will think over the medium term, we will continue to take very material market shares in big markets where there's been huge capacity restructuring like Italy, like Hungary, like Austria, Poland, Spain, Portugal, et cetera.

I mean, there is no country across Europe at the moment where our new routes team are not in very active negotiations with a whole swathe of airports who are desperate to recover their pre-COVID traffic. We're doing nothing in -- well, very little in Germany at the moment. But I have no doubt in the next 2 years as the entire German consumer gets screwed by Lufthansa and its overcharging, and I was a victim of them myself during our full year results, (inaudible) buy a last-minute airfare -- economy airfare from Frankfurt down to Zurich. A 1-hour 40-minute flight, I've got charge EUR 740 one-way.

Last week, as we announced 2 new routes in Vienna this winter, monopoly -- monopoly Vienna, Copenhagen currently operated by Austrian, they're charging EUR 740 return on a 1-hour 20-minute flight, and we're entering the Vienna-Helsinki market, where currently it's only operated by Finnair as a monopoly doing 4 times a week. They're charging EUR 800 return in the economy.

I mean, there are airfares and markets out there where -- and that's why these airports are desperately beating a path to our door, trying to get us to add capacity there. One thing we have capacity -- significant capacity growth for the next 4 years, as long as Boeing can deliver the bloody aircraft to us, we have significant capacity recovery. And to their existing business is being (expletive) by monopolists like Lufthansa, Austrian and others who are charging just outrageous short-haul airfares. And I think we will continue to be the beneficiary of that.

So the one thing I have no doubt on is that we will grow 225 million passengers over the next 4 years. We already have the airports, the market, the aircraft deliveries to achieve that. And that takes us up to somewhere close to 25%, 30% of European short-haul marketplace. And then I believe there will be capacity consolidation over that 4- or 5-year period, and we are poised with a very low cost base, particularly as the -- remember, in the next 4 years, we'll have 210 Gamechangers having 4% more passengers with burning 16% less fuel. It will occupy about 1/3 of our fleet.

And that will deliver a very significant cost savings. So I think we're entering into a 3- or 4-year period of very benign growth. But we will be the only airline that will have -- the cost gap between us and all of our competitors will materially widen in the next number of years. And therefore, I think you'll continue to see us take very meaningful market share -- capture market share from our competitors, who have no chance of ever getting it back from us unless we do something monumentally stupid. And given that we're an airline, therefore, we're always prone to be doing something monumentally stupid.

Next question is from Muneeba Kayani from Bank of America.

So just on your fuel hedging, you said you had a 35% hedged for next year. How should we be thinking about you're adding hedges for next year given we're currently at high oil prices? Is it a bit of formula thing? Or is it opportunistic? Is my first question.

And then secondly, we've been -- in the U.S., we've been hearing a lot about pilot shortages right now. Is that a risk for Europe, especially as Asia reopened? And how are you thinking about that as you add to your capacity?

Okay. So I'm going to ask Thomas Fowler, Director of Sustainability, to do the fuel hedging. I'm going to ask Eddie to do the pilot shortages.

Just on the fuel hedge, and like as Michael said earlier on, we have a strong balance sheet, which gives us the opportunity to hedge out forward. And with the curve in backwardation at the moment, the low spot, we see it as an opportunity to hedge, which other competitors aren't able to do. So we'll always continue to hedge, it's very important, 12 to 18 months in advance. And at the moment, with the backwardation, we see that as an opportunity.

So we tend to be opportunistic, but we also will accept that by the time we get kind of 6, 10 months out we want to be at 80%. Now I'm not sure we'll ever again hedge up to 80%. But there will be a mix of hedges and caps. We've consistently asked ourselves, should we hedge out 100% this winter?

And the reason we're only 80% hedged this winter is, again, we're not sure that there won't be COVID disruption or Ukraine disruptions this winter. That's -- I keep coming back to the fragility of the recovery. We -- it features highly in a lot of the union negotiations, the pay restoration, discussions.

Guys, let's agree to restoration now quickly because this situation could get worse in the autumn. We could save more money by hedging up to 100%, but we just don't want to take the risk of hedging to 100%, where there may well be more disruptions later on this year. And Eddie, on the pilots?

Yes. I mean, we've been hearing about pilot shortages for the last -- since I started here 25 years ago. I mean, we have -- if you look at what we're doing at the moment, I mean, if you look at the profile of where Ryanair having moved to local sort of terms and conditions, our pilots are well paid, they're out of [54 roster] and they are usually in their hometown. Like whether that's in [Lamezia] in Italy or Santiago de Compostela in Spain.

So like we have a very good offering. We have 1,000 cadets this year in training who will be our -- so we have a very slick training machine here in terms of ab initio pilots coming in. And they have the confidence that they're going to be promoted, along with the growth we have 225 million passengers, that they've got a good chance of being promoted within 3 to 4 years. So there is a compelling proposition on that within European short-haul.

Yes, there will always be the attraction of going to the gold or going to Asia. But I think people have seen what has happened during the COVID pandemic where people were thrown to the fore, were essentially thrown under the bus in a lot of those jobs. And those that were with Ryanair were kept current and kept in employment. And I think those decisions, people will be less likely to make those given that there is the fragile nature of the recovery to move your families and that's the other side of the world. So we have a good pipeline -- an excellent pipeline of pilots and we have no worries about that a moment.

And most -- obviously, with all of our pilots, there are 737 pilots, I think there will be a lot more turnover of Airbus pilots this winter between BA and Wizz and easyJet and now Jet2 moving to Airbus. There's a lot more movement of Airbus pilots around the place. 73s, we are by far, the largest operator in Europe. As Eddie said, we're training 1,000 cadets. I think there will be -- FOs have a trend in, they get trained, want to go off for the gold for a couple of years, but they come back pretty quickly. But as Eddie said, I think we're seeing a lot less turnover in pilots and in cabin crew. I think they appreciate the fact that we didn't -- as Eddie said didn't just dump them out the door during COVID when many of the -- our competitor airlines did.

But I wouldn't underestimate, I think, there will be pay inflation over the next couple of years, particularly in some of the lower paid categories like the junior cabin crew, ground handling. Across Europe, there's going to be -- we're largely in full employment. I think there will be upward inflation at the lower end of the salary scale. But we're well proved. And I think the strength of the cadet pipeline gives us confidence in the future.

Next question comes from the line of Alex Paterson from Peel Hunt.

Yes, so after the current Boeing order, you would -- you previously said that you expect the fleet to be more for replacement so capacity growth would slow. That would suggest that you need to be more yield-active as you no longer have the capacity growth to absorb any cost pressures. Do you think the group has got the capabilities to develop ancillary revenue streams organically beyond sort of priority boarding baggage, that sort of thing?

Well, the answer to that question is firstly, we're the ones who invented the ancillary stream on priority boarding. We were the first player who charged for checked-in bags when we started, every other airline from easyJet to BA, we would never charge you for check-in bags. And then within 6 months they're all copying us. We're also the area that mentioned the priority boarding, the reserve seating.

Again, all the competitors, "oh, we've never charged you for a seat." And within 6 months, they're all charging like, look, we have demonstrated more inventiveness and agility on ancillary revenues. We've led the way over the last 10, 15 years and the rest of the industry has copied us.

So yes, I have nothing but confidence in our ability to continue to inventively develop ancillary revenue streams. I would caution over an awful lot of times, revenue streams come out as through a way of changing passenger behavior. We don't want to charge for a check-in bag. We prefer to just not have the check-in bag.

But the fact that 20% of our passengers -- when we first started checking bag, 80% of passengers check in bags, now it's down 20%. One of the reasons why we've been so largely undisrupted this summer is we don't have connecting flights going through hub airports. We don't -- we're not missing thousands of bloody bags because we tend not to carry thousands of bags. So one of the reasons that operationally we're so much better than many of these other airlines is we don't have -- provide all these services. We don't overpromise and underdeliver. We tend to underpromise and overdeliver.

But I would -- again, I am of the mind, I think the more medium-term upside for our investors and shareholders is that as capacity growth in Europe slows down, and there is no doubt the capacity growth in Europe is going to be flat, I think flat if not slightly down for the next 2 or 3 years. And that will be a combination of capacity that's been taken out of this and during COVID.

Competitors who are unable to restore some or all of their capacity going forward because they're unable to compete with us in markets where we've taken huge market share gains. The fact that we ourselves will be slowing down our own capacity post getting to 225 million, there's going to be -- if you look across North America, where for the last 5, 10 years you've got 4 major airlines, almost 0 capacity growth, strong upward pricing power among the 4 incumbent carriers, Europe is going to morph the same way in the next 5 years, the next decade.

And I think the attractiveness of an investment in Ryanair at this point in time is you get to invest in the lowest cost provider, I think the best run group of airlines in Europe and the one airline that is going to be 1 of the big 4 surviving carriers. And if we get down to a market in Europe, which I believe we will of Ryanair, Lufthansa, Air France and IAG, you'll have 4 -- or 3 very expensive legacy carriers rapaciously pricing their domestic and short-haul into European, and Ryanair being the only one out there keeping them all honest but with materially lower airfares and a material upside in the yield and pricing outlook over that period -- over that consolidated period of time.

Guys, Neil Sorahan is going to have to go. He's doing work, 2 investor meetings in London. So Neil, if you want to head off, and we'll make up the answer to the last couple of questions that we have left to do. Probably you want to keep me honest here.

Okay. Thanks, everybody.

Next question Gerald Khoo from Liberum.

A couple for me, if I can. Firstly, you talked about the 2 bonds that mature in calendar 2023. I was just wondering what your thoughts are on refinancing those. And secondly, on the operational disruption issue. You talked about the benefit that you've had from keeping your staff employed and current. But how have you managed to keep your suppliers and external ground handlers, how do you manage to get them to staff up to the right level? And to what degree do you have confidence that, that will remain the case through the rest of summer?

Okay. Bond for 2023 -- I, mean the 2 bonds we repay in 2023, I think we -- certainly, the present intention is we just pay those down out of internally generated cash flows. We're clearly moving into a higher interest rate environment for the next couple of years and I would want to reduce and pay down debt despite the fact that some of these bonds are pretty low cost. If we were refinancing those bonds now, we would be looking at probably double the cost or the interest rate that we have on these bonds.

So I think we're minded now. And I think for the foreseeable future, we're all facing into a higher interest rate environment and a higher financing cost environment, and therefore, it makes sense for us to get back to 0 net debt and begin to build up our cash balances. And what has been for the last 10 years a modest net financing cost will, I think, in the next 5 years become a modest net financing income as our cash balances will outweigh debt.

The operational disruptions, I think, one of the key things is that we have a lot of -- we work closely with our service providers. We knew coming into this summer that we were going to have -- operate at 115% of our capacity. So we worked closely with -- we have Blue Handling, our contractor in Spain in Stansted. We do our own handling here in Dublin.

And not unlike those, we took the decision last November, and you -- I highlight you back to the half year results presentation we made last November, we said we're going to start hiring, start recruiting, start training pilots and cabin crew but also handling costs through those 2 quarters to build up for the summer 2022 capacity growth.

Now we got, again, afraid as a result of Omicron impact at Christmas. We got badly -- we took a lot of cost risk through April because of the damage done by the Russian invasion in Ukraine down to April. So we didn't look that lever through Christmas or Easter, but now we look very clear.

I think a lot of our competitors decided not to kind of engage in recruitment and training during that period of time. And I think that was justifying decision given the uncertainty caused by Omicron in November and Ukraine in February. We took a different decision. And I think that decision has been vindicated by our success in getting through this summer.

But at a lot of our airports -- also, we were able to kind of tip off -- I don't have a lot of sympathy for an awful lot of the stuff coming out of airports, particularly out of Heathrow and John Holland-Kaye b**(expletive) on about nobody expected this. Yes, we did. We filed the schedules. We were certainly able to tell Stansted what we expected the summer traffic would be.

Dublin, again, we knew exactly what the summer traffic, we've been able to handle it. Dublin had some handling problems here in April and May. To be fair, the [DA], I think they have responded very well. They hired -- under a lot of political pressure and some unfair criticism they have hired very well and very quickly. And I think their recent weekends in Dublin have been exemplary.

So well done, Dublin Airport. I would not often be complimentary, but I think the management team did a good job of recovering from a bad start in April, May. But the shambles in Heathrow, some of the mismanagement, the security shortages in Manchester, Bristol, they were avoidable. But I can understand why some people were trying to be -- didn't want to recruit in February and March when -- remember back in February, March, we were still in the teeth of the Omicron cutbacks and the Ukraine -- the Russian invasion of Ukraine.

So I think we just managed it better, but we also were able to give our suppliers, airports and handling companies a better heads-up. And our heads up, I think, has been a bit more accurate and a bit more reliable than what many of our competitors were able to deliver. But I have no time. I'm not a customer of Heathrow, I have no time for the (expletive)(expletive) that comes out of Heathrow, which is one of the greatest overcharging monopolies anywhere in Europe at smarming on about need for large cost increases when they can't burn a pizza in a brewery.

And I think the airlines in Heathrow should be compensated by that overcharging monopoly for the egregious mismanagement that has been visited on by Heathrow Airport.

You look at Gatwick, Stansted, Luton, all the other London airports have significantly outperformed this summer. But Heathrow is a badly run, overcharging (inaudible) monopoly. And if you had a competent regulator in the CAA, which you don't, they would be taking much more affirmative action on behalf of the airlines and on behalf of consumers rather than pathetically writing out -- I mean, the idiot Transport Minister writing to the airlines last week in the U.K. asking us to ensure our preparedness. You don't need to write to the airlines. Try writing to some of your -- Heathrow Airport, which is where most of the problems lie.

The next question comes from the line of Johannes Braun from Stifel.

First question, you said earlier that you are prepared to cut back growth a bit this winter due to the high fuel costs, which you have to pay on the 20% unhedged part. I think you said single-digit above prepandemic down from 15% this summer. If fuel prices stay as high as they are into next summer, would you be prepared to cut back your growth for next summer as well based on the same logic and also given the fact that you're only hedged by 35% for next summer?

And second question, I guess that one would have been for Neil, but I'll still try. You said that you're fully hedged in terms of the U.S. dollar in terms of the CapEx. To what extent are you hedged on the OpEx?

Okay. Tracey will do the second question. I think what we -- let's take the capacity question. The winter is very fluid. I mean, at the moment, we believe we're kind of -- we will not run at 15% to pre-COVID capacity. This winter, we will cut back -- particularly midweek, unprofitable flying in November, first half of December, second half of January, February.

I think our capacity growth and traffic growth in the second half of the year will be probably something 9%, 10% pre-COVID. If, however, and I expect to see in the next number of weeks and months, material cutbacks by our competitors who are completely unhedged this winter and would blow their brains out, mind you, a lot of them don't have a lot of brains, but nevertheless will blow what brains they do have out, we might opportunistically change that because we've already hedged 80% of our fuels.

So this winter is a very fluid, I think, situation. It's fluid if there's negative news flow on COVID and on Ukraine. And I think it will be more fluid -- or there's certainly going to be opportunities arising if we see material cutbacks by someone like AUA and Vienna, who are unhedged, Wizz who are completely unhedged or largely unhedged this winter or hedged at $120 a barrel.

I don't think they're going to operate the schedules that they have filed. And I think I expect to see that those -- many of those airlines will materially cut their winter capacity this winter. Would we cut back some? No, we will go held for later in summer 2023 for 2 reasons. One, we will be better hedged than any of our competition. I think by the time we get to the second half results at the end of November, we expect to be probably certainly 80% hedged for the summer 2023 period or for the first half of the year to be about 80% hedged because that's our rolling program. Whatever we are hedged out would be materially better than any of our competitors.

I think there will still be very strong recovery of pent-up demand into the summer of 2023 on short-haul Europe, and we will still be building out material market share gains across Europe. And remember that, that's full capacity, as long as Boeing delivers us 50 aircraft next year, that full capacity growth, that will be another -- capacity will grow by 9%, 10% in December 2023. All of that capacity growth will be taking place on aircraft that carry 4% more passenger but burn 16% less fuel.

So it will be on Gamechangers. And Eddie and the team are doing a terrific job negotiating very advantageous airport deals for that capacity growth into the summer of next year. That's a new base in Belfast, which opens in summer next year, is a low-cost traffic recovery scheme. The growth at some of the other airports that have already been announced is already very low cost.

So we will do -- no matter what price fuel is next summer, we will go at full capacity through the peak summer period next year. The only question mark over that is can Boeing deliver these aircraft as contracted before the end of April? And as you know, I do not have great confidence in the Boeing management in Seattle. In fact, I have very little conference in them. And therefore, I expect them to continue to (expletive) up deliveries or have delayed deliveries despite the fact that they have very few deliveries to make next year. But that's where we are with Boeing.

Tracey, do you just want to give an update on the OpEx hedging and the -- sorry, OpEx hedging in the second half of the question?

Yes, the OpEx for this year, we're 80% hedged at [$115]. And for next year, we have 10% hedged of the OpEx at [$108]. And we're fully hedged, as I said already, on the CapEx of [$124].

And that CapEx, as you ruled out...

At the end of all it, yes.

It's amazing. If we weren't hedged on the CapEx, we'd now be paying 1/3 more for those aircraft. 1/3 more for those aircraft, like not alone have we got very low-cost dollar cost aircraft, but we've hedged away the fuel exposure as well at a time when many of our -- those few of our competitors who haven't -- who are adding aircraft for the next number of years, a, will be adding fewer aircraft than we are, they'll be adding those aircraft at materially higher prices and they haven't got the CapEx.

If you look at an area like Wizz, the underlying story for Wizz is not just at their unhedged on fuel but they're also unhedged on currencies as well. And so the exposure they have on both OpEx and CapEx are going to blow the few brains they have left out. But they're not -- which again is why there would be material capacity cost by many of those competitors this winter. And those analysts who are missing -- for the last month, we've been peddling the lines that they'll have lower costs than Ryanair sometime by 2035, will have to revisit those insane models. God speed.

We have the final question from Harry Gowers from JPMorgan.

You've spoken about the 7% or 8% behind 2019 on bookings for Q2. Are you able to tell us what percentage of seats on sale actually booked for Q2 or even announced Q3, if we can look out that far at the moment? And it would have been one for Neil, but CapEx obviously H2 weighted this year. Anything to call out just on the quarterly phasing from Q2 to Q4?

Yes. Okay. I'm not sure what to get into where we are at the moment for the second quarter. I don't think it's helpful. I mean, look, focus on the 2 fundamentals. One, we're running -- on the 1st of July, we were about 7% behind for July, August and September. And I think the only other material development on that is the July load factor is going to -- the June load factor was 95%, the July load factor is going to be 96%. Now that's 2% behind the 98% we did in July pre-COVID in July 2019.

So we are -- yes, we're behind on the forward bookings, but we're materially closing that up with close-in bookings. And those close-in bookings are coming to us at materially higher airfares. So I would look to this at the moment as being a huge opportunity for us. We haven't presold as well as we did pre-COVID, but we are selling during the month at materially higher airfares, the fares that are more than double-digit percentage points ahead. So there's a short-term gain for us in the second quarter.

But that's again why I'll come back to the nervousness and our caution on the third and fourth quarters. If there is a negative news flow -- or new negative developments on COVID or Ukraine into October, November, December or January, February, March, then -- and I would think we'd be -- the forward booking will continue to improve in that period, but the close-in books will get hit. We saw that at Christmas with Omicron and at Easter with Ukraine.

If that doesn't happen, then we'll have a very strong recovery for remainder this year and a very strong recovery in profitability as well. And the first objective with that would be to finish out the pay restoration discussions with our people. So I would look to that as being very positive, but a positive of which we should continue to keep a wary eye on negative news flow into the third quarter and the fourth quarter.

CapEx.

Sorry, Tracey, CapEx.

So CapEx is probably pretty much the same in Q2 as we've seen in Q1 with the balance of the CapEx in the second half of the year pretty much in line with the Boeing deliveries.

Thanks, Harry. Thanks, Tracey. Okay, folks, I have nothing else to add. Because of the Q1 results, and a lot of people are aware, we're not doing a roadshow. Neil is meeting a couple of investors in London later on today. If you have any further follow-up call, Peter Larkin is here manning the IR desk and will be here all week. And if you want to talk to any of them myself, Eddie, Tracey or Neil, over the next couple of days, please give us a call, and we'll be happy to take individual calls from you.

In the meantime, may I wish you, enjoy the remainder of the summer. I look at the Sky News coverage of big cues at Dover, cancellations at Gatwick and at Heathrow is good for the Ryanair share outlook, our performance. Operationally, our teams have done a remarkable job, and our crews are doing a remarkable job in very difficult circumstances with -- particularly with the ATC delays and substandard performance.

And I would hope that the Ryanair brand continues to improve as we are recognized, particularly across the U.K. and Europe, as outperforming all the other airlines in terms of our punctuality and reliability this summer. And we hope that, that gives a good platform to continue to build into the winter of this year and into the summer of 2023 as long as we have no more disruption or delivery disruptions with Boeing.

Rest assured, we'll keep doing our best and managing as best we can to eliminate those delivery delays and so that we can roll out continued strong capacity growth into this winter and into the summer of 2023. And we hope that in time, that would be reflected in a -- dramatically or a reasonable recovery of our share price and your investments over the next 6, 9, 12 months.

Thank you very much, everybody. Good to talk to you. And apologies Neil had to ring off early. But I think we covered everything else. Thanks. Bye-bye.

This concludes our conference call. Thank you all for attending. You may now disconnect your lines.