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Edited Transcript of RY4C.I earnings conference call or presentation 29-Jul-19 10:59am GMT

Q1 2020 Ryanair Holdings PLC Earnings Pre-Recorded Presentation

Dublin Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Ryanair Holdings PLC earnings conference call or presentation Monday, July 29, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Michael O'Leary

Ryanair Holdings plc - Group CEO & Executive Director

* Neil Sorahan

Ryanair Holdings plc - CFO

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Presentation

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [1]

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Good morning, ladies and gentlemen. Very welcome to the Ryanair Q1 results conference presentation. My name is Michael O'Leary, I'm the Group CEO, and I'm joined today by Neil Sorahan, our CFO.

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Neil Sorahan, Ryanair Holdings plc - CFO [2]

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Good morning.

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [3]

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We'll run straight into the slide presentation. As you'll have seen, the model of Ryanair remains undinged. We are the lowest fare, lowest cost carrier. We're #1 for traffic, 152 million passengers for the full year this year, up 6% -- 7% on last year. And we expect to maintain that growth, particularly this winter as we expect other EU airline failures and sales to accelerate. Malta Air in the quarter has joined the group, and the fundamental proposition of Ryanair is that the lowest cost wins. And we're spreading our offering across the continent with 86 bases, 235 airports, over 2,100 rooms. And in FY '20, we have new bases in Marseille, Bordeaux and Toulouse in France; in Southend in U.K.; in Berlin Tegel in Germany; and new country markets in the Ukraine, Turkey and Lebanon. We remain on track to deliver our promise of 200 million passengers annually by FY '24.

In the last year, our airfares continued to fall. It's one of the reasons why our profits are down this morning. This is one of the good reasons for a decline in profits. Our customers are getting better value than ever before. Our fares in the last year have fallen 6%, but we beat every other airline in Europe on costs and by a considerable distance, and the gap between us and our competitors is getting wider.

On labor, we're slightly ahead of Wizz. They have lower-cost Central European contracts, but we're significantly cheaper and operationally more efficient than easyJet or Norwegian. And we're significantly lower cost in terms of airports and handling cost because of our larger aircraft, our 25-minute turnarounds and, in particular, the aircraft ownership and maintenance. We are stunningly below comp, below the unit cost of all of our competitors. We believe we can continue to maintain that low-cost advantage. That's what underpins our ability to offer lower fares and that in turn is what allows Ryanair to continue to grow. Neil?

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Neil Sorahan, Ryanair Holdings plc - CFO [4]

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Over the quarter, we saw our traffic grow by 11%, 42 million guests. Revenue per passenger was flat at EUR 55, as a 6% reduction in average fare due to overcapacity in Europe and price stimulation in the U.K. was offset by a very strong performance in ancillaries, which were up 14% per guest.

Unit costs, ex fuel, were up 4%, and our fuel bill increased by EUR 150 million. So as a result, profit after tax was down 21% at EUR 243 million in the quarter.

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [5]

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To touch briefly on current development. So we have lower fares, higher fuel costs. We continue to -- are affecting our earnings, but they are also affecting the earnings of all of our competitors. We believe that will drive more airline failures and sales in the second half of the year.

Short-term price weakness, yes, but Ryanair remains the structural winner. The MAX 200s, those deliveries have been delayed until at least Q4 of this year. We now expect to take the first deliveries of our MAX 200s probably in January or February of 2020, and that depends on the aircraft going back flying or being -- the existing MAXs being returned to service sometime in September, early October. That does mean that we won't be able to take the original 58 aircraft that we had planned for summer 2020. We think it's best at the moment to plan for 30 additional aircraft for summer 2020, and that means slower growth next summer and into FY '21.

The group's structure continues to evolve. We now have 4 substantial group airlines: Buzz in Poland; Lauda based in Vienna; Malta Air, which joined the group in the quarter, based in Valletta; and Ryanair DAC, which was the old Ryanair. For the moment, we've left Ryanair U.K. off that because we won't need it unless there's a hard Brexit.

We are Europe's greenest, cleanest airline. This year, we expect to pay over EUR 600 million in environmental taxes, which I think explodes the myth that the airlines are having a free run or some kind of a free ride when it comes to environment. We're not. We're paying very heavy environmental taxes, despite the fact that we're investing massively to continue to reduce our environmental footprint.

We have also launched EUR 700 million share buyback in May, EUR 100 million has been returned to shareholders in buyback dated in the first quarter.

Our guidance, I think, is the good news today, remains unchanged. So our profit after tax for the full year is still at a reasonably wide range of EUR 750 million to EUR 950 million, that's profit after tax. And the reason for the width of the range is we have so little visibility on airfares in the second half of the year.

Malta Air, a new Maltese airline, Maltese AOC, we will put our 6 based aircraft in Valletta into Malta Air this winter. We will also transfer most of the aircraft that we have based in France, Italy and Germany onto the Maltese AOC. We started that process in May, and it continues on a weekly and monthly basis. The advantage of that is this now means our crews in Germany, Italy and in France can pay their income taxes in Germany, in Italy and France, which is a key part of the agreements we reached with unions in those countries to move to local contracts and local taxation, moving them away from historically paid Irish income tax because they were on an Irish AOC.

The management team, which is building rapidly, is based in Malta and the Malta AOC also facilitates us opening up new routes into North Africa and into the Middle East from Malta, which wouldn't be available to us as an Irish-registered airline.

Just to touch briefly on the MAX update. There is still considerable uncertainty there. We have 210 aircraft on order. We expected to get 5 in advance this summer; they've been delayed. We plan to have 58 in place for summer of 2020. We now think that would be about 30 aircraft. We are actively working through plans at the moment to reduce our -- to reduce aircraft at certain bases, close other bases this winter from November because if we don't have these new aircraft coming in next summer, there's no point in flying them during the winter as well.

There will be still some new bases and some new routes for summer 2020, but we will have to re-jig the schedule to accommodate the slower rate of growth.

What it means for our shareholders is that instead of growing to 162 million passengers in FY '21, we'll grow about half that rate of growth, about 157 million passengers. We continue our dialogue with Boeing. The predelivery payments have been frozen. We expect Boeing to cover these losses, and you'll see Boeing making provisions for that in their own accounts.

Critically, however, we remain committed to the Gamechanger aircraft. These are aircraft that offer us 4% more seats, and compelling have 16% lower fuel per seat. These are not just operationally efficient, they're environmentally efficient as well. And they facilitate Ryanair's growth to 200 million guests by FY '24.

Just to touch on our environmental commitment, we're the first airline to publish mostly CO2 emissions in 2019. Our -- we're already the lowest -- we have the lowest emissions of any major EU airline. We are determined to cut that by a further 10% by 2030 over the next decade. We paid over EUR 540 million environmental taxes in 2018, and that will rise to over EUR 600 million in 2019.

We've committed ourselves to being plastic-free within 5 years. We're also the first airline to have a voluntary carbon offset program as part of the booking process and all of the funds that are raised from that offset program, about 2% of our passengers this year will commit to it, is being allocated to work with climate change partners here in Ireland, in Portugal and in Africa. And critically, the 210 new Boeing MAX aircraft will allow us to carry more passengers, but at much lower fuel consumption and with a 40% reduction in noise emissions.

Here's just a demonstration of the environmental taxes we paid last year and what we expect to pay this year. I would draw your attention to the fact that it runs at around 10% per -- it's a tax of about 10% per ticket, which is an incredibly high rate of tax for the environment.

Guidance. Neil?

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Neil Sorahan, Ryanair Holdings plc - CFO [6]

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Just on guidance, we're guiding our passenger numbers up 7% between 152 million and 153 million in the current year. Fares, we believe, will be at the lower end of minus 2% to plus 1% range for the year. Ancillaries, however, are going to continue to perform well, which is why we're guiding revenue per passenger in a range of plus 2% to plus 3% on a full year basis.

Unit cost, ex fuel, is poised to continue delays in MAX which I feel at 2%, which is unchanged in our previous guidance. Fuel, we believe, will be up about EUR 450 million on a full year basis. And as a result, as Michael already said, profit after tax will be in a range of EUR 750 million to EUR 950 million for the full year. This, of course, depends on closing peak summer bookings over which we still haven't got full visibility. H2 fares, and, of course, what happens in relation to Brexit in October.

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [7]

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Well done.

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Neil Sorahan, Ryanair Holdings plc - CFO [8]

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Thanks, Michael.

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [9]

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Thank you. With that, we'll now go to the Q&A.

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Questions and Answers

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Unidentified Analyst, [1]

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Revenue per passenger was flat at EUR 55. How did fares and ancillaries performed?

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Neil Sorahan, Ryanair Holdings plc - CFO [2]

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Yes. We saw a 6% reduction in fares in the quarter. We stimulated 11% increase in traffic to just over 42 million customers. And this, however, was offset by a very strong performance of ancillary revenue up 14% per passenger basis and just under EUR 0.8 billion in total revenues in the quarter stimulated by the likes of our reserve seating and priority boarding, which continues to perform very well.

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Unidentified Analyst, [3]

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What is your eye for comp fares for the remainder of the year?

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [4]

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Well, as you can see, underlying airfares in the first half of the year were down 6%. We have 0 visibility on airfares into the second half of the year, but we expect them to come in towards the lower end of our minus 2% to plus 1% range. And most of that price softness is due to softer consumer sentiment in the U.K. and excess capacity, particularly with Lufthansa and Eurowings in the German market, leading very low pricing in the German and Austrian markets.

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Unidentified Analyst, [5]

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Will the strong performance in ancillary revenues continue?

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Neil Sorahan, Ryanair Holdings plc - CFO [6]

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I think so. We -- as I said, we have a very strong performance in Q1. We'd expect the likes of priority boarding continue to perform well, particularly over the remainder of the first half of the year. We continue to expect the likes of Labs to contribute strongly to customer choice and performance. So as a result, as we roll out more personalization, we're guiding revenue per passenger in a range of about plus 2% to plus 3% on a full year basis, which is all down to the strong ancillaries.

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Unidentified Analyst, [7]

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Ex fuel costs rose 4% in Q1 FY '20, why?

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [8]

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Principally, it was the consolidation of the Lauda costs in Q1 this year. They weren't consolidated in the -- in the comparable Q1 prior quarter. And we've also had an increase -- significant increase in staff cost, the 20% pay increase that we negotiated at the start of 2018, and also ramping up pilots and cabin crew recruitment in advance of the peak summer schedule this year. We've also had a number of one-off expensive costs, returned the 9 expensive operating lease aircraft to Lufthansa from Laudamotion, the last of which were redelivered at the end of June.

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Unidentified Analyst, [9]

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Is there any change to your full year ex fuel unit cost guidance of plus 2%?

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Neil Sorahan, Ryanair Holdings plc - CFO [10]

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No. We're sticking with the 2%. So this is despite continued delays in the MAX delivery. So just a 2% on a full year basis.

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Unidentified Analyst, [11]

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Any update on your fuel hedging?

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [12]

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Yes. We are now 37% hedged into FY '21 at about $63 per barrel. We continue to look for opportunities to add to that at rates of under $60 a barrel, but we are consistently in line with our rolling program to be typically at 90% hedged on a 12-month basis.

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Unidentified Analyst, [13]

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How is on-time performance?

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Neil Sorahan, Ryanair Holdings plc - CFO [14]

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Significantly improved year-on-year. We've invested heavily over the last year in spare parts, in more engineering and critically changing our contractors for handling in Stansted, in Poland and over in Spain. As a result, we've seen a 7 percentage points improvement in on-time performance in the past 6 months and indeed a 10 percentage point improvement in the quarter. Cancellations are well down year-on-year. We had just 20 cancellations in June, for example, as opposed to nearly 1,200 in the prior year comparable. That said, we continue to still see ATC disruptions over the weekends. This is having a negative impact on punctuality for all airlines, and we continue to work very well and Wizz Airlines for Europe is trying to encourage the air traffic controllers to staff up their numbers and to address overflight issues. So over 90% on-time performance, excluding ATC in the quarter.

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Unidentified Analyst, [15]

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What's the latest update on the MAX?

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [16]

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Deliveries are delayed. We don't expect the MAX to return to service until September or October at the earliest this year. That means we are now expecting the first of our Gamechanger aircraft probably in January, February of 2020. That means we've now -- we would only take delivery of about 30 aircraft for the summer -- peak summer '20 schedule instead of 58. That could move -- it could be slightly higher, it could be slightly lower, depending on when the MAX is approved by the regulators to return to service. So our -- for the purpose of our plans at the moment, that means we will slow down our growth rate in December 2020, with about 157 million passengers in FY '21 as opposed to previously 162 million passengers.

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Unidentified Analyst, [17]

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Have you started discussions with your airports and people?

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Neil Sorahan, Ryanair Holdings plc - CFO [18]

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We have, but I think at this stage, it'd be wrong for me to comment in any detail of elements as the negotiations are confidential.

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Unidentified Analyst, [19]

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Are you talking to Boeing?

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [20]

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We are. I mean we're in daily contact with not just Boeing, but also with the ASA to try to assist the process of getting the MAX aircraft which are -- the early return to service of the MAX aircraft.

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Unidentified Analyst, [21]

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Is there any change to your FY '24 target of 200 million guests per annum?

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Neil Sorahan, Ryanair Holdings plc - CFO [22]

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No. We're still targeting 200 million by March 2024. As Michael said earlier on, growth will increase by about 3%. Next year it's 157 million, which is slightly slower than we've anticipated. However, we believe we'll catch that up in future years.

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Unidentified Analyst, [23]

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What does this mean for your cost-cutting initiatives?

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [24]

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I mean it means we don't get the cost reductions -- unit cost reductions that we had hoped that the MAX aircraft would deliver in the second half of the year, but we're still finding other areas where we're paring and shaving some costs, which is why we're holding to our 2% cost -- unit-cost increase for the full year. Some of that was particularly contingent on getting the MAX aircraft. They now won't arrive, but we're making up cost savings elsewhere.

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Unidentified Analyst, [25]

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What is the impact of the new IFRS 16 lease accounting standard on the balance sheet at Q1?

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Neil Sorahan, Ryanair Holdings plc - CFO [26]

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For us, it's relatively immaterial, only 6% of our fleet is leased. So like most other airlines, it doesn't have a huge impact. The P&L impact was totally immaterial in the quarter at quarter end. However, on the balance sheet, we added about another EUR 220 million of debt and this will increase to about EUR 330 million by year-end due to more leases coming into fleet over the next number of months. That said, in the quarter where we had buybacks and the impact of IFRS 16, we actually saw our net debt marginally down at just EUR 419 million.

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Unidentified Analyst, [27]

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How is the buyback progressing?

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [28]

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Well, we've completed -- spent EUR 100 million in the quarter. That means there's still EUR 600 million to go. We'd expect to run that program out through to the end of the calendar year. And obviously, it will be critical in the run-up to any hard Brexit, if a hard Brexit is the outcome of the Brexit discussions at the end of October.

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Unidentified Analyst, [29]

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Can you update on Malta Air?

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Neil Sorahan, Ryanair Holdings plc - CFO [30]

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Yes. Malta became the fourth main operational airline in the group back in June. It's got a Maltese AOC. We've recently appointed a new management team based in Valletta. This will operate the 6 based Maltese aircraft. So they'll transition over to the AOC this winter, and we will grow it up to about 10 aircraft over the next 3 years. And importantly, it'll also operate our French, German and Italian bases, which enables our crew to pay their taxes locally in those markets, which is an important point for the individual pilots, cabin crew, and the unions. We're also excited at the opportunities that we get to open up new markets in the likes of the Middle East, North Africa and, of course, join Malta to rest of the network.

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Unidentified Analyst, [31]

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How are Lauda and Buzz developing?

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [32]

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Lauda is growing strongly. This summer, it'll operate a fleet of 20 operating lease A320s, actually at a lower cash cost than the 9 aircraft they were leasing from Lufthansa this time last year. Its growth -- traffic is growing strongly. We expect to carry more than 4 million passengers in the next year, and the losses will be significantly reduced from the figure of just under EUR 140 million last year, but we're still continuing to turn that around.

Buzz is operating profitably in the second year of operation. This summer, it's offering 7 aircraft in the charter market in Poland and training well. Many, as an example, 17 of Ryanair's -- all of Ryanair's Polish-based aircraft are now being operated by Buzz. And we'll see some of those aircraft and the uniforms rebranded as Buzz later on this year.

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Unidentified Analyst, [33]

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How do you see European short-haul developing this winter?

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Neil Sorahan, Ryanair Holdings plc - CFO [34]

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I think we're going to see more airline failures and consolidation over the next number of months. The current high fuel environment, particularly for the unhedged carriers, is going to cause significant problems. As airline starts get over peak cash flow and moving through winter, again, they're going to see the cash reduced, they're going to see the credit card companies holding back more and more cash [to the] carriers. So I think we're moving more -- towards more failures, more consolidations. We already have a couple of airlines up for sale; the likes of Thomas Cook and Alitalia will get resolved fairly soon as well. So I think there will be a lot of opportunities to grow over the next months and years for the 4 Ryanair Group Airlines.

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Unidentified Analyst, [35]

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How is Ryanair's environmental performance?

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [36]

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As you see, we're leading, we're the greenest, cleanest airline in Europe. We're the first airline to publish our monthly CO2 emissions. We have the lowest CO2 emissions of any major European airline. And we're also publishing -- we published the environmental taxes we were paying last year and again this year. And our investments in the MAX aircraft program will see us significantly reduce both our fuel consumption and our noise emissions over the next decade.

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Unidentified Analyst, [37]

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Offering your thoughts on the recent aviation tax proposals in Europe?

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Neil Sorahan, Ryanair Holdings plc - CFO [38]

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As Michael said, we've already published the high level of taxes that we paid towards environmental issues every year. We paid over EUR 540 million last year. We're going to see that increase to EUR 630 million in the current year, which to put that in context is EUR 4 out of every ticket per passenger out there. So with an average fare of EUR 36, we're paying over EUR 4 per passenger. So I think this, coupled with the investments that we're making in new aircraft and the carbon footprint that we have which is reducing significantly over the last decade and over the next decade, addresses these issues.

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Unidentified Analyst, [39]

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Is there any updates on Board succession?

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [40]

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Yes. The market will be already aware that David Bonderman and Kyran McLaughlin will lead the company until the 31st of March of this fiscal year. They will step down from the Board in the summer of 2020. Stan McCarthy, who is now our Deputy Chairman, will succeed David as Chairman in the summer of 2020. And this morning, the Board is pleased to announce that Louise Phelan, who has served in the Board now for over 6 years, senior of -- and ex -- former senior PayPal executive, will take on the role of Senior Independent Director from Kyran McLaughlin when he steps down in the summer of 2020. So we will have entirely refreshed the Board, and with the departure of David and Kyran, the 2 long-serving Non-Executive Directors, will also have left the Board.

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Unidentified Analyst, [41]

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Is there any change to your FY '20 guidance?

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Neil Sorahan, Ryanair Holdings plc - CFO [42]

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No. We're still growing profit broadly flat in a range of EUR 750 million to EUR 950 million. As always, a number of moving parts in there. Traffic will be up about 7%, so [over that,] between 152 million and 153 million guests this year. Average fares, we think, will be down about 6% in the first half of the year. On an annualized basis, will be at the lower end of our minus 2% to plus 1% fare range. Ancillaries, however, will continue to perform strongly, which is why we're saying revenue per passenger should be in the range of plus 2% to plus 3%. Our fuel bill will be up about EUR 450 million in the year, and our unit costs, ex fuel, will be up just 2%, despite the delay in the MAX delivery. So depending on close-in bookings and H2 bookings and, obviously, no adverse Brexit events, we're remaining within that range of EUR 750 million to EUR 950 million.

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Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [43]

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Thank you very much.