U.S. Markets open in 5 hrs 13 mins

Edited Transcript of RY4C.I earnings conference call or presentation 4-Nov-19 10:00am GMT

Half Year 2020 Ryanair Holdings PLC Earnings Call

Dublin Nov 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Ryanair Holdings PLC earnings conference call or presentation Monday, November 4, 2019 at 10:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David O'Brien

Ryanair Holdings plc - Chief Commercial Officer

* Edward Wilson

Ryanair Holdings plc - CEO of Ryanair DAC

* Michael O'Leary

Ryanair Holdings plc - Group CEO & Executive Director

* Neil Sorahan

Ryanair Holdings plc - CFO

================================================================================

Conference Call Participants

================================================================================

* Damian Brewer

RBC Capital Markets, Research Division - Analyst

* Daniel Roeska

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* Duane Thomas Pfennigwerth

Evercore ISI Institutional Equities, Research Division - Senior MD

* Jaime Bann Rowbotham

Deutsche Bank AG, Research Division - Research Analyst

* James Edward Brazier Hollins

Exane BNP Paribas, Research Division - Senior Transport Analyst

* James Goodall

Redburn (Europe) Limited, Research Division - Analyst

* Jarrod Castle

UBS Investment Bank, Research Division - MD, Head of the Travel & Leisure Sector and Co-Head of the Global Transport Sector Team

* Johannes Braun

MainFirst Bank AG, Research Division - Director

* Kathryn Helena Louise Leonard

Numis Securities Limited, Research Division - Analyst

* Malte Christoph Schulz

Commerzbank AG, Research Division - Equity Analyst of Industrials

* Mark A. Simpson

Goodbody Stockbrokers, Research Division - Analyst

* Muneeba Kayani

BofA Merrill Lynch, Research Division - Director & Head of European Transport

* Neil Glynn

Crédit Suisse AG, Research Division - Head of the European Transport Team and Global Transport Sector Coordinator

* Stephen Furlong

Davy, Research Division - Transport and Logistics Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Welcome to the Ryanair H1 Results Conference Call. (Operator Instructions) Just to remind you, the conference is being recorded. I'll now hand the floor to our host, Mike O'Leary, CEO. Please go ahead.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [2]

--------------------------------------------------------------------------------

Okay. Good morning, ladies and gentlemen. You're all very welcome to the Ryanair H1 Results Conference Call. I'm here with a group of our managers here in London, most notably Eddie Wilson, the new CEO of Ryanair DAC; David O'Brien; Shane O'Toole, among others. We're also joined on the call from different parts of the world by Neil Sorahan, CFO; Kenny Jacobs; John Hurley, CTO; Juliusz Komorek; and others.

I don't propose -- in the interest of brevity here, I'm not going to read you the press release that we put up on the website this morning. We also have an extensive Q&A video. I think the results speak for themselves.

A couple of quick themes. We've had a reasonable half year. The unit costs are well under control. I think it's impressive we're able to deliver unit costs up 2%, which is in line with our original forecast for the year, despite the fact that we won't get the benefit of any MAX aircraft, I think, in the current fiscal year. We continue to reduce fares. Fares are down 5% in the half year, traffic up 11%. Ancillaries continue to be -- performed very well, spend per passenger up 16%. I think what's most impressive with that is these are optional services that more and more of our customers are availing of because they see the value of these services.

I think inexorably the market is moving towards consolidation. The bankruptcy of Thomas Cook was the latest -- or was just the latest example of that. We see this morning IAG acquisition of Air Europa in Spain. I think it's a good deal for IAG for Willie Walsh. I think it's a bad deal from a competition point of view. It is a merger to monopoly in Madrid. I think we would certainly be looking for the competition authorities to require some competition divestment, particularly the Air Europa short-haul presence of some of the Spanish domestics and the European short haul. But otherwise, we would certainly be supportive of that type of consolidation. It's what needs to happen in Europe.

We clearly think the next failure will be that of Norwegian. EUR 6.5 billion of net debt is not a way to run an airline. The equity is now valued worthless. And even if they can engineer a rights issue this year, it will just be throwing more good money after bad. I think it is -- the business model doesn't make money. And if the business model doesn't make money and you have a EUR 6.5 billion net debt, the sooner you go bust and disappear, the better.

Other than that, I think we are looking forward over the medium term with cautious optimism. There will be less capacity in Europe in summer of 2020. The MAX delays continue. We're now looking at taking, I mean -- I think Boeing will be lucky if the aircraft returns to service this side of Christmas. It now looks like a return to service, I think, in North America maybe just after Christmas. That means we are not expecting our first MAX 200 until March or maybe April of next year.

The real challenge in that is it means we've now further reduced our summer 2020 or our growth expectations for next year. We now expect to take just 20 aircraft instead of the original 30 aircraft we were predicting 3 months ago. It may well be 0 aircraft if it moves further to the right and we are not able to take aircraft -- we won't take aircraft through July and August of next year. So if we can't get them in March and April, May -- and maybe the early week of June, we won't take any aircraft at all. That in itself means that there will be less capacity growth in Europe next year, probably reasonably good outturn for fares, average fares and yields into the summer of next year with the demise of Thomas Cook, Aigle Azur, Adria in Slovenia having gone bust certainly helps the growth outlook for Lauda in Vienna. It also helps the supply of Airbus pilots. But over the -- going over a year or 2, we still have the challenge then of taking these delayed deliveries from Boeing.

We are still very proud to be a customer of the MAX aircraft. It is a great aircraft. We put all of -- we're the only airline in Europe that has a MAX simulator. We put all of our senior pilots, the chief pilots, training pilots through the simulator. They all speak very highly of the aircraft, of the MCAS system, once you know what it does. It's a great aircraft. It has 4% more seats. It burns 16% less fuel. And it will underpin Ryanair's unit cost leadership going forward, not just for this year or next year but for the next decade in a marketplace in Europe that, I think, will be continued to be characterized by consolidation, less capacity additions and probably a slightly better outturn over the medium term on fares.

The other thing I would point to is lower cost fuel into next year. We have struggled this year with a high -- reasonably high fuel hedge of $71 a barrel. We're now 63% hedged into next year, FY '21, at about $61 a barrel. And I think all the indications are that oil will continue to -- oil prices, absent any unforeseen events, will continue to hover somewhere maybe below $60 per barrel on spot. And I think there will be opportunities there for us in the next year to roll forward with making savings on oil, continue to deliver unit cost savings as we add MAX to the fleet into FY '21 and continue to serve more and more markets across Europe, where airports are increasingly coming to us as their incumbents, either cut capacity or go bust, looking towards -- looking to Ryanair to deliver growth.

Neil, anything you want to add to that on the cost side?

--------------------------------------------------------------------------------

Neil Sorahan, Ryanair Holdings plc - CFO [3]

--------------------------------------------------------------------------------

On the cost side, strong performance on the likes of the EU261, compensation well down (inaudible) in the air. And as you said, we're retaining the plus 2% unit cost ex fuel guidance despite the fact that we don't have many benefits from the MAX.

I'd just touch briefly on the balance sheet as well. It continues to be very, very strong. 70% of the fleet is debt-free. And the impact of the new lease accounting standard, IFRS 16, has very limited impact on us. It accounts for just over EUR 220 million of the EUR 460 million net debt at the end of the period.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. Thanks, Neil. And I think maybe before we open it up, I would ask Eddie Wilson, the new Chief Executive of DAC, to maybe give you a few words on what a pleasure it is to inherit my mantle and what a privilege it is to work with me and learn from me over the recent weeks. Eddie?

--------------------------------------------------------------------------------

Edward Wilson, Ryanair Holdings plc - CEO of Ryanair DAC [5]

--------------------------------------------------------------------------------

Well, what can I say? I mean, like this new role, it's a great privilege for me to follow in Michael's footsteps. I mean it's not about personalities. It's about the business model. And my focus certainly will continue to be on cost control and operational efficiency. And I've got the background, not only on the people side but the ops side and on the ancillary revenue side. So I'm going to be working hard on those in the months ahead.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [6]

--------------------------------------------------------------------------------

Good. Okay. Thanks, Eddie. Okay. With that, we're going to open up to questions. And if you don't mind, in the interest -- we're going to limit everybody to one question at a time, so we get through it as fast as we can. So if you'd open it up one question at a time. And please don't ask us what we think is going to happen to yields over the next 12 months because we don't know.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from the line of Daniel Roeska of Bernstein Research.

--------------------------------------------------------------------------------

Daniel Roeska, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

Could you talk a little bit about how you're thinking about evolving the holding level now that you're getting into that job? Are you considering changes for functions that benefit multiple operators? So will Labs and Kenny and so on continue to report into Eddie as Ryanair DAC CEO? Or how do you think about kind of those functions that span across the group going forward?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. No, I mean I think, looking forward, we think the senior managers in DAC, and DAC continues to be, by far and away, head and shoulders, the largest airline, will remain within DAC reporting directly to Eddie. That will be Kenny, David, John Hurley and others. I see the group function will be (inaudible). I've always admired the Willie Walsh model in IAG. You keep a very small group function, which is essentially myself; Neil as group CFO; Juliusz Komorek, Group Chief Legal Officer. We would draw on the skills that are of the senior management in DAC, clearly David on the commercial side, new route development airport complex; Kenny on the digital marketing side; John Hurley in particular, Labs, which is a division of DAC, will continue to drive the website and more -- particularly the mobile app for the group going forward. But they will remain within -- those are the -- the line folks will remain within DAC reporting directly to Eddie Wilson. But the other group companies, Lauda, Buzz and Malta Air, will be able to draw on those resources. And we're setting up a structure now where there's a weekly group meeting as well, where each of the CEOs, we get together in Dublin, Vienna, Warsaw and in Malta, myself, the Chief Legal, Chief Financial and the individual airline CEOs get together and kind of try to benefit from each other's experience, particularly in where we can drive costs down and increase efficiencies.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

And our next question comes from the line of Mark Simpson at Goodbody.

--------------------------------------------------------------------------------

Mark A. Simpson, Goodbody Stockbrokers, Research Division - Analyst [5]

--------------------------------------------------------------------------------

Actually, one for Neil. One of the things I don't quite get in the presentation is the fuel hedging and the suggestion of only EUR 120 million saving on the rebates, 157 million guests, FY '21. If you take the capacity growth and then your hedge positions, really that should be circa EUR 260 million. I'm just wondering, are you telling us that's EUR 140 million lost to increased environmental costs?

--------------------------------------------------------------------------------

Neil Sorahan, Ryanair Holdings plc - CFO [6]

--------------------------------------------------------------------------------

But what you're doing there is you're looking purely at the price. I've added in volume, ETS and everything else, we should get to the EUR 120 million. If you were to strip out the volume growth and just purely look at price, you'd be over EUR 200 million.

--------------------------------------------------------------------------------

Mark A. Simpson, Goodbody Stockbrokers, Research Division - Analyst [7]

--------------------------------------------------------------------------------

So ETS, essentially, you're giving us, what, a 60% increase in that cost.

--------------------------------------------------------------------------------

Neil Sorahan, Ryanair Holdings plc - CFO [8]

--------------------------------------------------------------------------------

We're giving you a steer on what the actual absolute growth in the fuel cost will be next year, which will be a saving of over EUR 120 million if the fuel stays where it is. The market is in backwardation at the moment. Now it may go the other way. But I can agree with your numbers if we're talking purely about just the price. However, when you take in the volume and the ETS, you're looking at a EUR 120 million savings plus the sterling -- sorry, plus the dollar hedging that we put in place.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Our next question comes from the line of Duane Pfennigwerth of Evercore.

--------------------------------------------------------------------------------

Duane Thomas Pfennigwerth, Evercore ISI Institutional Equities, Research Division - Senior MD [10]

--------------------------------------------------------------------------------

So just on the -- obviously, there's a lot up in the air about the MAX and the pacing of those deliveries. But an early thought on your growth rate in '21 and if you can sustain this, call it, sub-2% leveling on fuel costs. And any thoughts on your nonfuel cost trajectory into next year?

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [11]

--------------------------------------------------------------------------------

Well, I -- are you talking about '21, fiscal '21 or calendar '21?

--------------------------------------------------------------------------------

Duane Thomas Pfennigwerth, Evercore ISI Institutional Equities, Research Division - Senior MD [12]

--------------------------------------------------------------------------------

Fiscal.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [13]

--------------------------------------------------------------------------------

Okay. So that's basically summer '20. I mean I think the reality is we will have very few MAX aircraft or not sufficient MAX aircraft in the fleet in summer of 2020. Whether that's 20 or 30 at this stage, out of a core fleet of nearly 500 aircraft. It's going to have not much impact -- or these cost savings won't have much impact. I think as we move into what will be the summer of '21 or FY '22, where we will, I would imagine, be operating between 50, 80 of those aircraft, you'll begin to see meaningful impacts on our unit costs. I think, however, our unit cost story, it needs to be stable going forward. We have, I think, reached a -- I think Eddie and Darrell Hughes, who's replaced (inaudible), have done a very good job dealing with the unions over the last 6 months. We have undoubtedly been helped by what has been a very adverse backdrop economically for pilots, particularly in airline bankruptcies in Europe. We had BALPA, for example, calling 7 days of pilot strikes in Europe looking for 100% pay increase, almost laughed out of it by our U.K. pilots. On no day had they anything more than 4% of support from our U.K. pilots. We didn't cancel one flight, we didn't delay one flight during each of those 7 days.

So I think it's important, too, for a company like that, that is -- has begun unionization is that the unions have to understand we will face down these strikes, not by choice, we'd like to avoid them. But if you're going to treat or behave unreasonably, then off you go with your strike and we'll work our way around it. We already showed that the Irish pilot strikes will have no effect on us. The U.K. pilot strikes will have no effect on us. But we have made very good progress with the -- in our discussions with unions in Germany, in Italy, in Spain, in Portugal. We're even in active discussions in Ireland and the U.K. as well. And I think they're coming around to a much more sensible level -- I would say sensible level of discussion that, that's true. No, Eddie is going to disagree with me here. Why don't you give them your...

--------------------------------------------------------------------------------

Edward Wilson, Ryanair Holdings plc - CEO of Ryanair DAC [14]

--------------------------------------------------------------------------------

No, I mean the fundamentals on pay and conditions for pilots is very good compared to the market. And that's the reality of it. And you have to go through a period of change. And as we went through each of the sets of negotiations, the money is right, the rosters are great and job security is much better than everywhere else. It's a question of how you deal with that, it's the same market, it's the same airplanes, it's the same airline. That's not going to change because you've got unionization. We're ahead of the market, the 737 low-cost market and our pay and negotiations position will -- our strategy will reflect that.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [15]

--------------------------------------------------------------------------------

I think the key thing is we're prepared to put up with strikes, where a lot of our -- some of our competitor airlines have never had a strike, they just keep rolling over and conceding cost increases. And I think one of the challenges for us this winter is we are now over-crewed. We have a higher-than-expected crewing ratio just because pilots -- even the budget rate of attrition we had for -- we've always lost young captains in their mid-30s, who wanted to go off and fly in the Gulf or fly for long-haul airlines. Those opportunities no longer exist. And increasingly, short-haul airline pilots are becoming available as their airlines go bankrupt in Europe. So I think we are doing good work. We are, I think, coming to the end of the discussions with unions across Europe where in most cases the deal is already done or will shortly be completed. But frankly, if somebody wants to be unreasonable and lob in 100% pay increase, off you go with your strikes, but the strikes will be unsuccessful.

--------------------------------------------------------------------------------

Duane Thomas Pfennigwerth, Evercore ISI Institutional Equities, Research Division - Senior MD [16]

--------------------------------------------------------------------------------

Very good. And then just for my follow-up, if these -- God forbid, these delays persist, at what point do you think about tilting the order book more towards A320neos?

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [17]

--------------------------------------------------------------------------------

We don't -- I mean you talk -- Airbus are almost unmanageable at the moment. You talk to Airbus at the moment and the earliest they come talk to you is 2025. I mean I don't think -- I mean, look, we have no concerns over the safety or the operational performance of the MAX aircraft. Clearly, Boeing have work to do with the regulators and the FAA and the asset to get these aircraft back in the sky. But the regulators themselves will tell you that the aircraft are perfectly safe. But the regulators expect Boeing to answer all the queries, answer all the questions and fill in the blanks or any gaps there may be. And we expect Boeing to do that as well. These aircraft, I expect, will fly. The question -- and I think they'll certainly be back in the air before next summer. But because we've ordered a variant of the MAX aircraft, we're running probably 2 or 3 months behind the return to service. Boeing will also have a backlog of deliveries when they do start to return to service. It is just -- it is actually -- it's a time frame issue that we may run out of road by the time we get to the peak of summer -- or into summer 2020.

Having said that, we are stepping up the growth in Lauda, for example, in Austria, where they moved quickly, Andreas and the team. They got 3 of the aircraft that were freed up as a result of the Thomas Cook failure. What was more important in the Thomas Cook failure is they were able to get more Airbus pilots, captains and first officers became available than would have originally been the plan. So we have -- we're also postponing some of our own secondhand aircraft sales. We're extending some of our leases that would otherwise have been returned to the lessors next year. So we will still have growth next summer, even if we don't get any MAX aircraft. But I think a reasonable presumption at this stage would be about 20 MAX aircraft. And that should enable us to deliver 4 million or 5 million passenger growth next year. That is much smaller growth, slower growth than we had ever delivered before. But as we finish up in that environment, I think there will be a more -- I think the yield environment for the airlines and for shareholders will be better next summer, whereas this summer clearly has been better for our customers and we generally prefer a yield environment that's better for our customers because it worse for our competitors.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

And our next question comes from the line of Jarrod Castle at UBS.

--------------------------------------------------------------------------------

Jarrod Castle, UBS Investment Bank, Research Division - MD, Head of the Travel & Leisure Sector and Co-Head of the Global Transport Sector Team [19]

--------------------------------------------------------------------------------

Can you give a bit of color on Lauda in terms of your thinking now on the scale of the losses and how you're going to mitigate that going into 2021, where you say you'll be at a place to break even?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. I mean I think the losses in Lauda have been higher than we had originally expected. We thought we'd get 100 -- we lost EUR 130 million year 1, we'd get to EUR 50 million year 2 and breakeven year 3. What has fundamentally changed, however, has been the growth opportunity in Lauda. There's a land grab going on in Vienna, which Lauda is now winning hands down. Level of -- taking aircraft out of Vienna, Germanwings have now taken -- announced they're taking their 7 aircraft out of Vienna for next summer. Wizz are still there with about 6 or 8 aircraft but not growing at anything like the speed that Lauda is. Lauda meanwhile has grown from 8 aircraft last summer, 12 aircraft this winter, it's going to 18 aircraft next summer in Vienna, which will close out Vienna and Lauda will be the clear #2. The German market, particularly Germany to Spain last year, was very tough on pricing. Largely as the result of Lufthansa buying Air Berlin. And instead of taking out some of its loss-making capacity, they've operated all that capacity, losing money heroically. But that's not a sustainable model going forward. So I think we will see -- the rapid growth next year will probably postpone the profitability of Lauda by maybe a year. But we're not far away.

I mean if you take Lauda's current air traffic, if they were earning EUR 4 more per passenger, they will be at breakeven. We're willing to invest that money to continue to grow Lauda rapidly, particularly where we're able to jump on very cheap, secondhand A320ceos. And there's been a real opportunity in the marketplace there. We're leasing these aircraft, 5-year leases, no maintenance reserves, typically lease rentals of EUR 180,000 or less per month. And so it's building a really good operation. I think what fills me full of confidence in Lauda is that the load factor is up at 96%. Ancillary revenues are growing strongly. Some of the costs were a bit out of kilter at airport handling. They were overstaffed in terms of -- and some of their rostering policies were a bit crazy. But we have straightened all that out. So on an operational and commercial level, Lauda is doing very well. But it's growing very rapidly. It's the one area we have of rapid traffic growth. And if that means we have to suck up low fares or losses for a year or 2 more than we originally planned, then we are happy to do it. I think -- so the numbers are all consolidated into our overall numbers, and you can see this morning our overall numbers, even with higher-than-expected losses in Lauda, are still flat in terms of profitability. So the rest of the business is doing a little bit better.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

Next question comes from Neil Glynn at Crédit Suisse.

--------------------------------------------------------------------------------

Neil Glynn, Crédit Suisse AG, Research Division - Head of the European Transport Team and Global Transport Sector Coordinator [22]

--------------------------------------------------------------------------------

Moving from, I guess, Vienna into Germany. Just interested in your take on your own capacity plans and your strategy in Germany going forward. From the data that I see, it looks like your capacity is down 3% in Germany certainly in this current quarter. And there seems like there's a decent switch going from the likes of Frankfurt, Cologne into places like Stuttgart. Are you, I guess, happy with the current footprint? Or do you expect Germany to evolve over the next few years as you try to bed in an expanded network?

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [23]

--------------------------------------------------------------------------------

Well, I'll give you a couple of thoughts, and I'll ask David O'Brien for his view here. We are cutting back some capacity in Germany, although it's a bit of a mix. One of the challenges facing us this winter is we are short of MAX aircraft for next summer. We're still opening new bases this year in Toulouse, Bordeaux, Marseille, Southend. And there's one other I've forgotten off the top of my head. And to do that though, because we won't have those aircraft, the MAX aircraft, next summer, we have to close some bases this winter. So we're closing bases this winter in the 3 Canary Islands, each of those bases will close in January. Hamburg is closed. We're cutting capacity in Leeds Bradford. East Midlands is under threat. Girona, it looks like, getting closed as well in January, so -- but a lot of that focus has been in the German market.

In the short term, the German market is lossmaking for most of the players in it, easy and ourselves and Lufthansa. I think until Lufthansa sorts out what they're going to do with the Air Berlin-Eurowings capacity, which is heavily lossmaking, they have too much capacity in that marketplace. We are very happy with our presence in the German market. We're still growing with Lauda in Stuttgart and in Dusseldorf. Ryanair itself is growing in Berlin with our base in both Schönefeld and in Tegel. But Germany is not one of the markets that we would see for huge future growth. And if we have to pare back a little bit of capacity this year into next year because we need that capacity, we have other more profitable markets elsewhere where we can allocate that, then we'll do it. David, what's your view on the German market?

--------------------------------------------------------------------------------

David O'Brien, Ryanair Holdings plc - Chief Commercial Officer [24]

--------------------------------------------------------------------------------

One of the weaker markets this summer, as we've mentioned, has been Germany into Spain and Portugal. So some of our trimming-back is in that space, as is, I should say, Lufthansa Eurowings will cut back, I would have thought, even more than we have in Germany, which is -- it creates for a better environment. Also, Germany is holding some very, very expensive airports. We've yet to learn what that means. So Hamburg is a very, very expensive airport. And it doesn't earn the right to be that expensive. And so Hamburg, we're closing our base there. We're going to reduce our traffic by about 15%. Additionally, I'd say that the Frankfurt new terminal is slower onstream than it was originally planned, and we'll be back to growth there when that terminal comes onstream. So it's not particularly significant. If we're going to take traffic away, German leisure and some of the higher-cost German airports are natural candidate for cuts.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [25]

--------------------------------------------------------------------------------

And we're also very cognizant that the German government is also planning another crazy environmental tax on air travel from April of next year in a market that already has the second-highest environmental tax in Europe behind U.K. APD. So we were right to be cautious in Germany. But it's more driven by the scarcity or the shortage of MAX aircraft which was driving our capacity allocations this winter with an eye on next summer.

--------------------------------------------------------------------------------

Neil Glynn, Crédit Suisse AG, Research Division - Head of the European Transport Team and Global Transport Sector Coordinator [26]

--------------------------------------------------------------------------------

Understood. And I presume if there were a fare floor, that would accelerate your need for flexibility?

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [27]

--------------------------------------------------------------------------------

If there was a fare floor?

--------------------------------------------------------------------------------

Neil Glynn, Crédit Suisse AG, Research Division - Head of the European Transport Team and Global Transport Sector Coordinator [28]

--------------------------------------------------------------------------------

Yes. Either being proposed or at least mooted by parts of the German government.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [29]

--------------------------------------------------------------------------------

That's just another bull(expletive) suggestion coming out of Lufthansa. The suggestion last year was the German government should block all growth at German airports because the Germany ATC couldn't handle the capacity. Look, Lufthansa can't help themselves. When they get to a monopoly in the German market, they want growth to be outlawed and they want minimum fares, anything below EUR 300, to be outlawed as well. It's nonsense. But that's what you get from Lufthansa on a regular basis.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

That's from Jaime Rowbotham at Deutsche Bank.

--------------------------------------------------------------------------------

Jaime Bann Rowbotham, Deutsche Bank AG, Research Division - Research Analyst [31]

--------------------------------------------------------------------------------

Two for me. Sorry to come back to MAX. But just quickly for next summer, if that 20 MAXs goes to 0, what do you think you can do on capacity? Somewhere between 0 and 3% presumably clarity will be helpful. And secondly, going from the German market to the French, you highlight the base openings in Bordeaux, Marseille, Toulouse, et cetera. France is another market where the government seems quite keen on introducing eco taxes. Is that putting -- is that changing your approach at all to that market? Is it further encouraging you or putting you off? It would be great to hear a couple of comments.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. Frankly, I mean, look, it's very difficult at this stage to give you sort of accurate guidance on the MAX aircraft. I mean all we can really give you at this stage is themes. I thought originally, we'd get 30 aircraft for next summer. We're now down to 20 aircraft. It could move slightly further to the right. If that's the case, then I think we're looking at flat capacity next summer, no growth at all. We would then though still be start taking some capacity in the winter. We'd have some like -- so really until we have a better handle on when the first aircraft is going to be delivered, there's not much point in us repeatedly changing the guidance for traffic or for capacity next summer. I think it's still reasonable to look at kind of plus 20-ish, plus 30 aircraft for the summer being a midpoint of traffic next year but 157 million, 158 million on top of 153 million this year. But it's moving. And there's not much more we can tell you. I mean we would have a much better handle on this by the time we get to Q3s in February. And as to the French, look, I don't hold -- you have too many lossmaking flag carrier airlines around Europe. The one airline that can't afford eco taxes is Air France. The French are great for talking about eco taxes. But as you will have seen with the maillot jaune protest, there's a lot of many a slip between cup and lip in imposing eco taxes. There is no justification for further eco taxes on air travel. We, as an airline, this year will pay EUR 630 million in eco taxes in the U.K., Germany, ETS in Europe. The cost of ETS is rising rapidly. This is a tax on low-fare air travel. And the environmental justification disappears, where they exempt the most -- the least environmentally friendly flying, which is the transfer traffic, people taking 2 flights to get to a destination instead of one is exempted, whereas the environmentally efficient point-to-point flying is taxed. So there will be talk about it. Politically, there's certainly political expedience in it.

Over the medium term, I think the airlines are very conscious of the fact that we need to push back against this because we're an industry that accounts for 2% of Europe's CO2 emissions whereas marine transport accounts for 5%. So if you really want to improve the environment, you should tax the ferries and not the airlines. But it's a challenge. I don't think it will affect our discussions at the moment with the French. France is a market where we will grow in, but it's a market we will grow slowly in. We have 3 bases now: Toulouse, Marseille, Bordeaux. We have not much interest in Paris. We've no interest in Charles De Gaulle at all. We might do something in Beauvais if the conditions were right. France will not be -- we're already the third-largest airline in France. We fly to, I think, over 20 French airports. But as a country, will there be a lot of bases there in the next couple of years? No. We will have -- most of our growth will continue to be in countries outside of France, across Europe, will still be growth in Ireland, the U.K., Spain, Portugal, Italy, Germany. Central Europe, we're growing very strongly, where the only competition is essentially Wizz, who are generally charging higher fares than us in most markets. So it's reasonably easy growth for us. France, nice to have but not have to have.

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

That's from James Hollins at Exane.

--------------------------------------------------------------------------------

James Edward Brazier Hollins, Exane BNP Paribas, Research Division - Senior Transport Analyst [34]

--------------------------------------------------------------------------------

Mike, this one's for you. Just sort of following up from Jaime's question now, if you take this environment where you yourself is talking about an industry of flattish capacity in summer 2020. And obviously, you're saying you've got pilot availability more than -- you own most of your fleet. You can get access to new aircraft, particularly from Thomas Cook, which you're obviously doing in Lauda. I think if I go back historically, this is sort of where Mike O'Leary would go bananas in growing just as fast as he possibly could. Is it just not possible, given the aircraft availability? Obviously, there's the MAX issue. Or have you sort of -- you and your management team slightly philosophically changed how you approach your growth?

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [35]

--------------------------------------------------------------------------------

No. I will be growing now like gangbusters if I could. I'd be pushing Norwegian over the bloody edge if I could. If I could get 50 MAX aircraft with 4% more seats and 16% lower fuel, I would be trying to get 50, 60, 70 of them. The reality is I can't get them because they're grounded. And there is going to be a backlog. Even Boeing -- even once they go back flying, it's going to take Boeing many months to deliver the backlog, get them back in the air, service them, et cetera, et cetera.

The challenge -- and you've got to be careful, too. Even if you take the aircraft coming out of Thomas Cook, like the world is short of aircraft. The MAX haven't delivered now for nearly 12 months. Airlines are out there paying over the odds to lessors even for secondhand aircraft. So I'm up for taking secondhand aircraft, but only if they're cheap. We have turned down lots of offers of Thomas Cook aircraft, for example, where lessors were looking for 6- and 7-year commitments, lessors were looking for monthly lease rates of EUR 250,000, EUR 300,000, EUR 320,000 a month, maintenance reserves being paid all the rest of it. So I would never compromise our cost base or our rigid cost discipline in favor of short-term growth. That's something -- that's the model that Norwegian have been pioneering for a number of years now, grow like (expletive), don't mind the cost. I think it will all work out all right. It won't. You'll bankrupt yourself.

But if I'm stuck in a marketplace for the next 12 months, where there's very limited capacity growth. And for a year, we have to take it on fares and yields, it will be one of those rare years in every decade where shareholders do better than -- Ryanair shareholders do better than Ryanair customers. But it wouldn't be our choice. We would still be working actually with Boeing in the asset to get the MAX aircraft delivered. Honestly, these MAX aircraft will be game changers. I have never in my 30 years in this industry come across a plane that has 4% more seats and burns 16% lower fuel. And we're a lead customer, so we have them at very low prices.

One of the things that gives me nothing but optimism for the future and for Ryanair's position in the future in Europe is our discussions with Airbus, where they talk completely insane numbers on aircraft values and pricing of aircraft. Because if that's what our competitors are paying for their aircraft, I now understand why every time Wizz grows, their aircraft costs rise faster than their traffic growth because they're paying too much for airplanes. So I wish my competitors well. I hope they all fly expensive Airbus, more and more expensive Airbus, while we're flying lower-cost, great Boeing MAX airplanes.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

That's from Stephen Furlong of Davy.

--------------------------------------------------------------------------------

Stephen Furlong, Davy, Research Division - Transport and Logistics Analyst [37]

--------------------------------------------------------------------------------

Could you talk about Buzz, please? I see you're up to 24 aircraft on 6 Polish bases. But it also mentions in the release that you look at other Central EU countries. So just how you think Buzz is developing and your plans.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [38]

--------------------------------------------------------------------------------

Yes. Buzz is developing very well, very good management team there in Warsaw. I think what we see in Buzz is an opportunity though to expand the model at some of the Central European bases. Part of our MAX kind of issue that we're closing some of our bases this winter in Central European airports in Prague, in Sofia. And Buzz is opening up bases in those markets. So Buzz is a better brand, I think, for growing in those Central European markets because it has more -- it has more -- a lower-cost pilot and cabin crew than Ryanair has. And it enables us -- I think Buzz to be very competitive on the labor side against Wizz, taking advantage of local taxation, which we're able to deliver within Buzz, which we're not able to deliver in Ryanair with adding more of the 737-800s to the Buzz fleet going forward.

And I think it will be one of the areas where Buzz will be able to deliver us lower operating costs than Ryanair DAC can deliver partly because we have this arcane 127B tax issue in Ireland, where we have to tax all the pilots and cabin crew are paying Irish tax, which I know Ireland has a reputation as a tax haven, but only if you're a company. If you're an individual, Ireland is a penal country in which to be well paid in, so -- and part of our commitment in the union discussions was with the cabin crews was allow them or we'll find ways to put them on to local contracts, local taxation, wherein many of those countries in Hungary or in the Central European countries, the rate of taxation is lower from a personnel point of view than it is in Ireland. We continue to go -- I would average -- see a future where Buzz will be the vehicle for growth for Ryanair in most of the Central European countries, although the sales will still be done across the ryanair.com website. It would still sell as ryanair.com. But Buzz will be doing the flying for us on wet lease basis.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

That's from Kathryn Leonard at Numis Securities.

--------------------------------------------------------------------------------

Kathryn Helena Louise Leonard, Numis Securities Limited, Research Division - Analyst [40]

--------------------------------------------------------------------------------

Just in terms of the cost guidance that you've reiterated this morning ex fuel of plus 2%, can you just give us a little bit more color on obviously in the second quarter, I hope my numbers are right, but ex fuel of negative, minus 0.5%? And you also talked about that in respect to the MAX and the -- and that's despite of not seeing a benefit. Could you also maybe just perhaps give us a bit of feel on what the MAX would have done to that number, what it would have been contributing to give us a feel of how FY '21 might look?

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [41]

--------------------------------------------------------------------------------

Neil, do you want to give some color on the second half cost without obviously speculating on what the MAX might have done? We will do that only when we get the MAX in and (inaudible) in next year.

--------------------------------------------------------------------------------

Neil Sorahan, Ryanair Holdings plc - CFO [42]

--------------------------------------------------------------------------------

Yes. Well, for the second half of the year, having had a 2% increase in unit cost ex fuel for first half, it will be marginally higher, so just over 2% in the second half, which gives the blended 2% for the full year. On the MAX, it's going to have a number of positive for us. First and foremost, the aircraft are hedged at 1.24 on the euro-dollar, which will have a positive impact immediately on the depreciation. But more importantly, it will enable us to exit some of the older aircraft that we've now extended in the fleet, the likes of 7 of our 10 aircraft that we've sold are now extended out for a number of (inaudible). We're doing expensive 17-year checks on those. So it immediately enables us to get the maintenance and the amortization line down. And clearly, it will help also spread the other fixed costs.

So there's a number of positives. But as Michael said, we don't have enough visibility on how many MAXs we'll be operating into the summer. And what we've taken over (inaudible) this stage, I can't give you too much guidance other than to say it's going to be a game changer on the cost going forward. We'll be working on the budget over the next few months. And we'll give you more color when we come back out with the Q3s and Q4s.

--------------------------------------------------------------------------------

Kathryn Helena Louise Leonard, Numis Securities Limited, Research Division - Analyst [43]

--------------------------------------------------------------------------------

Okay. And just if I might be bold to have a bit of...

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [44]

--------------------------------------------------------------------------------

Now Kathryn.

--------------------------------------------------------------------------------

Kathryn Helena Louise Leonard, Numis Securities Limited, Research Division - Analyst [45]

--------------------------------------------------------------------------------

In terms of the question asked earlier about the MAX, sorry to get back to it. But to ask it a different way, you've actually not changed your guidance this morning, you've gone down from 30 to 20 aircraft. Now I presume that's because of the changes you've made, delaying the sales of those aircraft and lease extensions, which Neil just mentioned. Is there more you can do on that? I mean if we see further delays, does that then result in that 2% going lower? Or is there any other things you can continue to do?

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [46]

--------------------------------------------------------------------------------

No. What I'm trying to communicate is there's no point in changing the number every time we have a call here until we get some certainty. I mean I think we're still looking at north of 30 aircraft for next summer. It is a combination of lease deferrals, sale postponements, hoping we'll still get 20, 25 aircraft from Boeing and taking some additional Airbus ceos within Lauda. The 157 million, 158 million number, which is the guidance into FY '21, could move slightly upwards. I don't think it will move backwards. But because, at some point, even if we don't get them in time for the summer peak next year, we will still take some of those aircraft in over the following winter and we will do some winter growth, although that will clearly be less remunerative. So honestly, we would go nuts if we were trying to, on every conference call, to give you the accurate position with Boeing because we don't have an accurate position with Boeing and we don't really have an accurate number into FY '21 yet. As Neil said, once we get to the budget and we make some assumption, I think we will be in a position to give you a more accurate figure in February at that. But for the moment, take it, we moved it back from 30 to 20 and we haven't changed the number next year, FY '21, on traffic, which is about 157 million, 158 million.

--------------------------------------------------------------------------------

Operator [47]

--------------------------------------------------------------------------------

That's from Johannes Braun at MainFirst.

--------------------------------------------------------------------------------

Johannes Braun, MainFirst Bank AG, Research Division - Director [48]

--------------------------------------------------------------------------------

Sorry to ask another question on the MAX. But just generally with the MAX delays, it seems that FY '21 winter or FY '22 summer, we'll have a lot of deliveries, as you catch-up on the late deliveries and we also take on the (inaudible) deliveries. How do we have to think about the close in this particular period? It seems to be a lot of growth (inaudible) detrimental effect on sales. So would you try to mitigate that growth while delaying some deliveries or by phasing out older aircraft sooner? Or how do you think...

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [49]

--------------------------------------------------------------------------------

Yes. I think that's a discussion that's ongoing, Johannes, with Boeing. I mean we've made it clear to Boeing that there's a couple of things. We want to take all these aircraft, but we're not taking more than 8 a month, which is the max we think we can safely deliver is 8 a month. We're not taking aircraft in January, in July, August, September either because frankly we don't need them. But we will. I mean if you take -- we get to next summer and say we've only taken 20 of our 60 aircraft, the following winter, we're due another 50 aircraft. So are we going to take 90 aircraft in one winter? No, we're not. We will postpone some of those aircraft deliveries into the following winter, so -- but some of that will depend on how fast Boeing can actually deliver and/or produce these aircraft anyway.

There's an enormous amount of work that needs to be done with Boeing and its customers once these aircraft are up and flying. The backlog is now 500, 600 aircraft between -- they're producing 40 a month still. So there's a discussion to be had with Boeing that's really -- and we can't have that -- we have an ongoing dialogue with them, "When are we going to get our first aircraft, when is our first aircraft due, give us the delivery program in advance of summer." But really, nobody has focused on what happens into the winter of '20, spring of '21 yet either.

I would think though -- and again, I would be -- I would certainly be of a mind that if we went through a summer in 2020, where there was not much capacity growth in Europe and the (inaudible) environment is reasonably positive, we only grew by 5 million passengers from 153 million to 157/8-ish million, I would certainly be of mind to try to catch up some of that growth, that missed growth, in the following year, so maybe grow from 157 million, 158-ish million and we try and grow by 10 million or 12 million passengers the following year. So we'd grow from 157 million, 158 million to maybe 170-ish million. Now again, I'll give you back-of-the-envelope numbers here. But we're not suddenly going to grow by 20 million in the following year because Boeing wants us to take delivery of 100 aircraft. So that's the discussion we still have to have with Boeing. We will try to smooth out the capacity growth.

But as David will indicate, there are -- we have far more airports and far more markets who want growth and who want our aircraft. At that stage, Norwegian, I think, will have disappeared, which will create opportunities in Scandinavia, in Spain, in Italy, in Gatwick, although we don't have much interest in Gatwick. There will be opportunities out there. And other airlines will have gone bust or have been taken over as the consolidation process continues.

--------------------------------------------------------------------------------

Neil Sorahan, Ryanair Holdings plc - CFO [50]

--------------------------------------------------------------------------------

Michael, the only other thing I would add in there just as a counterbalance to that, Johannes, we would also like at this stage to be further down the process in selling aircraft. We've been delayed on that. So when we start to get a flow of MAXs back in again, that will enable us to go back to the cargo guys and start selling some of the older aircraft out of the fleet.

--------------------------------------------------------------------------------

Johannes Braun, MainFirst Bank AG, Research Division - Director [51]

--------------------------------------------------------------------------------

How many aircraft are you selling this year?

--------------------------------------------------------------------------------

Neil Sorahan, Ryanair Holdings plc - CFO [52]

--------------------------------------------------------------------------------

Well, we have 10 that we've already sold, 3 will be delivered in this financial year and 7 are now delayed into the winter of next year, so FY '21. We would love to get back to that market, but we can't until we have certainty on the MAX.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [53]

--------------------------------------------------------------------------------

And Eddie, anything you want to add on the growth in DAC on the MAX aircraft side?

--------------------------------------------------------------------------------

Edward Wilson, Ryanair Holdings plc - CEO of Ryanair DAC [54]

--------------------------------------------------------------------------------

No. I mean I think you mentioned that quite well there. I mean I don't think (inaudible) like we know what's actually going to happen. But we can't make those plans. And there's no point in trying to overengineer what our thoughts are going to be on capacity growth.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [55]

--------------------------------------------------------------------------------

Okay. But I think it's fair to say we would want to restore -- I mean, David and Eddie, when you feel free, we would want to restore the lost growth as quickly as we could without shooting -- without overdoing it or without doing anything crazy on the capacity or growth side. That's fair?

--------------------------------------------------------------------------------

David O'Brien, Ryanair Holdings plc - Chief Commercial Officer [56]

--------------------------------------------------------------------------------

Yes. I think another added dimension is there's growing realization at a national level into certain pretty big markets, that overreliance on the intrinsic tour market is a mistake. Thomas Cook was taught some big lessons there. And there will be more opportunities as that market begins to become disassembled essentially.

--------------------------------------------------------------------------------

Operator [57]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Muneeba Kayani, BofA Merrill Lynch, Research Division - Director & Head of European Transport [58]

--------------------------------------------------------------------------------

I wanted to ask about ancillary revenues. You've seen good growth there from the priority boarding and preferred seat services. With that kind of the year-on-year benefit coming to an end by the end of this calendar year, what drives the ancillary revenues going forward?

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [59]

--------------------------------------------------------------------------------

I think we will continue to see modest growth in ancillary revenues certainly for the next year or 2. I think what we will be -- as penetration, MAX is out and certainly on some of the bigger items, as you have said, priority boarding, seat revenue. You'll see us continue to yield manage those over the next, I would say, the year or 2. So I would expect ancillary revenues to continue to grow at a faster rate than scheduled traffic growth. But we won't do a double digits kind of -- you won't see ancillary revenues grow at 16% per passenger as we've delivered in the first half of this year. They will lap each other in the second half of the year anyway. But I think it's certainly -- I will be disappointed next year if we don't deliver, say, 3% or 4% traffic growth and ancillary revenue growing in a high single-digit percentage as we focus on continued penetration and some yield management of some of those services, which are very attractive to our customers as demonstrated by the rate at which they're converting presently.

--------------------------------------------------------------------------------

Operator [60]

--------------------------------------------------------------------------------

That's from the line of Malte Schulz at Commerzbank.

--------------------------------------------------------------------------------

Malte Christoph Schulz, Commerzbank AG, Research Division - Equity Analyst of Industrials [61]

--------------------------------------------------------------------------------

Can you please update us a little bit on the cost difference within your airlines? I mean is it so that particularly Buzz has a significant cost advantage over Ryanair DAC? And how do you expect it to develop over the next years? Will it narrow? Or is it a sustainable cost benefit?

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [62]

--------------------------------------------------------------------------------

Thanks. I mean if I give you a general guidance, I would say DAC, at the moment, is the midpoint on the unit cost side. Buzz has lower unit cost than DAC. Lauda has higher unit costs. And Air Malta is too small yet to kind of be relevant. But the cost base in Lauda is coming down towards the DAC kind of median and Buzz continues to outperform DAC. But I mean some of that is because DAC kind of shoulders some of the overhead of the entire group. DAC still has -- commercially, it has Labs. It's doing a lot of the huge customer service side as well. So it's a little bit distorted. I think really the opportunity is to grow Buzz a little bit faster because it has lower unit costs, particularly on the -- more efficient on the labor side and continue to challenge the management in Lauda to continue to deliver improved operating cost efficiencies and lower costs. Despite the fact with a fleet of operating leased aircraft, it probably will never quite get to the Ryanair unit cost base. But it should get much closer in the next year or 2. Eddie, is that statement...

--------------------------------------------------------------------------------

Edward Wilson, Ryanair Holdings plc - CEO of Ryanair DAC [63]

--------------------------------------------------------------------------------

Yes. I mean I think we'll get to a stage where we'll have much more sophistication in terms of allocation of cost out of DAC into the airlines as they even out, I suppose, over the next number of years.

--------------------------------------------------------------------------------

Operator [64]

--------------------------------------------------------------------------------

The next question comes from the line of Damian Brewer at RBC.

--------------------------------------------------------------------------------

Damian Brewer, RBC Capital Markets, Research Division - Analyst [65]

--------------------------------------------------------------------------------

Two questions, please. I'm sorry to revisit the MAX but maybe just one final one on it. Could you expand a little bit more about anything that you or the Board have been thinking about compensation from Boeing, given sort of kind of that's something we've heard from some other CEOs on that and that their shareholders shouldn't carry the cost for this? What is Ryanair thinking about there if indeed you can say anything?

And then secondly, just more generally, there does seem to be a sort of a shift of gravity from the growth, if one could put it that way, towards Eastern Europe with Buzz and some of the other route announcements you've made further east. Could you give us a broad feel about what Central and Eastern Europe would look like as a percentage of summer '20 seats versus last summer please?

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [66]

--------------------------------------------------------------------------------

Okay. Let me start with the first one. On the MAX, look, there's a dialogue that's ongoing with Boeing. I think there's an acceptance by Boeing that this has cost -- it has imposed real cost on some of their larger customers like Ryanair. I don't -- and that dialogue will continue. I think there will be an agreement on -- I don't think compensation is the right phrasing. But I do think there's a dialogue about them -- us recovering what are obvious consequential costs from them. But that's a dialogue, I think, that can't really be completed until we can -- until we know when this aircraft's going to return to service and when we can actually expect to get these aircraft over, say, the next 2 years, when we can return to our original growth plan. So I would say no more than the dialogue continues. Boeing have clearly made very substantial provisions in their accounts, a lot of which is, I think, just for reimbursing customer costs. I am more interested in getting these aircraft back flying and delivering the cost -- unit cost savings that is the game changer aircraft will deliver than I am in having a torturous disclosure with Boeing over compensation. Let's get the cost recovered, let's get the aircraft back flying, let's get on with lowering our costs and using the game changer aircraft to transform, not just our businesses but air travel in Europe generally.

Growth into Central and Eastern Europe, yes, there's more. I mean I'd be cautious here. Now look, the underlying kind of philosophy of Ryanair is our growth is opportunistic. Our growth will always be where we get the best kind of -- where in large measure, where we get the best airport deals, where we have the lowest-cost handling and those economies where the governments are not worried about taxing air travel out of existence. So at the moment, there is a lot of growth taking place in Central and Eastern Europe, but it's not some geographical strategy. It's an opportunistic strategy that we tend to follow. Now not always, I mean obviously, the growth in Vienna, for example, which is very rapid, is not based on Vienna being particularly low cost, although they do have quite a good growth and central scheme in place in Vienna that we are taking advantage of. But clearly, there's a land grab going on in Vienna and we're -- if there's a competition or a land grab, we're going to grab more than anybody else will. So try to not look at our growth as a kind of a geographical expansion. And it's not some kind of Napoleonic campaign. We will move the aircraft around based on wherever we see it being most advantageous and most profitable for us to do so, which if I go back to an earlier question is why we are closing bases, for example, this winter in the Canaries in Spain, in some of the German bases. David, I don't know if you want to add anything on that?

--------------------------------------------------------------------------------

David O'Brien, Ryanair Holdings plc - Chief Commercial Officer [67]

--------------------------------------------------------------------------------

Except to agree, but in absolute terms, there is a shift in our growth because there are -- in the capacity allocation because those deals are now merging. The biggest airport this winter are Vienna, Budapest, Kiev, Prague, all of which are comparatively lower costs than the German -- for example, German equivalents.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [68]

--------------------------------------------------------------------------------

Or the Spanish. And to be fair, one of the more interesting things has been the closures of these -- the announced closure of these bases in Spain, I think, has brought about our realization, I think, in the Spanish government -- a combination of our base closures with Thomas Cook's failure, among others, has brought about a realization that in the Spanish government that actually maybe they need to relook at the Aena cost structure over there, their own -- the way they encourage, I think, route and tourism growth in Spain needs to be reassessed. And we're part of that dialogue with the Spanish government at the moment. We would want to encourage it.

--------------------------------------------------------------------------------

Damian Brewer, RBC Capital Markets, Research Division - Analyst [69]

--------------------------------------------------------------------------------

Very interesting given the regulatory review about to happen there. I would never accuse you of being Napoleonic.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [70]

--------------------------------------------------------------------------------

True. I'd prefer Wellington, he was Irish.

--------------------------------------------------------------------------------

Operator [71]

--------------------------------------------------------------------------------

The final question in the queue so far comes from the line of James Goodall at Redburn.

--------------------------------------------------------------------------------

James Goodall, Redburn (Europe) Limited, Research Division - Analyst [72]

--------------------------------------------------------------------------------

Just a quick one for me on winter. Given we are most of the way through the quarter, is there any color you can give us on expected progression of both fares and ancillary to the Q3? And then I guess any along Q4 would be great, too.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [73]

--------------------------------------------------------------------------------

Yes, the answer to that is no. It's in our full year guidance. We don't get into these kind of additional color on a per quarter basis. Look, I think there's a reasonable prospect. Without being discourteous, there's a reasonable prospect, I think, this winter of modest fare growth but more as a function of how awful the fare environment was this time last year. Ancillaries will continue to perform, grow on a per passenger basis this winter but by less than in the first half of the year simply because of -- at the beginning of the day, some of the services, the priority boarding and the reserve seating will begin to lap themselves in the second half of the year. And on the cost side, as Neil has already covered it will be marginally above the 2% but, well, still a very good cost performance, given that a huge amount of the winter cost forecasts are in the budget was predicated on having 30 MAX aircraft operating and flying for most of the winter schedule. We won't have those aircraft flying in the winter schedule. And yet other cost savings, most notably some of the -- on the crew efficiency side, some of the base closures, we're making particular -- some significant savings on the EU261 costs, which this time last year were horrendous, whereas I think one of the things as a team we're most proud of is that in DAC, we brought the on-time performance this summer back up over 90% despite quite significant ATC disruptions. And that has had a huge impact on EU261 cost savings. And we expect those to continue through the winter. So we won't -- if you don't mind, James, I'm not going to give you color on Q3 or Q4, other than to point to the general annual trends that are built into the annualized numbers. Any other questions before we wrap up?

--------------------------------------------------------------------------------

Operator [74]

--------------------------------------------------------------------------------

I have no further questions so far. (Operator Instructions)

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [75]

--------------------------------------------------------------------------------

Okay. Neil, I'll ask you to do a quick wrap-up and then ask Eddie Wilson here to give some wrap-up and then we'll call it a day.

--------------------------------------------------------------------------------

Neil Sorahan, Ryanair Holdings plc - CFO [76]

--------------------------------------------------------------------------------

Okay. Well, I think the key point to take away is that the cost base is in very good shape. The ancillaries are performing well, although they will be a little bit slower into the second half of the year. And we've given a little bit more clarity on the guidance insofar as we've narrowed the range this morning to EUR 800 million to EUR 900 million. And obviously, we'll be meeting lots of people on the road this week, and we'll answer as many questions as we can.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [77]

--------------------------------------------------------------------------------

And Eddie, any final thoughts?

--------------------------------------------------------------------------------

Edward Wilson, Ryanair Holdings plc - CEO of Ryanair DAC [78]

--------------------------------------------------------------------------------

I mean as I said at the start, I see the winter, in particular, as a time to renew our emphasis on cost control and efficiency and also sort of tasking, particularly on the ancillary side with Kenny and John, on how we can better develop the products. Because like Labs is really just coming into its own. I mean it's been there for about 4 or 5 years. But rather than us telling the Labs people how to come up with ancillary solutions, we now have those people coming up with the solutions themselves. And the work that we've done there in terms of A/B testing has been particularly fruitful over the last number of months. There's still some way to go on that and David as well on what we can do on the yield side.

But it's really, for me, it's going to be about cost and efficiencies because (inaudible) crews at the moment, we're going to have to -- that's going to be particularly complicated for us if there's going to be a delay -- a further delay in the MAX aircraft. What we would hope to do in the discussions that we've had with the unions so far is that if we can keep a large amount of those crews and organize unpaid leave and annual leaves so that we don't have any interruption in the supply. But if we've got a further interruption in the MAX aircraft, that's going to be challenging in how we deal with that in the next 6 months.

--------------------------------------------------------------------------------

Michael O'Leary, Ryanair Holdings plc - Group CEO & Executive Director [79]

--------------------------------------------------------------------------------

Okay. And from my point of view, I think we're -- there's a reasonable set of results out this morning. Rather than focus on Q3 and Q4, I would kind of encourage everyone again to look out over the next kind of 2 to 5 years. The industry, the market in Europe is going to consolidate. It's going to consolidate around 4 or 5 large players. Ryanair will be the largest of those players. The unique opportunity here is that Ryanair will have a huge unit cost and a pricing advantage over the other 4 players in a consolidated space. And as that consolidation story plays itself out, I think you will see a return to pricing but with a very strong or with good management in each of the 5 major airlines, good control over costs. And I think in much the same way the industry in North America has over the last 4 or 5 years, you'll see -- the delivery of reasonable returns in an industry that's certainly in Europe for the last 20 or 30 years have been characterized by overcapacity, the emergence of low-fare airlines, some of it -- a lot of which has now disappeared. I think we're returning to a much more sensible industry, where you have an opportunity now to invest in Ryanair which will be front and center of a much more sensibly well-run industry but with a huge cost and price advantage over everybody else.

With that, I'd say thank you, everybody, for joining this morning. We have an extensive roadshow program on the road: Ireland, U.K., Europe, North America. So if you haven't got a meeting and you'd like to join one of either the group meetings or get a one-on-one, please feed it through Citi or Davy or our own Investor Relations team headed by Shane O'Toole, and we look forward to meeting you at some stage on the road over the next week. Thanks very much, everybody. Talk to you soon. Bye-bye.

--------------------------------------------------------------------------------

Operator [80]

--------------------------------------------------------------------------------

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