Ryanair Holdings plc (NASDAQ:RYAAY) Q3 2024 Earnings Call Transcript
Ryanair Holdings plc (NASDAQ:RYAAY) Q3 2024 Earnings Call Transcript January 29, 2024
Ryanair Holdings plc misses on earnings expectations. Reported EPS is $0.07 EPS, expectations were $0.35. RYAAY isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Michael O’Leary: Okay. Good morning, ladies and gentlemen. You’re all very welcome to the Q3 results call. As you see earlier this morning on our ryanair.com website, we published our Q3 results together with an MD&A and a Q&A section with myself and CFO, Neil Sorahan. A couple of quick themes. As you see, we reported a Q3 profit after tax of €15 million. Traffic and fares were ahead of the prior year, but closing Christmas and New Year loads and yields were softer than previously expected, as we had to lower prices somewhat in response to the very sudden, but surprising but very welcome removal of flights from most of the major OTA pirate websites in early December. Profit after tax, however, for the 9 months ended 31 December was up 39% at €2.19 billion.
Prior year, it was €1.58 billion. Just to touch on some brief Q3 highlights. The traffic grew 7% to 41 million. Revenue per passenger was up 9%. Average fares were up 13%, mainly due to a very strong Christmas and the October bank holiday weekend and ancillary revenues up 2%. MSCI raised their ESG rating on Ryanair from a BBB to an A in December. Our fuel bill rose €320 million in the quarter, up 35% to €1.2 billion. At the quarter end, we had 136 B737 Gamechangers in the total fleet that was significantly behind the original deliveries due to Boeing delays. More importantly, going forward, our fuel hedging, we’ve extended fuel hedging. We have 65% of our FY ‘25 fuel now hedged at $79 per barrel. This year, we are hedged at $89 per barrel.
So we have already banked a saving of €450 million into FY ‘25. And as you will all be aware, we have ended the first interim dividend of €0.175 per share is payable on the February 28. I think just to touch on growth in fleet. At the end of Q3, we’ve taken delivery of 136 737 Gamechangers. We now expect to have up to 174 of these aircraft in our fleet by the end of June in time for peak summer 2024, that’s up 50 aircraft from summer 2023. That would still be 7 aircraft short of our contracted deliveries due to Boeing delivery delays. However, those new aircraft means we have a bumper summer 2024 schedule now on sale. It includes 169 new routes, our first 11 domestic routes in Morocco and our first summer with 23 routes in Albania, are in to and from Tirana, the capital city of Albania.
While travel demand remains high, we expect summer ‘24 EU short-haul capacity to be behind where it was in summer ‘23 as a considerable number of our competitors ground the A320 aircraft in Europe due to the Pratt & Whitney engine issues and Boeing delivery delays constrain our growth from 57 to 50 aircraft. We are continuing to work closely with Boeing to minimize delivery delays and we have invested in additional engineering over – Ryanair engineering oversight to improve the quality control in both Wichita and Seattle. The recent MAX 9 grounding was a disappointing setback, but we welcome the ungrounding of the MAX 9 last week. Ryanair do not operate any MAX 9 variant. There are no MAX 9 aircraft in Europe, and therefore, it is largely a U.S. issue.
However, Neil visited in Seattle in January, met with Boeing’s senior management and we urge them and they have agreed to increase their quality assurance resources on the ground in Wichita and Seattle. We are putting more engineers into Wichita and Seattle to run extra checks on our deliveries, but also on our recent 737 deliveries, we’ve noted improvements in the quality with fewer delivery defects on the 12 aircraft we got in the fourth quarter before Christmas. However, we do believe Boeing have more work to do to improve quality and reduce delivery delays. But – and I want to stress this, we are fully supportive of the initiatives that David Calhoun and Brian West are taking to improve Boeing’s performance and production. It is critical, we believe, to Boeing’s continued performance that we support Calhoun and West.
I think they are a good team. I have concerns about the management in Seattle, but I have a lot of confidence in Calhoun and Brian West. I think they are on the right track. The MAX 9 grounding was an unfortunate event, and it does indicate that quality does need to be improved in Boeing, but we are very supportive and a lot of confidence in what Calhoun is doing under his leadership. We welcome – on the OTAs, this is a significant event in December. The timing of the OTA taking, as I said, was a bit unfortunate, because it was the first week in December. With Christmas coming, you can’t just go in and open up and dump seats to counteract that. We think historically, these OTA pirates generally account for between 10% and 15% of our volume.
So a sudden removal of that meant, we saw a sudden – or a very short-term dip in our bookings. We would normally respond to that by opening up price promotions, but we didn’t want to do that in the run into Christmas. We therefore think we’ll take a hit of 1% or 2% on load factor in December and January. We will take it into hit on yields during December and January, but we think it will be short-lived and we are happy with the forward bookings, particularly out into February and March, although March is slightly – is artificially enhanced by having the first half of Easter in that. Much more important for Ryanair and our passengers is to convert these OTA pirates into what we now would call kind of approved OTA partners. The partnership agreement we signed last week with loveholidays who were our fourth largest OTA and Kiwi.com this morning, who are our largest – where our largest OTA pirates, are critical, we think to protecting customers from OTA overcharges and scams.
As part of this agreement, we now give these two approved OTA direct feed of inventory from the ryanair.com website and they agree as part of the deal, no overcharging of passengers for either airfares or for any of our ancillaries. The bookings are made directly in the ryanair.com website with the customer’s actual and real e-mail address and real payment details, so that if we need to send a customer an e-mail or some flight information, it goes directly to the customer, it doesn’t get lost in some OTA pirate fake e-mail address. And whenever we have to refund to passengers, we can now make the bookings directly to the passengers. We think this is the way forward and we will continue to campaign to outlaw the illegal screen scraping and the customer overcharging and scamming being undertaken by so many others of these OTA pirates and converted them to the same system or the same mechanism that we now agree with loveholidays and Kiwi.
Looking forward to the summer 2024, we expect airlines will continue to consolidate. We expect capacity will be constrained by both the consolidation by the lack of aircraft deliveries post-COVID across Europe. And I think the A320 fleet grounding this summer, we expect about 10% of Europe’s A320 fleet to be grounded for the – while they address the Pratt & Whitney engine issues and that this will mean tight supply for summer 2024. And while we still have 50 additional aircraft into that marketplace, we don’t have the original 57 we had hoped for. So we think there is going to be a reasonably strong summer pricing. Already today, our bookings are running about 5% ahead of where they were, forward bookings into the summer about 5% ahead of where they were this time last year.
Pricing is up by a low single-digit percentage. Again, some of that, I think, is a factor of the fact that the first half of Easter has moved into March. So, Q4 is strong. But therefore, there is less of an impact of Easter pricing in April. But much work remains to be done, but we are very pleased with where we are for summer 2024. In terms of outlook, we are targeting 183.5 million passengers in the current year. That will still be a monumental achievement. The original budget was 185 million. But if you take the ATC – it’s been over 60 days of ATC strikes, that’s cost us over 1 million seats. The Tel Aviv cancellations, which have been running since the end of – since the end of November, that’s cost us about another 600,000 seats and the Boeing delivery delays have meant we’ve had to truncate both the summer 2024 – summer ‘23 schedule and our winter ‘24 schedule.
So, it will still be a very strong performance. However, as a result of these lower load factors, particularly in Q3 and the kicking in of some higher productivity pay agreements with pilot unions across Belgium, Italy and in the UK, these are productivity enhancements that we intend to rollout to most of the other by agreement with the other pilot unions and groups between now and summer 2024, which will significantly improve our operational resilience and reduce pilot attrition. We now expect full year ‘24 ex-fuel unit cost to rise by about €2.50. That would still leave a dramatically wider cost gap between Ryanair and our main European competitor airlines, two of whom reported last week. Q4, which is traditionally the weakest quarter will also be impacted by the partial unwind of free ETS carbon credits in the January 1, but we will benefit from a strong first half of Easter traffic falling into late March, although this is unlikely to offset the weaker than previously expected load factors and yields in late Q3 and early Q4.
We are therefore this morning narrowing our full year FY ‘24 profit after tax guidance to a range of between €1.85 billion to €1.95 billion. It was previously €1.85 billion to €2.05 billion. So we think the number will come in just under €2 billion for the full year. However, this guidance and the full year results still remains heavily dependent upon avoiding unforeseen adverse events in Q4, such as the Ukraine war, the Israel Hamas conflict and any further Boeing delivery delays, which might damage us in the run into Easter. We have also given you a full update or we have attached to the release, a full update on the OTA pirate situation. I think this has been one of the most dramatic victories for Ryanair in recent years. And I would always be happy to take a short-term pain if it’s getting rid of OTA pirate scamming and overcharging our customers and moving those into a more cooperative working with us.
It also, I think the new agreement this morning with loveholidays and with Kiwi exposes the falsehood of some of these OTA claims that Ryanair is just trying to eliminate OTA. We are not – we have, for many years, worked with OTAs like Google Flight who just – who are an honest price transparency website, but who send passengers directly to Ryanair to make the booking. The reason we have a problem with the OTA pirates is the illegal screen scraping of our digital – of our data and then using that to scam customers for excessive airfares, inflated ancillary services, and in some cases, charging them for non-existing services such as refund insurance and/or change fees, while it’s a non-changeable ticket. But I think it’s been a very good month or 2 months work and is long-term very much in Ryanair’s interest and in the interest of our consumers that they can get access to our low fares, our low cost ancillary services without being scammed by some intermediaries.
Neil, I am finished. Do you want to – anything you want to highlight in terms of the finances, the balance sheet and/or the dividend.
Neil Sorahan: Yes. I suppose just on the balance sheet, ended the quarter very strongly with just over €2.9 billion in gross cash and importantly, net cash balance €150 million. We continue to be the most highly rated airline in the world with a BBB+ rating from Fitch and S&P. And a big advantage that we have in these markets is unencumbered Boeing 747 fleet, 546 unencumbered aircraft. And so we are generating net interest income in the business at a time when our competitors are refinancing or taking on expensive leases. So that’s a big competitive advantage that we have. You touched on the hedging, but I think we shouldn’t underestimate the benefit of the certainty that we have now in our hedging out to the end of March 2025, €450 million worth of savings being locked in and one are very volatile markets at this point in time.
And then, of course, we have got our first interim dividend at the end of next month, €0.175 per share and we’ll have something similar again after AGM approval in September. And that’s pretty much all I wanted to add, Michael.
Michael O’Leary: Okay. Alright. [indiscernible], then we’ll open it up to Q&A, please.
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