Earnings Call: Q4 2020

May 18, 2020

Good morning, ladies and gentlemen. You're welcome to the Ryanair Full Year Results Presentation for the year ended 31 March 2020. Obviously, these results are somewhat historic now given the The market has seldom detailed the impact of the COVID-nineteen pandemic on not just Ryanair, but all Europe's airlines since the end of March. But we'll run through the and explain how we responded to the COVID-nineteen crisis. You'll have seen this morning, we published our results for the last 12 months. For the year ended to 31 March. It was a recently successful year. We reported a profit after tax of just over €1,000,000,000 It would have been slightly higher if the second half we had of 5,000,000 passengers due to aircraft value in the second half of March. But overall, the reason of the strong set of results, strong passenger growth, strong cost control, more importantly, strong revenue growth, particularly in the areas of ancillaries, but all of it has now been overtaken by the COVID-nineteen team crisis. I'm joined as usual by my name is Doran, our Group CFO. I will now take you through a quick slide presentation, and then we will open up for or Q and A. So as you see, Ryanair remains the lowest cost airline group in Europe. We have the lowest fares, but also the lowest costs. We're number 1 for traffic. We grew to 149,000,000 guests in the last 12 months. That would have been about 154,000,000 passengers booked for the COVID-nineteen disruptions from the mid of March, for the last month of the year. We offer more coverage than any other airline across Europe, but the big issue is that the COVID-nineteen pandemic has grounded our fleet since about the mid in March until within July. Thankfully, Ryanair has a very strong balance sheet, and we believe our financial strength, Why the gross cost means not only will we recover strongly when air traffic returns to normal, but will be the long term winner. You know these slides reasonably Well, our average fare last year was just €37, significantly cheaper than any other airline competing with us across Europe. We also have the lowest unit costs. Our unit costs last year were just €31 per seat, excluding fuel, significantly lower than all of our airline competitors here in Europe. Neil, do you want to take the results? Well, Michael, thanks very much. As you said, a reasonably good year in FY 'twenty. Our traffic was up 4% to €149,000,000 and indeed it would have been €5,000,000 ahead of that if it wasn't for the COVID groundings in March. Revenue per passenger, up 6% to €57, and average fare grew by 2% to 37. Ancillaries had a strong performance where we saw 20% growth in ancillaries to $3,000,000,000 or 16% per passenger. Unit costs up 4%, 2 points ahead of where we'd originally expected, it's due to the lost passengers in March And profit after tax before exceptional items, up 13%, just over a €1,000,000,000 profit in the year. Balance sheet, one of the strongest in the industries, a BBB rated investment grade balance sheet with very strong assets. We've got In excess of $3,800,000,000 cash at year end and indeed 330 unencumbered debt free Boeing 737s with A book value of just over $7,000,000,000 significantly higher on a market value. Cash burn has improved significantly, and we'll deal with the initiatives that drove that later on. Thanks, Neil. So this puts on current developments. Obviously, the COVID-nineteen crisis has grounded 99% of our fleet from the middle of March until we think the until early July. At the UKCC, we've drawn down a €600,000,000 loan under the UK government CCF loan program, very low cost, We qualify for that because of our BBB credit rating. As a result, that has strengthened the balance sheet. Our year end cash is €3,800,000,000 has now €3,800,000,000 has grown €4,100,000,000 And it's important to remember that we have 330 unencumbered Boeing 737s in our balance sheet at a book value of some €7,000,000,000 if we needed to raise extra cash, but thankfully, we don't. Thanks to the tremendous work we've done on cost savings, the cash burn has been reduced from about €200,000,000 a week in March to just €60,000,000 per week at the moment. We're focused now on getting the business back and getting Europe flying again. We believe that would be possible subject to the late June government restrictions by about the 1st July. We expect to operate about 40% of our normal July schedules during that month. We still need the weighting of some of the government movement restrictions, and we're also pushing back against the some of the more absurd, being affected in unreleasable restrictions such as 14 day isolation periods. But we are actively campaigning for effective measures, which are face masks, temperature checks in public buildings such as airports, terminals which we think will be much more effective and then 14 day isolation periods which deliver nothing. We are, as Neil said, focused on beginning to take the MAX aircraft deliveries. We hope sometime between the period from October this year to March next year, subject to Boeing, we achieving a September return to service date in North America. And we'll bring you now on some short term or some senior board changes that will take place at the end of the month of May. Just to give you an impact on how dramatic and sudden the COVID-nineteen pandemic has been in Europe. In both January February, Ryanair Group delivered 3 points, just over 10,500,000 marginally ahead of our budget in both months. Our budget traffic for March was 11,600,000 passengers. We fell 5,900,000 which is short, just over 51% less than the positive number. And for April, May June, We're looking at currently less than 1% of our normative targeted air traffic. So it has been unprecedented. This has been enormously disruptive. And to further some context, during the after the immediate nineeleven terrorist attack in New York, aircraft Things were grounded for 3 or 4 days. We're now being grounded for about 4 months. And so the impact on the aviation industry, particularly here in Europe, will be superior. As I said, we think we can safely deliver a return to self flight services from July. We're Hoping to operate about 40% of flight services in July, about 60% in August. We will be and have rolled out a video for customers and for our staff effective health measures, which consists of masks, temperature checks, our aircraft are fitted with hospital level air filters. Nevertheless, there will be lasting impact on the airline industry in Europe. 1000 of the U. S. Airline jobs are being lost. And seat sales will be necessary to stimulate demand. We think that will result in weaker yields for the rest of FY 'twenty one. One of the challenges we face is that EU governments are providing enormous sums of the state aid, particularly to former flight carrier airlines, both in breach of state aid rules and competition rules. And this, we believe, is going to allow these flight carrier to engage in massive and widespread below cost selling for the next couple of years, which will put downward pressure on our pricing and yields, to deliver a stronger return to capacity volumes. Okay. So just as we As Michael alluded to, we put a lot of work into preserving cash and cost cutting over the past number of weeks. We've canceled our share buyback program. We've grounded over 99% of the fleet in all of Q1, and we expect to take a number of months before we're fully up and running again. We implemented 50% pay cuts in April May, and that may go on for a longer period of time. We've had pay freezes And we've benefited from the government payroll support schemes across Europe. We've eliminated all discretionary spend from the business, including non essential CapEx, and we've deferred a number of payments. And we're not just happy to end there. We've got a number of other initiatives Ongoing, we're currently looking at all of our bases across Europe. There may be some base closures this winter or indeed into the summer. There are potentially up to 3,000 job losses and further pay cuts, mainly in the pilots and the cabin crew. We're actively engaged in negotiating with all of our airports for future growth from the Ryanair Group as we get back to service later this summer. And of course, the game changer aircraft, the MAX will hopefully start to come into the fleet in the autumn of this year, maybe around October, which will deliver significant savings, 16% unit cost savings on fuel, 4% extra seats and 40% Less noise emission. So it will be absolutely a game changer. At the same time, we're in detailed discussions with both Boeing and our A320 lessors in relation to our growth plans going forward. And all of this has helped us reduce our fuel burn sorry, to reduce our cash burn and conserve our cash. Back in February, we were spending somewhere in the region of about €200,000,000 a week. At the moment, we're spending about €60,000,000 a week. Now that may creep up slightly when we return to service, I think we've done a very good job in holding on to the cash and that will be what sees us through this crisis. A number of people have been asking and will be asking what's the €350,000,000 hedge and effectiveness charge in the P and L at the year end And what does it relate to? Well, coming into the COVID crisis, we had 90% of our FY 2021 fuel hedged at pre COVID prices and pre COVID volumes. Michael has shown the drastic impact that COVID has had on our passenger numbers and on requirements for fuel. We won't need to burn as much fuel this year, which means those fuel hedges have now gone ineffective and we've taken a charge of 350,000,000 through the P and L in the current year. This will lead to a little bit of volatility in the profit and loss as these hedges no longer enjoy hedge accounting and will have to be mark to market on a quarterly basis, but they'll wash out over the course of the year. There may be some more ineffectiveness if the return to service is slower than we hope and expect. Looking beyond this year, we've put in some hedges for FY 'twenty two. We're 31% hedged at 5.41, and we have some currency hedging in place as well. Michael, back to yourself. Thanks, Liam. So let's focus on state aid, which I think is is going to be one of the huge challenges or certainly the most one of the big competition distortions we face for the next 100 of years. Remember, Most airlines are participating in payroll support schemes. Transparent state support like the U. K. Loan scheme is not stated because it's transparent and it's available to all companies or all airlines equally. What is, however, illegal state aid is this kind of a national largess to former flight carriers, none of which is justified or even necessary given the payroll support schemes that are already in place. However, the Look, Panza Group looks like it's going to receive about over €12,000,000,000 of state aid. Air France KLM, over €10,000,000,000 of state aid. And that We have now been cleared for €3,500,000,000 of stay gains from the Italian government. This is to a company that has never made a profit in the last 75 years. This is illegal. It is in breach of EU's own stated rules, and it's also in breach of competition rules because it entirely distorts level daily. The airlines who were strongest entering the COVID-nineteen crisis, well managed airlines like Ryanair, ECJ, today at BA. We, in many respects, we've been weaker airlines emerging out of the COVID-nineteen crisis because we're now facing Lufthansa, at Air France and Natalia, who have enormous war chest of state heating, which they would use over the next number of yours. Firstly, engaging below cost setting to damage competitors like Ryanair. And secondly, they use it for M and A activity, which will now, Lufthansa, I suspect, to take over Condor and mop up other weaker competitors in their home markets. Ryanair will be opposing all of these this illegal state aid in the European Court. But sadly, that would take us a number of years to win those cases. And that's why unfortunately, we have to address this immediately. We're in active negotiations with our unions across Europe. We need a minimum of 3,000 job losses from our pilots and cabin crew to reflect the fact that for The next 12 months, we'll be looking to carry 50% of our normal capacity traffic. And even that we do carry, we'll be carrying it artificially lower figures because we completed with these flying carriers, selling seats at below cost. And the 3,000 job losses That would be the minimum we need on the assumption that we can negotiate 20% pay costs, particularly with the unions. If we can't secure those takeoffs. We will need more than 3,000 job losses. If we can secure those takeoffs, we're very hopeful that we can actually maybe reduce the 3,000 job of the origin actions from unions quickly on these negotiations. As Niel said, in relation to 7/37 MAX, we have 210 on order, 135 from 75 Auctions. We're hopeful that Boeing will achieve a return to service in North America in September. We will still therefore be targeting some deliveries of the MAX aircraft between October of this year March of 2021. It is a great aircraft. It offers 4% for seats with 16% less fuel burn. It also delivered significant environmental savings in terms of reduced emissions, reduced noise. And we think that the MAX aircraft will be key to Ryanair's ability to continue to drive down operating costs and therefore take in our market share from other high cost EU carriers once we recover out of the COVID-nineteen pandemic. The Boeing talks, as Nina said, are continuing. We We're in discussions with them about compensation for delayed deliveries. We're also reviewing pricing with them. We have a 3rd time of talks where we're looking at the possibility of a new Maxtec order. But really, we can't conclude those negotiations until we have some certainty or definition, so definition on when the aircraft will return to service in North America and when we can reasonably expect the deliveries of our aircraft. It's a great aircraft. We're believers in we think it will transform Ryanair's cost base for the next 10 years. Just to briefly and the Board update, Sam McCarthy will take over as Non Executive to Chairman for the 1st June in 2 weeks' time. Louise Beadon will replace Kieran McLaughlin as the Senior Independent Director. There. Sadly, David Vondelma and Kieran McLaughlin will leave the Board on the 30th May. I want to personally thank them on my own and on your behalf for the extraordinary commitment and service they've given to Ryanair over the last 20 plus years. We would not be Europe's largest leading airline without the drive division and the support that David here has given, not just to the other Board colleagues, but also to the management team over the last 25 years. Stan has done a review of the Board. We're very pleased that in terms of gender diversity, 40% of the Board for the 1st June will be female. And we have with shortly announced details of refreshed committees. The audit committee continues to be led by Dick Milliken. Julie O'Neill will replace Howard Miller as Chairman of Remco and Sam McCarthy himself will replace Michael Crowley as Chairman of the Nomco. Outlook. For the next 12 months is obviously impossible for us today to give you any guidance on either traffic numbers or on profits for the next 12 months. What we know for pretty much certainly is still going to carry almost no passengers in the quarter ended 30th June. And we're looking at a profit after tax loss in that quarter of something just over €200,000,000 We would hope to be back flying with reasonable volume of passengers in the Q2. But even at that, we think the Q2, we're looking at probably a small loss, maybe breakeven a small loss, but we have no idea because it's entirely subject to passenger numbers and yields and the lifting in government restrictions. However, we're making taking appropriate steps to further reduce costs. We're in discussions. We're looking at base closures across Europe. We are looking at reducing our crew complement by about 3,000 pilots in cabin crew. We're talking about meaningful pay cuts in that area as well as we've also reduced our head office numbers by almost 200 jobs during the period from March to June. Ryanair has a very strong liquidity, And we've taken extraordinary cash preservation measures, which have been reasonably successful. But we will need pay cuts. We need job losses. We need lower airport costs if we're going to right size the business and right size the cost base to complete with these European flight carriers You should now have over €30,000,000,000 of state aid to fund low cost selling against Ryanair for the coming years. We do expect lower airfare results to drive strong volume recovery once we get back flying and particularly into 2021. I think it will be 2022 or later before we see a recovery pricing. Stay tuned will continue to drive down airfares, and we have no doubt that Lufthansa Air France that will engage in low cost selling. But that is the front, the ground in which Ryanair is strongest. We have the lowest cost, we have the lowest fares. And wherever this is low cost selling, we will priced below the below cost of the flag carrier airheads. There is a unique medium and long term opportunity at Prairie New. Our competitors have at the same of the last 12 months or was significantly cut capacity post COVID-nineteen. And Ryanair would hope to take those additional deliveries from Boeing and exploit the opportunities that will undoubtedly exist as a result of competitor failure or capacity for us in recent months. Yes, No, I think that was very comprehensive. Thank you. Okay. And now we'll open for questions and answers. How did the airline perform in FY 2020? It was a relatively good performance. Profit after tax was up 13%, just Over €1,000,000,000 before exceptional items. Traffic grew by 4% to €149,000,000,000,000, a bit lower than Expected due to 5,000,000 lost passengers in March due to the COVID groundings. What drove the 10% revenue growth? We saw, as I said before, 4% increase in traffic in the year, coupled with a 2% increase in average fare. Ancillary revenue had a very strong Performance of 20 percentage is under €3,000,000,000 And the standouts for me on that were the reserve seating and the priority board, It's very well along with the initiatives that our team and labs rolled out with a new personalized website in November. Why did ex Q1 cost rise 4% when your guidance was up 2%. The two points of that are due to the fact that we also sold over 5,200,000 passengers in March due The call with groundings, the other 2% was driven by higher staff costs as the annualized pilot pay increases and And our crewing ratio increased due to resignations pretty much dropping to 0. Our maintenance costs were also up in the year due to non delivery of the MAX game changer aircraft, and we were flying older aircraft than we would have originally planned to do so. How Very good. We had a 90% on time Performance excluding ATC. And this is all down to the investment that the group put into our Arhami arrangements last year, like Stan said, Poland And Spain. Please explain the €250,000,000 exceptional charge. This is mainly down to our fuel for FY 'twenty one going In effect, we have too much fuel hedged compared to what we're flying out due to the COVID groundings and the slow Return to service. The other element of that is some favorable mark to market on currency hedges for CapEx, which have also gone in effect due to delays in the cap Could there be another exceptional charge in FY 'twenty one? It can't be ruled out. For example, return to service is slower Than we'd expect it, then we'll need less fuel and that will go in effect. Can you describe your balance sheet? Balance sheet, one of the strongest in the industry BBB rated balance sheet. At year end, we had €3,800,000,000 cash and thanks to drawing down €600,000,000 under the CCFF in the Okay. We have €4,100,000,000 as of today. Very strong asset base as well, 90% of our These zones and of that 75 percent or 330 Boeing 737s are unencumbered. That's approximately €7,000,000,000 of the book value on our balance sheet, significantly higher figure if we were to take the market value. What cash preservation and cost cutting measures have you referenced? We've branded 90% of the aircraft fleet since the middle of March. We've imposed 50% pay cuts across the board in March April May. So far, We deferred all on essential CapEx. We entered the share buyback program. We canceled all approvals in discretionary spending. We've accessed EU government payroll with support schemes almost across the entire continent. And we're now in active negotiations with airports with our unions and with aircraft lessors about for the delivery and cancellations and further cost going. What's your meeting cash burn? Thanks to all of those initiatives that Michael just listed there. Gone from spending approximately €200,000,000 a week back in February to just over €60,000,000 a week now. Our discussions going with Well, we initiated them in the last 4 weeks. The process is underway. Actually, we can't give you any detail or color on those talks, but this is serious and urgent. We've already Let's go 200 of we've lost 200 of our very valuable team members at our offices in Dublin, Broadslav and Madrid over the last 3 months. And incidentally, the payroll support schemes will run off in the next couple of months. So as we return to flying in July, we will need considerably fewer pilots and with Adam Crewe. And I think the challenge for the unions is we're trying to minimize job losses, but we can only achieve that if we at the $0.20 ACOS we need. Are there opportunities for sale and leasebacks in the current market? There's a lot of opportunities. We've already received a number of sale and leaseback proposal and indeed a number of secured debt proposals. But we don't need the cash at the moment. We recently tapped the UK CCFF where we drew down £600,000,000 And so the balance sheet is in pretty good shape. When do you expect to return to service from the COVID guidance? We've already announced that we plan to operate about 40% of the schedule in July. We hope that will grow to 60% in August. This is subject to the easing of government by restrictions and restoring some level of consumer demand. It will involve us in operating about 1,000 daily flights, but we're trying to cover up to 90% of the group network. We do expect significant price discounting, both about Ryanair to stimulate these travel volumes and also as we compete with the state State aid, joking, flight carriers around Europe, and all of whom will be engaged in below cost setting, taking advantage of the enormous sums of State aid they have received in recent weeks. Our health measures, when you apply them, flights resume. We have a very good video and I encourage everyone to look at it. It's on ryanair.com, which sets out the various It measures, but the life of things you're going to see are face masks, face coverings, temperature checks in airports across Europe. We already have state of the art The filters onboard all of our aircrafts. We have gone cashless for all of our onboard sales. So we encourage our customers to use the contactless option. We don't agree and we're pleased to see that the middle seats being left Dempsey will not be a requirement of return to service. We will do everything in our power to ensure The social distancing is observed in the airports. With onboard masks will be, I think, the key criteria. Do you expect strong demand from We think demand will restore pretty quickly once government travel restrictions have been limited. We don't think wearing a face I said, we think that would encourage people to travel rather than make them nervous. But I think the critical thing is going to be deep price discounts in both by of Ryanair and by our state aided competitors. We think we'll stimulate rapid volume growth once the turn to service is established over the period of July, August, September. Will you increase growth post COVID? We'll certainly look at opportunities. It's I mean, it will depend on securing some aircraft deliveries from Boeing this winter. But we will return with as many craft as we can. And certainly, there's opportunities. We're already in active negotiations with a wide number of airports who are seeing either it's incumbent carrier sale or senior cut capacity, who are talking to us about the possibility of either entering their airports or taking up more sales at at Airports and to deliver them faster growth. Why don't you think crystal stage 8 open? Why? We've been very critical because stage 8, legal stage 8 It distorts competition and it distorts the market. To give an airline like Ad Italia, which is only the number 2 airline in Italy, It's about 50% larger than that Italian market. But to give our Italian €3,000,000,000 a stake, which they will then go and waste without performed in our cost base. And with damage competition in Italy from Ryanair EGJ builders because they're engaged in below cost setting is not the way forward. We've given examples of Air France or the French government who are refunding aviation taxes to Air France only, But acquiring the Ryanair, VCA and others continue to pay these aviation taxes, which are then returned to Air France, is clearly in breach of not just C and A rules, but also competition rules as well. How did the group verify, NFI, Kathy? Yes, the Group better down well during the year. It was in its 2nd year of operations, saw its fleet growth at 45 Boeing 737s And it moved outside of Poland where it opened a new base in Prague. And Budapest, our latest airline, Malta, which we launched last summer, has grown Rapidly to 120 Boeing 737s and it now operates our French, German, Italian and multi spaces for the group. Ryanair DAC I saw Eddie Wilson appointed as the CEO last September, and he well and truly has a seat under the desk at this stage. They launched 5 new base Just under 400 new routes last year, although their fleet did shrink to 275 Boeing 737s as buzz And Malta grew their operations. Lauda, while it had strong traffic up to 6,500,000 last year, Fortunately, underperformed. Most of this was to do with the fact that it was competing with competitors in Austria And Jeremy, who are selling below cost in their markets. So they're now looking at various cost cutting initiatives in the business. Can you explain the latter restructuring? Yes, I think Lauda is facing as a result of the COVID-nineteen pandemic, Lauda is facing an existential the crisis. There's a number of factors there. First is that it was loss making all the way to the COVID-nineteen crisis. The part of the fleet has been grounded in Germany and Austria since the middle of March. While the right returns will be facing competition from with Austrian Airlines, which will receive €800,000,000 in state aid from the Austrian government, whereas Lauda will receive not a penny. So the Lauda will be Lauda can survive is a deep restructuring of the Vienna operation. Those discussions are already underway. We've already canceled 8 aircraft deliveries we expect to take this year. Notice the fleet will cap out at 13. 15 of those aircraft are based in Vienna. But the Vienna base to a close at the end of May. If the Austrian units don't agree to a new CLA with pay cuts and activity increases for pilots and cabin crew. And because frankly, it would be cheaper for us to ground the Airbus aircraft in Vienna and not fly them, then we'll continue to fly them within an ineffective and disastrous at CNA. The latter base is still Arthros Endorpe and Paribas will continue. But I think it's likely that the end of base will be closed at the end of the day because we don't see the union, which after all represents mostly Austrian Airlines employees agreeing to these reforms that are screen in order to allow those to buy. If they do agree, the Vienna base will survive and it will thrive, but we don't think that's likely. Yes. It's going to go up to 3,000 job losses, so it's inevitable some other basis for themselves. Remember this But our focus at the moment is on basis in the UK, in Spain and also in Germany, which are cost making. But If we don't secure pay cuts in all across the board in Europe, other bases in Italy, in Belgium, in Central and Eastern Europe, we'll also be up for closure. The MAXIMS demand until Q3. Is there an update? Yes. We're now over a year since we were due to take our first MAXIMS fleet last April. Boeing are indicating at the moment that they hope to see a return to services on stage in the late summer, maybe August September. So if we see the aircraft coming back in the States in September, we would hope to potentially see our first aircraft sometime between October March of next year. This is a phenomenal aircraft. We remain totally committed to it and big fans Of the 16% fuel efficiency, 4% extra seats, which will drive ancillaries and other opportunities within the business. We are, In discussions with Boeing, those discussions will, as Michael said earlier on, remain until such time as we've on when our aircraft will actually deliver and what the final delivery schedules are going to look like. Can you explain the senior board changes, Matt, this morning? Well, we've already Moving to the presentation, Sam McCarthy replaces David Boneman as Chairman for the 1st June. Louise Beeman replaces Kieran McLaughlin as the Senior Independent Director, Sandy David and Kieran will lead the Board on the 13th May after some 25 years of service. And by the time we publish the annual report, you will seen at the various board committees have been refreshed as well. Is there any traffic or profit outlook for FY 'twenty one? It was very difficult. In fact, it's impossible to give full year profit guidance at this point in time due to the uncertainties around the COVID-nineteen groundings and What consumer demand is going to be like after a return to service. Closer in, having lost nearly all of our traffic in the Q1, we We would anticipate that we lose somewhere over €200,000,000 in the Q1, hopefully a little bit less in the Q2, which is our peak summer period. So at this stage, based on the return to service plans that we have, at best, we'll be seeing somewhere under 80,000,000 customers this year, which to put that in context It's almost 50% of the €149,000,000 that we carried in the year just ended. We think that pricing will be very depressed In the market, great opportunities for the customers. But due to all of the state aid that is in the market, there'll be significance below cost Selling as we're the lowest cost operator, we will clearly have the lowest fares in that market. And there will be opportunities on a kind of 2 to 3 year timeframe to participate with our new MAX aircraft, but it's going to be difficult out there in FY 'twenty one. Michael O'Neill, thank you. Thank you,