Hello, and welcome to the Ryanair Q3 results conference call. Throughout the call, all participants will be in a listen-only mode. Afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present Michael O'Leary, CEO. Please go ahead with your meeting.
Good morning, ladies and gentlemen. You're all welcome to the Ryanair Q3 results conference call. You'll have seen this morning, on the website we listed the Q3 results press release. The slide presentation is there. There's a video MD&A, and also the written MD&A. I'll take all that as read, and we'll shoot straight through to questions, Q&A. Couple of quick themes. Obviously, the headline number is that the Q3 has performed strongly. That mirrors the earnings upgrade that we issued in the first or second week of January. The Q3 profit went from a loss of EUR 66 million last year to a profit of EUR 88 million this year. Really most of the impact there was the stronger Christmas and New Year holiday booking period. Forward bookings remained about 1% stronger booked than they were this time last year.
Strong ancillary sales continue thanks to great work that Labs has been doing on increased personalization and more and more customers continuing to take up optional reserve seat priority boarding services. Unit costs remain particularly strong, up only 1% in the quarter, despite the fact that we expected to be operating some 20 or 30 MAX aircraft during this quarter. Without those aircraft, which were key to that cost reduction, we still delivered unit costs up just 1%, excluding fuel, which I think is the stellar performance in the quarter, particularly against the peer airlines in Europe. Key as well to that has been a much stronger performance. Our on-time performance has significantly improved. We're typically now averaging 90%, and that is translating into much lower EU261 claims and complaints.
There's a couple of key issues that I know will come up in the Q&A, so I thought I might try and head them off first. On the MAX aircraft, we have now accepted. We had a meeting with Boeing in Chicago two weeks ago. We now accept it is highly unlikely we would get any of the MAX aircraft in advance of the peak summer months of July and August. Therefore, we have deferred the first of our MAX deliveries until September, October at the earliest. Boeing's best guess now is that the grounded MAX in North America will be back flying hopefully by the end of June, early July. It will take at least another two months for our aircraft, the MAX 200, to be approved and delivered. Even when it is delivered, I think the delivery rate is going to be slower than historically.
Boeing are going to slow down the production rates. They're not going to carry forward defects down the production line, which I think is the right thing to do. We've seen a lot of delivery issues with some of our more recent aircraft. I think Boeing's focus on quality of the aircraft is the right one once they've got the MAX back in service. What that means for us is obviously much slower growth in FY 2021. We now expect very modest growth through the summer of 2020. In fact, Lauda will probably account for most of our growth this summer. It also means we're going to have to slow down our original growth expectations, which we would grow to 200 million passengers by FY 2024. That now will run one or two years later than that, depending on the timing of deliveries.
For the back of the envelope assumption at the moment is that our deliveries will all move back by at least 12 months. We were originally supposed to take five aircraft in advance of summer 2019, then 50 aircraft before summer 2020, 2021, 2022, 2023. It's now likely we will only get, say, we think 50 aircraft in advance of summer 2021, 2022, 2023, 2024, which will mean our 200 million passenger target will now move out 12-24 months into FY 2025 or FY 2026. There's no point in wasting any further time on that issue. We won't have any further color on it until Boeing are able to get the MAX aircraft back in the air, return to service, and we have a firm date for the delivery of the first MAX 200.
We'll sit down with Boeing, redo the delivery schedule based on what they can achieve, and then we will update the market with our traffic growth at that time. What it means, certainly for this year and next year, is slower traffic growth. That's probably good for underlying yields since we're the one who deliver more. We're the airline that grows most and fastest in Europe, and if we're growing slower, there's probably upward momentum on our fares and yields and less capacity pressure in Europe, particularly as you have the other failures, the Thomas Cooks, the Adrias, and those, and we think there will be more to come. I want to touch briefly on the Flybe rescue in the U.K., which is a patent breach of State Aid rules and competition rules.
There are no circumstances under which the U.K. government should be bailing out what has been a chronically loss-making airline for the last 20 years. It is now owned by a bunch of billionaires, including Branson, Delta, a venture capital company in the U.S. They bought it for only EUR 2 million last year. If they don't want to put their hands in their pockets and give it EUR 100 million, which is chump change to these guys, there's no way the U.K. government should be intervening and lending money to an airline that can't make money because it can't compete at the regional U.K. airports with the Ryanairs, easyJets, Wizz Air, Jet2s, and others. This is reminiscent of bailing out British Leyland in the 1970s. It was a stupid idea in the 1970s. It's an equally stupid idea now in the 2020s.
The fact that Virgin and the shareholders appear to be switching the valuable Heathrow slots, presumably at no cost, into Virgin, Delta, and others. While Flybe's valuable Heathrow routes are transferred to Gatwick, where they have no connectivity, shows that the British government is just being gamed by these billionaires. If they had brains or balls, they'd tell Branson to go and write the check himself instead of bailing it out themselves. We will continue to viciously oppose the Flybe state aid anti-competition bailout. It's a disgrace that shouldn't take place. On Brexit, obviously, Brexit has now happened. Nothing will change for until the end of December of this year. Although the music in the background is negative.
The British are talking tough about non-alignment and all the rest of it, in which case that will be negative, certainly for the airline industry and for an agreement, the continuation of the open skies regime. I assume at some time by middle of the year, the British will have to talk somewhat less tough, since they don't have much of a negotiating position. It's an area that I think investors should continue to keep a wary eye on. We have much more clarity on it by the time we get to the end of June, which would be the kind of deadline for the British successfully concluding these genius negotiations they're proposing. Lastly, coronavirus.
I think it's useful at the moment in that it will help to temper some of the irrational exuberance that is beginning to build in the airline sector on fares in years into the summer. We should be cautious. We've had a very good run through Q3. Q4 looks reasonably okay, although there's no Easter at the end of Q4. Into the summer, I think all the trends are generally positive, I would say mildly positive. I know there'll be a lot of analysts out there going, "It'll be strongly positive." There is a risk at the moment that the coronavirus could spread to Europe. We've seen even this morning, some people on short-haul flights between Ireland and the U.K. wearing bloody face masks as if it made any difference to them. I would just be cautious.
Longer term, we don't think the coronavirus will have any impact whatsoever. Our experience of the SARS and the avian bird flu, five, six years ago, was that actually it was mildly good for the short-haul business here in Europe. More people were likely to holiday in Europe rather than traveling long haul to Asia, et cetera. We would think that would play out again. We should be wary on the short-term impact. Other than that, fuel continues to be slightly weaker than normal. We're very pleased to have hedged out our 90% for the next 12 months at just over $60 per barrel. That would be a very significant fuel saving, even allowing for volume growth of ETS next year of something of the order of about EUR 150 million.
We are beginning to hedge out into FY 2022 at the moment, at prices that are around EUR 56, EUR 57 per barrel. I would be generally of the view that fuel is likely to kind of fall further rather than rise, but that can always be overtaken by political considerations. Our focus at the moment, and certainly by the time we get to the full year results in May, would be to have a modest portion, 30%-40% of each of the four quarters of FY 2022 hedged away. I wouldn't be in any rush to hedge away 90% because I think we just need to guard against falling fuel prices. Other than that, I know everybody will be on the call. Please don't ask us the same two stupid questions as what's the Q4 year is going to be. We don't know. What's the summer 2020 year?
We don't know. We think there is probably modest upside in the year's outlook at the moment given the capacity constraints. If there were to be any severe outbreak of coronavirus here around Europe, again, we should be cautious at the moment. If the reality turns out to be better than we expected, then it will translate directly to an improved bottom line. I don't think it's too early in the year for us to be forecasting a better bottom line. Other than that, we will continue to manage costs closely. I note, based on the published results now, our unit costs are 24% lower on a per passenger basis than Wizz, who claim to have lower costs than us, but then they're clearly mathematically challenged.
We are 44% on a per passenger basis lower than easyJet, and we will continue to use that cost advantage to roll out the successful low fares formula across Europe where nobody else is able to compete with us. Neil, anything you want to add to that before we open up for Q&A?
Well, I suppose the only area we didn't cover was the balance sheet, which is in very good shape. We've returned EUR 40 million to shareholders through the buyback, the EUR 700 million buyback. We're extending that out now to the end of July. Our key focus over the next kind of 12, 18 months will be the repayment of maturing debt. We've got about EUR 1.3 billion of debt with coupons around 2% maturing. We strengthen up the balance sheet more, take some of the costs off the P&L. As Michael said, the cost leadership remains supreme.
Good. Okay. Right, let's go Q&A. We're going to restrict everybody to two questions, please.
If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of Daniel Roeska from Bernstein Research. Please go ahead.
Daniel, you're on.
Morning, gentlemen. Firstly, on the delay of the 200 million passenger target, how does that impact your thinking around the EUR 2 billion profit goal? Is that still achievable by 2024? What would make up the shortfall? Secondly, maybe more broadly, not specifically on your capacity, but as you mentioned earlier, slower growth translates into better fares. Once the math is back and we're back to normal in this sector, would you want to go back to your old high growth, load active approach? Given the slower macro environment, are you actually thinking a little bit differently about growth into the next three to five years, possibly this time?
Okay. Yeah. Can I take the second one first? As soon as the MAX is delivered, we take as many of them, or we take 50 of them a year. We have no intention of moving away from our load factor active, price passive. We are the dominant, well, not dominant, but we're certainly head and shoulders above every other airline in Europe. Some of the analysis of this growth omits the relevant fact that actually the MAX 200s will significantly lower our unit cost going forward for the next four or five years and will widen the cost gap between us and our competition. There's no point in having cost leadership over the competition unless you use it to take more market share and push others out of the way. I'll give you an example of that.
Even today, we've announced that easyJet are withdrawing more capacity from Vienna, where the competition led by Lauda is getting a bit too intense for them. That is being replicated all over Europe. I draw attention to Wizz's more recent comments where they don't like competing in Central Europe. They want to go off to further east, down into the Middle East, because Europe is just a market share play. Well, look, if it's a market share play, we'll be the ones taking the market share because we have lower costs. The kind of lazy analysis that Ryanair should just stop growing, and we just start making out on higher fares and bigger margins is ultimately doomed to fail because you're inviting somebody else to come in with additional lower capacity and ultimately damage our margins.
We will always expand capacity where that capacity will lower our unit cost, because if we can lower our unit cost, it gives us a further and an even advantage over all competition. I'm not overly wedded to the EUR 2 billion profit forecast. It will happen sometime before or after we get 200 million passengers a year, but only in a couple of years where we have reasonably steady state fuel. The challenge we have, I think the steady state of this business should be about EUR 10 per passenger net profit. It tends to migrate or move around a bit when oil is volatile, as it has been for the last two years. There was excess capacity in Europe, mainly from numbnuts like Norwegian, expanding heroically and losing money hand over fist. That seems to have been reversed.
In recent quarters, we see Norwegian now reducing capacity by about 25%, which is entirely an intelligent approach to their failed business model. Much more fundamentally, even Eurowings, Lufthansa are taking out a lot of short-haul loss-making capacity in the German-Austrian market, and that's something we haven't seen before. The fact that they're closing the seven aircraft base in Vienna this summer, I think is a very significant structural shift by Lufthansa, who in the past would have been willing to lose money forever and a day to eliminate competition, and they're beginning to learn you won't eliminate Lauda or Ryanair. We have no great designs on the German market, I hasten to add, but we'll expand there slowly. We will hit the EUR 2 billion profit target. On what year? I'm not that fussed. It'll be on whatever year we have a reasonable stability on oil.
It may come sooner rather than later if capacity in Europe continues to be constrained for the next year or two. The downside of capacity constraint and a more benign yield environment, it would mean that loss-making failures like Flybe and Norwegian and others may survive another year or two, where frankly I would prefer to have more capacity growth and see them all jump over the cliff, which would be structurally better for the industry as it migrates inexorably towards four or five major players across Europe.
Perfect.
Next question, please. Thanks, Daniel. Next question, please.
Next question comes from the line of Jarrod Castle from UBS. Please go ahead.
Thank you. Good morning.
Jarrod, hi.
Hi. Two. Staff relationships. Can you just talk a little bit about base closures and any outstanding settlements, how the relationships are progressing? Then just secondly, obviously in the video alluded to obviously all these carbon taxes. How does Ryanair think about the increasing carbon taxes versus the amount of capacity going into those markets versus trying to pass some of it on to your customers? I guess, should we see you move capacity around related to that? Thanks.
Staff relations are generally very good. Eddie, Daryl, and the team I think have done an outstanding job over the last 18 months. We now have CLAs in place in countries like Germany, Ireland, the union withdrew their claim, the court claim last Friday. We're in close dialogue with the unions in the U.K., with Spain and Portugal, where I think we're getting close to agreements there. The deals are now done in Italy, in Germany, in France. Anywhere else, Eddie?
It's Belgium.
Belgium. Yes, there are base closures, this is a reality for us. It's not because we have base closures because we're short 55 aircraft from our original plans for the summer of 2020. There is no pilot shortage at the moment, nor will there be a perceived pilot shortage for the next number of years. We are working closely with both the unions and our people at the bases that are being closed in Spain, in Germany, in Scandinavia. We're offering pilots and cabin crew transfers to other bases if those bases are being closed. It's very much a voluntary situation. If people don't want to accept a base transfer and want redundancy, then that's fine. They can have redundancy. We're meeting our legal obligations in all those countries. I think I wouldn't want to overplay it.
Is everything fantastically warm and friendly? No. It's very professional. To be fair, in most countries, I think we have moved from being what would have been a very adversarial relationship over the last 30 years into a reasonably professional regular meeting. We don't necessarily agree on everything, we find a way through solution with all those issues. I think you've seen that by the absence of any further labor issues. That's not to say there may not be some outbreak of labor issues somewhere next summer or during peak periods. As we demonstrated last year when threatened with strikes in the U.K. and Ireland, we will face those down. We will not change our position.
I think the strongest signal I could give you there is, we're back now recruiting cadets. We've had to slow down the recruitment and training of pilots simply because of the MAX delays. We will be one of the few airlines here that has growth coming in the next number of years with 210 MAX aircraft on order. We have promotions, recruitment, promotions to captaincy coming through. I would have thought the employment environment as an airline for among pilots and cabin crew has never been more favorable towards the airline. Whereas in 2017, when you had the likes of Norwegian running around offering everybody stupid contracts, promises of long hauls, 787s and all the rest of it, the market got very tight there for a period of time.
On the carbon taxes, I think it's something we should be wary about. Over the medium term, carbon taxes won't alter the price advantage or the cost advantage that passengers flying Ryanair have over every other airline competitor. Therefore, nothing like APD in the past or the German taxes. There's a short-term impact where the airlines have to absorb some or all of the tax increase. Over the medium term, the business rights itself. I think we've had significant success, but I'd be more optimistic in heading off a lot of carbon taxes, though the new EU Commission was very strong on in taxing aviation. I think governments around Europe now, particularly those who are heavily reliant on tourism, the Spanish, the Portuguese, the Maltese, the Cypriots.
The Irish, for example, are now much more nuanced in, we're not having a kind of a Dutch or Belgian tax on aviation when their aviation is a tiny proportion of their GNP. The more peripheral countries, certainly in Eastern Europe, the Spanish, the Portuguese, the Italians, are now much more wary. Well, hang on, we want to see improvements in emissions and carbon reduction, simply taxing air travel will do untold damage to their tourism industry. Ryanair is very much to the fore of that by we put the environmental policies front and center. People switching to flying Ryanair are cutting their emissions by up to 50% if they're switching off legacy carriers in Europe, particularly on short haul.
I think even consumers are becoming more educated that actually flying on low-cost carriers with high load factors and high seat density, is the more environmental way to travel. Business is bad and first is worst in terms of travel when it comes to emissions. I think that message is getting through. We certainly should be wary in the short term of carbon taxes, maybe over the medium term, I think it'll have no impact. It won't impact the cost or price advantage we have against every other airline in Europe. That is a structural advantage that many analysts keep forgetting about. I don't think ultimately it will affect our growth or our profitability.
Thanks, Michael.
Thanks. Next question, please.
Next question comes from the line of Mark Simpson from Goodbody. Please go ahead.
Mark, good morning.
Morning. Couple of things. I wonder if we could have an update on CapEx guidance, given the stopping of the PDPs. Ancillary, obviously, we're analyzing some of the policy changes coming into through the last quarter. Could you give us an idea of yield management success for the ancillary? What's the kind of run rate we can think about going forward, once those changes have happened? If I can sneak a last one in. You've talked about 50 MAX as the maximum in a year. You did change your schedule on the last financial report and accounts where you were suggesting maybe 60 in FY 2021 and 57 in 2022. I'm just wondering if that 50 cap you're talking about now is a reflection more of Boeing issues rather than your capacity.
Thanks. I'll take the last two first, and then Neil ask you just to update on CapEx. The 50 MAX is more a reflection I think now of the Boeing capacity to deliver. It's also, Boeing at one stage wanted to deliver us 90 aircraft next winter. We said, "Look, forget it." We're not taking that kind of growth, in an airline that has sort of 550 aircraft. It's too much. We don't think it was the safe thing to do. I think 50 is a reasonable estimate. It also kind of has a kind of a practicality in that we just roll back our order by 12 months. If you take the combination of the backlog of aircraft that Boeing have to deliver, which is about 450, 500 planes, 20 of those are ours.
Their policy, the new policy they're managing, that instead of carrying defects down along the production line, they'll stop the production line and fix all defects where they identify them, which I think is much more a better or a higher quality way of producing the aircraft. We don't see them returning to producing 55, 52, or 56 aircraft a month for 12 or 24 months, as they start production. Once they get the airplane back in the air, their next challenge is going to be getting all the grounded aircraft up in the air, then getting the 500 of the air backlog delivered, then restarting the production line, which will be lumpy and bumpy. I think we will do well to get 50 aircraft in time for summer of 2021 and for summer of 2022.
Thereafter, I probably do want to stagger the growth ourselves. It's a mix of both. It's generally in the early year or two, it's Boeing related, and in the later year or two, it's we don't want to be growing at kind of breakneck speed ourselves because as Europe is consolidating, there aren't that many more opportunities for like Vienna came up last year where there's a large airport with a significant gap in slots. I think that's kind of more controlled growth going forward. I would remember that of the 50 aircraft we would take in 2023, 2024, 2025, probably only half of those would be for organic growth. At that stage, we'll start taking out some of our 20-year-old older NGs and selling them into cargo conversion programs.
We are coming to the stage, I think, over the next number of years, where instead of growing at 8% or 9% per year because there's a land grab and we want to make sure we grab all the land, I think you will see us grow at a slower, more controlled, maybe 4%, maybe 5% a year. On the ancillary yield management success, yeah, that continues. I think we'll give you more of an update on that on the full year when we're on the results roadshow in front of each one of you. Clearly, we expect the rate of ancillary revenue growth to slow down now as we begin to lap some of these changes this time last year. There is more there in terms of the yield management and some pricing variations as we identify what customer behavior is like.
That's why the ancillary revenue line in Q3 has been a bit stronger than the market expected, because the yield management is working well where we've begun to lap the introduction to some of these changes. I wouldn't want to give any more detail on that today. We'll do it on the full year results call. Neil, do you want to update on CapEx, please?
Yeah, there's not an awful lot to update, Mark. I'm a little bit reluctant to put numbers out there at the moment, given that we haven't got a firm delivery schedule from Boeing. We will be getting into peak CapEx over the next kind of 12, 18 months, where we'd see somewhere between EUR 1.8 billion and EUR 2 billion. I'm not going to break it out at this stage until we've got firmer numbers in from Boeing. We'll be ramping up the pre-delivery program. We haven't paid any PDPs in well over a year at this point in time. They'll also start to get moving once the aircraft start to deliver. A bit like the ancillaries, I'd hope to be able to give you a lot more detail when we see you in May.
Yeah, fair enough. Thank you.
Okay, thanks, Neil. Okay. Next question, please.
The next question comes from the line of Stephen Furlong from Davy. Please go ahead.
Stephen, hi.
Yeah. Hi, Michael. Can you just talk about the group airlines? Maybe just talk about Buzz, because I know it references that you're expanding outside of Poland to Prague and Budapest. Secondly, just go back and talk about Lauda expanding in Vienna, Zadar. Are you happy with progress there? I know it's a lot of overcapacity in the market or had been, and weak fares. Thanks.
I think so. I think Buzz has grown faster than we had originally anticipated. There's a very good management team there in Buzz, ably supported. Juliusz Komorek, who's our Head of Regulatory, is also the Chairman of Buzz. They have a clean sheet of paper, and they've hit the ground running. The charter operation in Poland is doing well. In fact, it's a bit constrained this year. It operates seven aircraft this year. We'll probably expand that up to about 10 aircraft next year, and this is a very nice piece of business that makes nice profit. Buzz is expanding, though. What we did last year is it took over all the Ryanair bases in Poland. It's now expanding to take over the Ryanair bases in the other central European economies, mainly because we can move those pilots then off.
Remember our Section 127B, this problem we've always had with the Irish tax on pilots flying Irish-registered aircraft. By moving these aircraft off Irish AOC and into the Polish AOC and the Maltese AOC, they move now to paying local taxes in the countries in which they live, and that's part of our commitment in the union negotiations in countries like Italy, Germany, and Spain with Malta. It's going well. They're doing a very good job in Buzz as they are in Malta Air. Lauda, to be fair to them, they're doing a good job on the airline side. By any commercial measure, Lauda is doing very well. Load factor is running at 94%, high on-time performance. We've restructured the aircraft leasing costs this year.
We were very fortunate, I think, in the last year to be able to expand the fleet with leased A320s, and there is a sweet spot in the market at the moment for secondhand leased A320ceos, which are available at terrific value, like EUR 170,000, EUR 180,000 a month on a lease basis. The only challenge we face with Lauda is twofold. One, we're competing in the German-Austrian market where Lufthansa, certainly last year, were using the Eurowings subsidiary to sell dump pricing in the German and the Austrian marketplace. We will live with that. The only reason that Laudamotion is losing money is because the fares are significantly lower than they had previously been or than we had budgeted. Vienna is filling up now this summer.
The other issue with Lauda is we took a strategic decision last year, let's double up, accelerate the growth, even if it means losing money. By doing that, Lauda this year will grow. It's gone from eight aircraft in Vienna last summer to 12 this winter, but it will have 19 aircraft in Vienna this summer. It will be the clear number two airline in Vienna behind Austrian, about twice the size of Wizz. LEVEL have essentially withdrawn from Vienna. easyJet are well on their way to withdrawing. They said they've closed two more routes this morning, Vienna and one of the Italian destinations, I think Rome or Milan. As a result, this summer, Vienna will effectively be full. It's now slot-blocked mornings and evenings, and I think Lauda will, over the next year or two, settle down.
Pricing will come back up, particularly as Eurowings has withdrawn their seven aircraft from the Vienna market. We look at Lauda as being a structural investment in a very significant presence in the Vienna market. It'll be the number two airline in Vienna. Within about five years, I think it'll overtake Austrian Airlines. It can carry more than Austrian Airlines, 14 million passengers. They won't all be in the Austrian market. It is successfully opening a new base in Palma this summer. It'll be up to eight aircraft, and in Zadar, which was a Ryanair base, that it will open up and operate. We're looking for new base opportunities at Lauda the next year or two to spread our dependence slightly away from Vienna and Stuttgart and Düsseldorf.
It's been disappointing from a financial point of view, but it's an investment in a structurally, I think, important market and a structurally important country. By growing aggressively, we have closed out that opportunity to Wizz, to LEVEL, to easyJet, who were all talking of Vienna 12, 24 months ago, and now no longer do. Malta is growing strongly. It'll be up to about 120 aircraft this summer. Again, primarily because we've moved aircraft off the Irish register onto the Maltese register, which allows all the German pilots and cabin crew, the Italian pilots and cabin crew, to now pay their taxes in Germany and in Italy instead of in Ireland, which was very much one of the key demands that the unions were making in our negotiations with those.
It means there would be less taxes paid here in Ireland, but that was an inevitable byproduct of the government's refusal to alter Section 127B, which only affected Ryanair because we're the only airline with bases all over Europe, but on an Irish AOC. It's regrettable, but that's nevertheless, it was the choice of the Irish government. They're going well, and we would expect them to continue to grow over the next year or two.
Okay. That's great, Michael. Thank you.
Thanks, Stephen. Next question, please.
The next question comes from the line of Jaime Rowbotham from Deutsche Bank. Please go ahead.
Morning, gents. Two from me. First would be to just challenge you a little bit on the guidance for this year, which does seem conservative. I know you don't want to commit to what 4Q fares will be, and I know it won't be as easy to progress ancillaries as much post the anniversary of the bag policy change. With fares tracking up 9% in Q3, and I thought a very soft comparative on fares in Q4, that something north of 4% on full-year rev per seat might seem rather likely. If you could also comment on ex-fuel unit costs, it'd be good to know if there's anything in terms of saving that might make a repeat of the + 1% in Q3 hard to replicate somehow.
Second one was just on the balance sheet. Neil, in terms of the focus on reducing debt with expensive historic interest rates after the current share buyback program, presumably we should think about you refinancing that debt at better rates, and continuing to use surplus gross cash for buybacks or special divvies, given that even with the eventual 737 MAX CapEx, to assume no releveraging, I would have thought see the group quite quickly moving into net cash, which is surely not that efficient? Thanks.
Okay, thanks for the question. Look, the guidance on Q4, we were surprised ourselves by the strength of the close-in bookings, and it was particularly a phenomenon over the Christmas and the New Year holiday period. We don't see that translating or being as strong again through the back end of January, mid-February into March. March doesn't have any Easter in it this year. Easter's in the middle of April. I think we should continue to be cautious. We've already upgraded earnings from a range of EUR 800-EUR 900 to EUR 950-EUR 1,050. At the moment, we're tracking bang in the middle of that figure. Very little might move it up towards the upper end of the range, but very little in terms of coronavirus and security events somewhere in Europe would move it towards the lower end of that range. This is a year for caution.
I think our focus today should not be on what the Q4 fares and yields are going to be. It's what's the Q1 and Q2 fares and yields going to be next summer? Honestly, we haven't a clue, but I think it's reasonable to assume that the reasonably benign capacity environment will continue to translate into modestly rising airfares into the first two quarters of next year. Could they rise by more than that? Yes, they could. We could have a bumper year next year, That's certainly not built into any of our forecasts. This is the airline industry. Just when you think it's going well, there's always some shit show, or we get visited by some kind of unforeseen event. No, we're not going to give you any more optimistic guidance on Q4.
Everything we see at the moment shows us coming in at the midpoint of that range, which is a significant growth in profitability from last year. Even allowing for the fact that the losses in Lauda are higher, we've had to step up the losses in Lauda as well. Ex-fuel unit costs, again, we think we're still going to be up 2% on the full year. That's a terrific performance. I mean, a large proportion of that cost performance was predicated on taking 20, 30 MAX aircraft. We have none of them, and yet we're still able to deliver that kind of unit cost performance.
I would contrast that with, for example, easyJet last week, unit costs up 4%, because the usual thing with easyJet was, "Don't mind the cost increase, just look to the fares or the big data capture or some other distraction from the fact that they can't control costs." In Ryanair, we control costs. This was the year where we've had the flow-through of all very significant labor cost increases, big provision for additional handling to improve resilience. The MAX aircraft haven't come through. We've had higher maintenance on the extending out the older aircraft or postponing aircraft delays. We take all that, and we're still able to deliver a 2% unit cost increase. I think it's a very creditable performance in a difficult year for all airlines. Next year, we know that fuel is going to kick in a significant saving already because we've hedged it away.
On the balance sheet, Neil can speak for himself, look, on the balance sheet, there won't be another share buyback after this one for the next 12 months. We have EUR 1.3 billion in debt to repay. The debt is priced at around 2%. It will have significant impact on our earnings if we repay that debt. If we don't repay that debt, we're sitting there with substantial surplus cash, and I have no use for that substantial surplus cash. I would rather we were paying down debt. I don't want to be sucked into the situation that all companies, once they start raising bond money, or they just start replacing one bond with the other bond, that the debt never gets paid back. Ultimately, I would like us to be conservative, pay back the debt. We own all of our fleet of aircraft.
We will still be generating very significant annual cash flows. Who's to say that we shouldn't try to be debt-free in the next four or five years, which will make us not only will be the one airline in Europe with a huge cost advantage over everybody else, we'll also be the one debt-free airline in Europe, which will make us an even stronger competitor to everybody else. Neil, you on the balance sheet and pay down of debt?
Yeah, I think you covered it well there, Michael. We already raised some money this year at very cheap levels, 0.65% unsecured for EUR 750 million. We don't have the need to raise more or refinance the bonds into next year. Our working assumption with peak CapEx is that we will also pay down the first maturing bond in June 2021. If we decide to go back at some stage to refinance, it'll be at a time of our choosing when it's just too attractive to say no. At the moment, taking that 2% interest rate off the P&L makes a lot of sense, and strengthening up the balance sheet gives us more flexibility in what we do.
Interesting. Thanks.
Thank you. Next question, please.
The next question comes from the line of Neil Glynn from Credit Suisse. Please go ahead.
Neil, hi.
Good morning. Two from me, please. First, Michael, just in terms of the Q&A on one of the videos this morning, you talked about your four key areas of focus over the medium term. I wanted to just touch on, you mentioned management development. Obviously with the individual operating companies developing under your ultimate stewardship. Just interested in terms of how that evolves over the medium term. What would represent success for you in terms of how you develop the management teams of each of those businesses? Second question with respect to the MAX situation and the potential for compensation. Just interested in your preferences. I know things are evolving, but would you prefer cash as a compensation or a discount adjustment to the current order, or would you prefer that to be taken care of whenever the next order comes?
Okay. The management development, what we're trying to do, I think, to be fair, I admire what Willie Walsh did over a number of years in IAG. We set up the same type of weekly management meeting, a groups meeting structure now where the CEOs of the individual airlines meet with me, the head of regulatory, and the group finance function. That is, I think, resulting in much more an integrated approach among each of the airlines, drawing on who could deliver best. For example, Ryanair is currently providing the ops and crew control services for Lauda, but that will move to Buzz and Warsaw in about March of this year because they have lower cost labor and a better supply of it in Warsaw.
It's easier for them, where they're currently managing 50 of their own aircraft, to take on another 50 from Lauda, and reduce some of the dependence we have here on ops here. What would I think would be success? What I would gauge would be success in that is that replicating the Ryanair formula in the other airlines over the next year or two. Beginning then to have see more management development. I'd like to see Polish people coming and taking up middle management positions here in Dublin. The same thing, Irish people going take middle management positions in Austria. Austrians moving across to Warsaw and to Malta. Much more kind of cross-fertilization within the middle management because it gives us scope for more promotion of our graduate development program coming through.
One of the challenges we've always faced here in Ryanair is a very settled senior management team, so we don't have much promotional opportunities where I think it's much easier to give someone cut their teeth. If we think there's somebody good in operations, send them over. If there's a vacancy at the moment for director of operations slot in Lauda, send somebody down there for a year or two, let him be the director of operations there, and then he or she becomes a much more polished potential replacement candidate for a director of operations slot here in Dublin. I'd like to see that management development and more mobility between the middle management positions.
On the MAX situation, again, I wouldn't be wedded to one thing or the other. I've got to be careful what I say here. The discussions with Boeing are not just around compensation for our lost traffic, lost passengers, lost ancillary revenues. There's also, clearly the MAX has suffered a significant reputational hit as well. There's no doubt we will have passengers who will be nervous to fly on the MAX when we do take delivery of the aircraft, despite the fact that we, our pilots, myself, anybody else, we all believe it's a great aircraft, and it will transform Ryanair for the next five or 10 years. Once it's delivered, it will be as successful, for example, as the 787 was once it was back and delivered and after the grounding with the lithium-ion batteries.
I think the general discussions, and we can't finalize numbers until again, we have a confirmed delivery date for our MAX 200s and a revised delivery plan over a four or five-year period. The general tenor of it will be, we would expect Boeing to reimburse us the direct costs in sort of FY 2020 and FY 2021 of lost traffic, lost revenues. Some of the cost cuts, the savings we would have made if we'd had delivered the MAX on time. Much more of our focus will be on repricing the delivery, so that I think there would have to be a reprice the deliveries of the new order to reflect the reputational damage going forward. Then we are already in discussions with Boeing about, we have an offer on the table with them for an order for new MAX 10s, which is the 230-seat aircraft.
To be fair to them, I don't think the new management team is not yet in a position to be able to talk to us about a new order. We understand that, but we have the offer in, and we expect to be at the head of the queue once they get their heads around looking at the delivery profile. There is, I think, a concern about the Boeing short-haul aircraft at the moment, and I think the kind of key critical issues to the new management team at Boeing is, one, get the return to service done. Two, get the backlog of aircraft deliveries out of the way. Three, get the production back up and running and running well and delivering a reasonable quantum of aircraft on a monthly basis. Four, let's start signing up orders for new aircraft.
Responding back to Airbus, they've had now a 12 and 18-month kind of lead over Boeing in terms of aircraft orders. I think the new management team at Boeing need to be capturing back that lead, and the starting point should be their bigger existing customers like Southwest and Ryanair, which would be one and two in the world. Really, we're not that focused so much on compensation, but certainly, we expect to reprice the 200 order we already have, and we would expect to put in place or agree a deal with Boeing on new aircraft pretty soon after the return to service kind of has been resolved.
Great. Thank you, Michael.
Okay, thanks for that. Next question, please.
The next question comes from the line of Savanthi Syth from Raymond James. Please go ahead.
Savanthi, hi. How are you?
Hey. Good morning. Good. Just on the MAX, just on the training side. First question was just, you have one sim. I'm guessing you're going to plan on training pilots in the bases of the MAX as they're going, so maybe 500 or 600 pilots for next summer. Just kind of curious as to just your thought process on if that sim training is going to be maybe incremental cost pressures early on next year. Just how you're thinking about what that new sim training means to thinking about introducing the MAX. Just a second question, a follow-up on Lauda. Just how do you see Lauda kind of growth in passengers over the next few years? Thanks.
Okay. Thanks for that. On the sim training, we have two MAX simulators already in situ in Stansted. A third one is due for delivery in June. The fact that the first of our deliveries has now been postponed back to September, October means we're in a pretty luxurious position in that we have plenty of time to train MAX pilots going forward. There's still a kind of a debate, though. I mean, it's not clarified yet. On the return to service at the moment, it looks like the pilots flying the MAX will need, if you like, an initial simulator session on the MAX simulators, but thereafter, the recurrent training can be done either on MAX or on NG simulators. That's critical. We do not want to have a two-aircraft fleet here.
What is EASA? To be fair to Boeing, they're very much of the same view. Once the initial training has been done on the MAX simulator, recurrent training can be done on either MAX or NGs. That's critical because we don't mind training everybody initially on the MAX simulator, but on an ongoing basis, we need them to be able to fly NGs and MAX aircraft. With a delivery starting point of September, October for 200 deliveries, we have no issues with MAX training. We have two, right to the three simulators in June. On the Lauda, our general profile at the moment is looking to do 6.5 million passengers this year. It will go close to 10 million passengers next year to FY, probably more likely 9.5 million passengers into FY 2021.
Thereafter, again, because of aircraft uncertainty, I think we're looking at maybe 10% growth a year over a four or five-year period. Maybe add 1 million passengers a year at new bases outside of Vienna will be full next year, so there won't be any more growth in Vienna. We like this, that we don't plan additionally growth in Düsseldorf or Stuttgart, again, until the German market kind of settles down. We would like to see more developments. The Palma base will grow. Zadar, hopefully, will grow a bit to summer base. We're looking at the possibility of a Lauda base somewhere in maybe in Spain or in Italy or, alternatively, something in Central and Eastern Europe. We would like to see the Lauda footprint of bases kind of expand slightly outside of Austria and Germany.
That, again, depends on the availability of cheap secondhand Airbus aircraft, and that market has tightened significantly in the last 12 months with the MAX delivery delays. We would expect further opportunities to open up, particularly on good secondhand [ceos]. Once the MAX deliveries backlog has been addressed and there is reasonable capacity growth across certainly Europe and the world. That is probably six, nine months away. Very strong growth in Lauda this year. That's partly why there are more losses in Lauda than we had originally forecast because we're being very aggressive with the growth in that marketplace. As a result of that, we will have closed off all the slots in Vienna to Wizz, I think, were complaining last week they can't get slots in Vienna, and that's essentially because we have them all now.
We will have a position of significant strength in Vienna where Wizz, which is unable to compete with us on cost, will continue to be unable to compete with us on cost. That would leave us, I think, competing on very favorable terms against Austrian Airlines in Vienna, whose cost base is probably two or three times higher than that of Lauda. I think over the medium term would make Lauda a reasonable prospect for modest growth, but significant profitability going forward.
That's all. Thanks, Michael.
Thank you. Next question, please.
The next question comes from the line of Alex Paterson from Peel Hunt. Please go ahead.
Morning, everyone.
Alex, how are you?
You've talked a lot about or a bit about taxes. Do you have a view on whether the fuel duty exemption will be removed in the EU? If it was, would you look to pass it on to passengers in its entirety?
I think it's unlikely that it's going to be removed in its entirety because it's almost impossible to ensure a level playing field across Europe. That's why the fuel duty exemption there already exists. I think it's much more likely that Europe will tackle it from an environmental tax, which again, but we've raised it before. We already have the ETS Emissions Trading Scheme, which is, if you like, the fuel tax. We have APD in the U.K., and we have the equivalent in Germany. This year, we paid EUR 640 million in fuel environmental taxes. More than 10% of the average airfare paid across all traffic. I think it'd be very difficult for Europe to come up with an exemption or to remove the exemption on fuel duties, but that's not to say they won't try.
Certainly, countries at the periphery in Spain and Portugal, the tourist-based countries have no desire to see that kind of taxation. The Irish tried it 10 years ago with a EUR 10 environmental tax or travel tax here during the teeth of the recession, and so air traffic collapsed by 50% within two years. I think the risk is, in the short term, more environmental taxes, but probably more likely around the center. Economies like Germany, the Dutch, the Belgians, to a lesser extent, the French, and it not having any impact on the environment or anything else. Their economies have a very small air travel segment. The Dutch are already talking about a travel tax. Of course, exempting all of KLM's connecting traffic across Schiphol, which accounts for probably 80% of KLM's traffic. There isn't a big domestic flight schedule in Holland anyway.
It's an air travel tax in name rather than anything else. It's also a massive hidden state subsidy to the likes of KLM, where easyJet and Ryanair, all the people doing short-haul point-to-point flights into Schiphol would have to pay this environmental tax. Of course, KLM would have an exemption not because most of their traffic is connecting. I think the answer to the question is, I don't think there's going to be a change in the fuel taxes, but their risk is on the environmental taxes. Juliusz, anything you want to add on that or in terms of EU policy?
Just to summarize, I think where the risk is a further tightening of the EU ETS for aviation over the next few years and new or increased national taxes. An example of it is in Austria, where I think the new government intends to increase the tax, subject to going through the legislative process. I do not, at the moment, see a significant risk of an EU-wide tax on air travel or the removal of the exemption on tax on fuel.
Thank you.
Okay. Thanks, Julius. Next question, please.
The next question comes from the line of Johannes Braun from MainFirst. Please go ahead.
Johannes, hi.
Yeah. Hi, good morning. Two questions from my side as well. Back to Lauda, just a more general question. I mean, this has now been a non-performer for quite some time, and you explained why that is, but still it has, I think, the highest cost now in the group and the lowest yields at the same time. Shouldn't you rather shrink that business into elsewhere where profits are higher? That's the first question. Secondly, just an accounting question, I guess, for Neil. In your cash flow statement, the item trade payables literally exploded by EUR 1 billion compared to this time last year. This obviously boosted free cash flow and does lead to your solid net debt performance. Can you just explain why that is?
Sure. Michael, why maybe take that one first?
Yeah, well, PDPs.
Yeah. It's the Boeing PDPs. Effectively, while you can see the CapEx of EUR 1.4, there's an offset there on the trade payables because we're not paying Pre-Delivery Payments out the door. That will change as soon as the delivery starts coming to the fleet.
Okay. On the first part of the question, you're correct in your analysis. Lauda does have the highest unit cost and the lowest yields in the group. I believe, though, the yields are a temporary phenomenon as a result of low-cost selling, mainly by Lufthansa subsidiaries in Austria and in Germany. The yields out of Palma are quite strong. I think the yields, once the capacity growth has tapered off, which it will do in summer 2020, you are then into a much more steady state capacity environment in both Dusseldorf, Stuttgart, and in Vienna. I think you will see a very significant rise in average yields, certainly out of Vienna, once the heroic kind of growth has tapered off. I think the very fact that you have somebody like Eurowings withdrawing, closing its seven aircraft base in Vienna is a significant indicator of what's coming.
You also have Austrian Airlines losing money. I think, and the Lauda group generally under significant pressure to explain why they're blowing their brains out losing money in Eurowings without any kind of structure or without any great strategy. I think it's inevitable the next year or two, Carsten and his team in Lauda or in Lufthansa will have to see some kind of further capacity cuts in Eurowings, which generally competes only with Lufthansa main line. Fares in the German and Austrian markets, which have been very low for the last two years, steady themselves. Then Lauda will be reasonably profitable.
I think the unit cost in Lauda will always be slightly higher than the group average, but I expect that the yields in Lauda will also be higher than the group average going forward, and it should be a consistent deliverer of similar margins to what we deliver in Ryanair, but with a higher average fare and a higher average cost.
Okay. Thank you.
Next question, please.
The next question comes from the line of Malte Schulz from Commerzbank. Please go ahead.
Good morning. Good morning, Michael. First of all, maybe also a little bit on the subsidiaries or between the airlines. You do not disclose. You say a little bit on Lauda. You do not disclose maybe margins and cost levels for Buzz and Malta. Is it something you might take up in the future also that you see, similar to an IAG, maybe on an annual basis, the performance of the single brands or that the investor can see where you earn the most and where you have the highest return on investor capital? The second question was, your tax rate in the first nine months were quite low. Is it also something that we can now look going forward that you will be significantly below 10% for the group?
Okay, Neil, I'll give you the tax question. On the subsidiaries going forward, we are in discussion with KPMG. There will be some segmental information in the full year results. There won't be anything remarkable or differentiated between Malta, Buzz, and Ryanair. It's the same aircraft they're taking over, for example, Ryanair bases in Central Eastern Europe. They will be consistently, I would thought, similar, or at least the differences won't be material. It's a question of where we allocate some of the overhead from Ryanair DAC here, which is currently the group overhead. Lauda will be slightly differentiated. I'm not sure whether it's big enough this year to be having segmental information, it's likely, I think, Neil, in discussion with KPMG, will come out with some kind of guidance on traffic and revenues.
We won't be breaking it down to unit costs and years because that would be kind of commercially sensitive. Really, there will be no great difference between the 737 subsidiaries between them. There will be some difference between 737 subsidiaries and the A320 subsidiary, but how much of that we'll break down. We'll break down as little as we have to, but there will be some kind of segmental information, not dissimilar to what IAG do.
Yeah. Just adding on to that. It's really a factor of there's strict thresholds in place in which you have to report segments and the level that you don't. None of our subsidiaries would probably qualify this year, but as Michael said, we may do some more detail for like Lauda. The rest, as they get bigger, will probably get to a stage where we have to break them out, and when we get there, we will do so. In the meantime, Ryanair DAC still remains the main airline in the group. On the tax rates for the first nine months of the year, we had a tax rate of about 7.5%. I wouldn't expect it to be much different to that, somewhere between 7.5% and 8% for the full year.
Okay, thank you.
Thanks, Neil. Next question, please.
The next question comes from the line of Gerald Khoo from Liberum. Please go ahead.
Gerald, hi.
Morning. A couple from me, if I can. Firstly, with the sort of growth of multiple brands and AOCs, how are you going to be handling that when you've got multiple brands and multiple AOCs operating in the same country with regard to marketing and passenger perception on the commercial side and in terms of talks with the unions on the operating side? Secondly, on ancillary revenues, you talked about the majority in priority boarding and seating. I'm just wondering where the next opportunity is there. You hinted at personalization. Where are the opportunities there? What's the next big thing on ancillaries, really?
Well, I think you identified yourself. The next big thing on ancillaries is more personalization, which does increase the propensity of people to take up those services. We kind of more packaging of those services, which is helping the conversion. If there was some other line of ancillaries or stream of ancillaries that we were planning, we'd already be doing it. We continue to look for opportunities there. That's why we've been reasonably cautious on ancillary revenues for the next year or two. We think the big step up in growth coming from priority boarding and the reserved seating is done. There'll be a little bit of yield management going forward for the next year or two, but nothing more than that. On the brands and AOCs, again, don't get too caught up in brands.
We're not like IAG, where you bought established airlines, Aer Lingus, Iberia. They're all different brands. They do their own different things. We're a much more operationally efficient operation. Most of the sales for Lauda, Buzz, Aer Lingus, they're still done across the ryanair.com website. The sales come across the same website. The Lauda routes. They're sold on the ryanair.com website. They're also sold on a lauda.com website. The lauda.com website also shows the Ryanair sales. It's really just a front end for what is the Ryanair big central sales engine. Thereafter, we do see the AOCs. It does give us the opportunity for further operating cost efficiencies. The fact that we can move to local taxation, and why the unions want local taxation in most of those countries is because personal tax rates are lower there than they are in Ireland.
Ireland has this reputation as being a corporate tax haven, but it's a very penal country from a personal tax point of view. You hit the marginal rate at kind of EUR 40,000 a year, and you couldn't buy much in Dublin on EUR 40,000 a year. It does give us other efficiencies. Where it's helpful in some cases where we may be closing a base because we don't have enough 737s, but if we have some more spare A320s coming at us, we could reopen that base as Lauda. We do want to export the Lauda brand or the Lauda operation into other countries, so it's not very narrowly focused on just Vienna, Stuttgart, and Dusseldorf. That will also bring further efficiencies to Lauda as well.
For example, three of the 19 aircraft that are based in Vienna this year will be Ryanair 737s operated by Ryanair on behalf of Lauda. I regard the separate brands and AOC as much more separate AOCs that give us operating efficiency and cost reductions, for example, lower taxation, rather than separate brands. We've never been big players of brands out here. The key brand here is we have lower cost than anybody else, we have better operational efficiency than anybody else, and we now have lower emissions than anybody else as well. Next question, please.
There are no further questions on the phone.
Excellent. Okay, no further questions. Thank you very much for dialing in today. Again, I would just leave you with a caution everybody against kind of irrational exuberance into Q4. There is a prospect, I think of a more benign pricing environment out into the Q1, Q2, or through the summer of 2020. I think all the indications we've seen from easyJet, Wizz Air, and others is that there is a more benign pricing environment into next summer. As long as that maintains itself, we could be set fair for a reasonably positive FY 2021. We should be, again, guard, cautiously guard against things that could go wrong, like the coronavirus epidemic. We had the security incident in London last night. We should be reasonably optimistic into the next 12 months. There are still some cost challenges out there.
ATC will still be a challenge into the summer of 2020. Certainly, I think the fact that we don't have any MAX aircraft for this year means that we will have less capacity ourselves. That means we'll be putting less pressure on everybody else's capacity in Europe. I think capacity in Europe is going to fundamentally be flat to slightly down as Norwegian, Eurowings, and others cut capacity. That should be a reasonably benign pricing environment going forward, where already we've locked away fuel into next year. We've hedged away the fuel and secured significant savings. The MAX will continue to be a slightly moveable feast. We won't have any clarity until Boeing get the aircraft back in the air and then are able to deliver us MAX 200s. I think that will be more an opportunity into FY 2021.
For those of you who would wish us to stop growing and just start screwing passengers for higher fares, it won't happen. As soon as we can take those aircraft, we will take them because they will reduce our unit cost, and they will widen the cost gap between us and all the other airlines who can't compete with us on cost here in Europe. Okay. Shane is here manning the phones in the investor relations desk today. Neil is in London doing all the PR. We're not doing a roadshow, obviously. I am doing a morning in Paris, or a day tomorrow in Paris. I'm doing a day in Frankfurt next week just to keep boosting the European message as we encourage the ADR brethren to sell down some more stock.
Other than that, I look forward to seeing you all on the full-year results roadshow in May. Thanks very much, everybody. Appreciate your time and participating in the call. God bless. Bye-bye.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.