Earnings Call: Q2 2020

Nov 4, 2019

Welcome to the Ryanair H1 Results Conference Call. Throughout the call, all participants will be in listen only mode. Afterwards, there will be a question and answer session. Just to remind you, the conference is being recorded. I now hand the floor to our host, Michael O'Leary, CEO. Please go ahead. Okay. Good morning, ladies and gentlemen. You're all very welcome to the Ryanair One results conference call. I'm here with a group of the managers here in London, most notably Eddie Wilson, the new CEO of Ryanair DAC David O'Brien Shane O'Toole among others. We're also joined on the call from different parts The word by Neil Soren, CFO Kenny Jacobs John Hurley, CTO Julius Comrick and others. I don't propose in the interest of brevity here, I'm not going to read you the press release that we put up on the website This morning, we've also done extensive Q and A video. I think the results speak to themselves. A couple of quick themes. We've had a reasonable half year. The unit costs are well under control. I think it's impressive we're able to deliver unit costs of 2%, which is in line with our original forecast for the year despite the fact that we won't get the benefit of any MAX aircraft, I think, in the current fiscal year. We continue to reduce fares. Fares are down 5% in the half year, traffic up 11%. Ancillaries continue to be performed very well. Spend per passenger up 16%. I think what's most impressive of that is these are optional services that more and more of our customers are availing of because they see the value in these services. I think, inevitably, the market is moving towards consolidation. The bankruptcy of Thomas Cook was the latest was just the latest example of that. We see this morning IAG Acquisition of Air Europa in Spain. I think it's a good deal for IAG for Willie Walsh. I think it's a From a competition point of view, it is a merger to Monopoly in Madrid. I think we would certainly be looking for the Competition authorities to require some competition divestments, particularly the area Europa short haul presence on some of the Spanish domestics and the European short haul. But otherwise, we would certainly be supportive of that type of consolidation is what needs to happen in Europe. We clearly think the next failure would be that of Norwegian, dollars 6,500,000,000 of net debt is not the way to run an airline. The equity is now value worthless. And even if they can engineer a rights issue this year, they'll just be throwing more good money after bad. I think it is the business model doesn't make money. And if the business model doesn't make money in your $6,500,000,000 net debt, the sooner you go bust and disappear, the better. And also, Nanda, I think we are looking forward over the medium term with cautious optimism. There will be less capacity in Europe in summer of 2020. The MAX delays continue. We're now looking at taking I mean, I think Boeing will be lucky if the aircraft is returned to service this side of Christmas. It now looks like a return to service, I think, in North America maybe just after Christmas. That means we are not expecting our first MAX200 until March or maybe April of next year. The real challenge in that is it means we've now further reduced our Summer 2020, our growth expectation for next year, we now expect to take just 20 aircraft instead of the original 30 aircraft we were predicting 3 months ago. It may well be 0 aircraft if it moves further to the right and we are not able to take aircraft. We won't take aircraft through July August Next year, so if we can't get them made in March April, May or June, maybe the early week of June, we won't take any aircraft at all. That in itself means that there will be less capacity growth in Europe next year, probably reasonably good outturn for fares, Average fares and yields into the summer of next year with the demise of Thomas Cook, Iglazur, Adria in Slovenia having gone bus certainly helps the growth outlook for Lauda in Vienna. It also helps the supply of Airbus pilots. But over the going over a year or 2, we still have the challenge then of taking these delayed deliveries from Boeing. We are still very proud to be a customer of the MAX aircraft. It is a great aircraft. We put all of we are the only airline in Europe that has a MAX simulator. We put all of our senior The pilots, the chief pilots, the training pilots through the simulator, they all speak very highly of the aircraft of the MCAS system. Once you know what it does, it's a great aircraft. It has 4% more seats. It burns 16% as fuel and it will underpin Ryanair's unit cost leadership going forward, not just for this year, next year, but for the next decade In a marketplace in Europe that I think will be continued to be characterized by consolidation, less capacity additions and probably a slightly better outturn over the medium term on Fares. The other thing I would point to is lower cost fuel into next year. We have struggled this year with a High reasonably high fuel hedge at $71 a barrel. We're now 63% hedged into next year, FY 21 at about $61 a barrel. And I think all the indications are that oil will continue to oil prices, Absent any unforeseen events will continue to hover somewhere maybe below $60 per barrel on spot. I think there'll be opportunities there for us in the next year to roll forward with making savings on oil, continue to deliver unit cost savings as we add MAX The fleet into FY 2021 and continue to serve more and more markets across Europe, where airports are increasingly coming to us as their incumbents either cut capacity or go bust and looking towards or looking to Ryanair to deliver growth. Neil, anything you want to add to that on the cost side? On the cost side, strong performance on the likes of the EU261 compensation well down, thanks for in the year. And as you said, we're retaining to the plus 2 percent unit cost ex fuel guidance despite the fact that we don't have any benefits from the MAX. I'll just touch briefly on the balance sheet as well. It continues to be very, very strong. 70% of the fleet is debt free. And the impact of the new lease accounting standard, IFRS 16, a very limited impact on us. They account for just over 220,000,000 of the $460,000,000 net debt at the end of the period. Okay. Thanks, Steve, and I think before we open it up, I'm going to ask Eddie Wilson, the new Chief Executive DAC, to maybe give you a few words on what a pleasure it is to inherit My mantle and what a privilege it is to work with me and learn from me over recent weeks. Eddie? What can I do? We We can see that, Steve. We'll go see that with. I mean, like this new role is a very privilege for me to Following in Michael's footsteps, I mean, it's not about the personalities, it's about the business model. And my focus is certainly going to continue to be on Cost control and operational efficiency. And I've got the background not only on the people side, but on the ops side and on the ancillary revenue side. So I'm going to be working hard on those in the months ahead. Good. Okay. Thanks, Eddie. Okay. With that, we're going to open up to questions. And if you don't mind, We're going to limit every to one question at a time, so we get through it as fast as we can. So if you'd open it up one question at a time, Please don't ask us what we think is going to happen to yields over the next 12 months because we don't know. Thank you. First question comes from the line of Daniel Roeschka of Bernstein Research. Please go ahead. Your line is open. Good morning, Michael. Hi. Could you talk a little bit about how you're thinking about evolving the holding level now that you're getting into Job, are you considering changes for functions that benefit multiple operators? So will Labs and Kenny and so on Continue to report into Eddie as Ryno, DAC CEO or how do you think about kind of those functions that span across the group going forward? Yes. No, I mean, I think looking forward, we think the senior managers in DAC and DAC continues to be by far and away head and shoulders, the largest airline, Just here, we'll remain within DAC reporting directly to Eddie. That would be Kenny, David, John Hurley and others. I see the group function will be confining on Neil. I've always admired the Willie Walsh Mogg and IAG. You keep a very small A group function, which is essentially myself, Neil as group CFO, Julius Comrec, group Chief Legal Officer. We would draw on the skills that are the senior management in DACC, clearly, David, on the commercial side, new route development airport contract, Kenny, on the digital marketing side, John Hurley, in particular Labs, which is a division of DAC, will continue to drive The website and more particularly the mobile app for the group going forward, but they will remain within those other line functions will remain within that Reporting directly to Eddie Wilson. But the other group companies, Lauda, Buzz and Mol2Hair will be able Draw on those resources and we're setting up a structure now where there's a weekly group meeting as well where each of the CEOs we get Together in Dublin, Vienna, Warsaw and in Malta, myself, the Chief Legal, Chief Technical Chief financial. And the individual airline CEOs get together and kind of try to benefit from each other's experience, particularly in where we can drive Costs down and increased efficiencies. Okay. Very clear. Thanks. Thanks, Daniel. Next question, please. Thank you. Our next question comes from the line of Mark Simpson at Goodbody. Please go ahead. Your line is open. Yes, good morning. Actually one for Neil. One of the things I don't quite get in the presentation is the fuel hedging and The suggestion of only €120,000,000 saving on the rebased €157,000,000 guess for FY 'twenty one. If you take the capacity growth and then the new hedge positions, really that should be circa €260,000,000 I'm just wondering, are you telling us that's €140,000,000 loss to increase environmental costs? You're looking purely at the price. I've added in volume, ETFs And everything else, which is gets us to the €120,000,000 If you were to strip out the volume growth and just purely look at price, you'd be over €200,000,000 So ETF, essentially, you're giving us, what, a 60% increase in that cost? We're giving you a steer on what the actual absolute growth in the fuel cost will be next year, which will be a saving of over £120,000,000 If the fuel stays where it is, the market is in backwardation at the moment. Now it may go the other way. But I can Agree with your numbers if we're talking purely about just the price. However, when you take in the volume and the ETFs, you're looking at a 120,000,000 Saving plus the sterling sorry, plus the dollar hedging that we put in place. All right. Okay, thanks. Thanks, Mark. Next question please. Thank you. Our next question comes from the line of Duane Pfennigwerth of Evercore. Please go ahead. Your line is open. Hey, good morning. So just on the obviously, there's a lot up in the air about the MAX and the pacing of those deliveries. But an early thought on your growth rate in 2021 and if you can sustain this, call it, Sub-two percent level in nonfuel cost. And any thoughts on your nonfuel cost trajectory into next year? Are you talking about 'twenty one fiscal 'twenty one or calendar 'twenty one? Fiscal. Okay. So that's basically summer 2020. I mean, I think the reality is we will have very few MAX aircraft or not sufficient MAX aircraft In the fleet in summer of 2020, whether that's 20 or 30 at this stage, out of a core fleet of nearly 500 aircraft, It's going to have not much impact. At least cost savings won't have much impact. I think it's as we move into what will be the summer of 2021 or FY 2022, Where we will, I would imagine, be operating between 50, 80 of those aircrafts, you'll begin to see meaningful impact on our unit costs. I think, however, our unit cost story is reasonably stable going forward. We have, I think, reached a I think Eddie and Daryl Hughes, who's your place among the personnel, have done a very good job dealing with the unions over the last 6 months. We have undoubtedly been helped by what has been a very adverse backdrop economically for pilots, particularly in airline bankruptcies in Europe. We had Malpa, for example, calling 7 days of pilot strikes in Europe, looking for 100% pay increase, almost lapped out of it by our U. K. Pilots. On no day had there anything more than 4% of support from our UK pilots, we didn't cancel one flight, we didn't delay one flight during each of those 7 days. So I think it's important too for a company like that, that is has begun unionization is that the unions have to understand we will face down these strikes, not by Choice, we'd like to avoid them. But if you're going to treat or behave unreasonably, then off you go with your strike and we'll work our way around it. We've already Sure. The Irish pilot strikes will have no effect on us. The UK pilot strikes will have no effect on us. But we have made very good progress With the in our discussions with unions in Germany, in Italy, in Spain, in Portugal, we're even in active discussions in Ireland and the UK as well. And I think they're coming around to a much more sensible level of discussions, if that's So no, Eddie is going to disagree with me here. Go on. I mean the fundamentals on pay and conditions for pilot is very good compared to the market. That's the reality of it. And you have to go through a period of change as we went through each of the sets of negotiations. And The money is right, the rosters are great and the job security is much better than everywhere else. And it's a question of how you deal with that. It's the same market, it's the same airplanes, It's the same airline. That's not going to change because you've got unionization. We're ahead of the market, the 7 37 no cost market. And our pay and negotiations Our strategy will reflect that. Well, I think the key thing is we're prepared to put up with strikes Where a lot of our some of our competitive airlines have never had a strike to just keep rolling over and conceding cost increases. And I think one of the challenges far as this winter is, we are now over crude. We have a higher than expected crewing ratio just because pilots, even the budget rate of attrition we had for We've always lost young captains in their mid-30s who want to go off and fly in the Gulf or fly for long haul airlines. Those opportunities no longer exist. And increasingly, short haul airline pilots are becoming available as their airlines go bankrupt in Europe. So I think we are doing good work. We are I think coming to the end of the discussions with unions across Europe, where in most cases, The deal is already done or will shortly be completed. But frankly, if somebody wants to be unreasonable and lobbying 100% pay increase, After you go with your strikes, but the strikes will be unsuccessful. Very good. And then just for my follow-up, If these, God forbid, these delays persist, at what point do you think about tilting the order book more towards A320neos? We don't. I mean, you talked Airbus are almost unmanageable at the moment. You talked to Airbus at the moment, and the earliest they come talk to you is 2025. I mean, I don't think I mean, look, we have no concerns over the safety of the operations and the performance of the MAX aircraft. Clearly, Boeing have work to do with the regulators in the And the asset to get these aircraft back in the sky, but the regulators themselves will tell you that there's none of the aircraft are perfectly safe. But the regulators expect Boeing to answer all the queries, answer all the questions and Fill in the blanks or any gaps there may be, and we expect Boeing to do that as well. These aircraft, I expect, will fly. The question and I think they'll certainly be back in the year before next Summer. But because we've ordered a variant of the MAX aircraft, we're running probably 2 or 3 months behind the return to service. Boeing will also have a backlog of deliveries when they do start to return to services. It's just it's actually it's a timeframe issue that we may run out of road, Vincent, by the time we get to the peak of summer in December 2020. Having said that, we are stepping up the growth in Lauda, for example, in Austria, where they moved quickly, Andreas and the team, they got 3 of the aircraft that We're freed up as a result of the Thomas Cook failure. What was more important than Thomas Cook failure is they were able to get more Airbus pilot Captains and First Officers became available, that would have briefly been the plan. So we have we're also postponing some of our own secondhand aircraft sales. We're extending some of our Leases that would otherwise have been returned to the lessors next year. So we will still have growth next summer even if we don't get any MAX But I think a reasonable presumption at this stage would be about 20 MAX aircraft and that should enable us to deliver 4,000,000 or 5,000,000 passenger growth next year. That is much smaller growth, slower growth than we have ever delivered before. But if we finish up in that environment, I think there will be a more I think the yield environment for the airlines and for shareholders will be better next summer, whereas this summer clearly has been better for our customers and we generally For the yield environment, it's better for our customers because it's worse for our competitors. Okay. Thank you. Next question, please. Thank you. Our next question comes from the line of Jarrod Castle at UBS. Jarrod, hi. Hi, Michael. Morning. Can you give a bit of color on Lauda, in terms of your thinking now on the scale of the losses and how you're going to Mitigate that going into 2021 where you say you'll be at close to breakeven? Thanks. Yes. I mean, I think the losses in Laud have been higher than we had originally expected. We thought we'd get 100 €30,000,000 year 1 would get to €50,000,000 year 2 and breakeven year 3. What has fundamentally changed, however, has been the growth opportunity in Lauda. There's a land grab going on in Vienna, which Lauda is now winning hands down. Level of which are taking aircraft out of Vienna. Germanwings have now taken announced they're taking their 7 aircraft out at the end of for next summer. We are still there with about 6 or 8 aircraft, but not growing at anything like Speed at Lauda is. Lauda, meanwhile, has grown from 8 aircraft last summer, 12 aircraft this winter. It's going to 18 aircraft next summer in Vienna, which will close out Vienna. That will be the tier number 2. The German market, particularly German to Spain last year was very tough on pricing, Largely as a result of Lufthansa buying near Berlin and instead of taking out some of its loss making capacity, they've operated all that capacity, losing money heroically. But that's not a sustainable model going forward. So I think we will see the rapid growth next year will probably will postpone The profitability of Lauda by maybe a year, but we're not far away. I mean, if you take Lauda's current traffic, if they were earning EUR 4 more per They'd be at breakeven. We're willing to invest that money to continue to grow Lauda rapidly, particularly where we're able to jump Very cheap secondhand A320 Seals and there's been a real opportunity in the marketplace there. We're leasing these aircraft, 5 year leases, no maintenance reserves, typically a lease rental of $180,000 or less per month. So it's building a really good operation. I think what feels me full of confidence in Lauda is that the load factor is up to 96 percent ancillary revenues are growing strongly. Some of the costs were a bit out of kilter at airports handling. They were overstaffed in terms of and some of their Policies were a bit crazy, but we have straightened all that out. So on an operational and commercial level, Laud is doing very well, But it's growing very rapidly. It's the one area we have of rapid traffic growth. And if that means we After soak up low fares, our losses for a year or 2 more than we'd originally planned, then we're happy to do it. I think it's the numbers are all consolidated into our overall numbers. As you can see Our overall numbers, even with higher than expected losses in Lauda, are still flat in terms of profitability. So the rest of the business is doing a little bit better. Okay. Thanks very much. Thanks, Jarrod. Next question, please. Thank you. Next question comes from Neil Glynn at Credit Suisse. Please go ahead. Good morning. Moving from, I guess, Vienna into Germany, Just interested in your take on your own capacity plans and your strategy in Germany going forward. I mean, from the data that I see, it looks like your capacity is down 3% in Germany. Certainly, in this current quarter, and there seems like there's a decent switch going from the likes of Frankfurt, Cologne into places like Stuttgart. Are you, I guess, happy with the current footprint? Or do you expect Germany to evolve over the next few years as you try to bed in an expanded network? Well, I'll give you a couple of thoughts and I'll ask David O'Brien for his view. Yes, we are cutting back some capacity in Germany, although it's a bit of a mix. One of the challenges facing us this winter is we are short of MAX aircraft for next summer. We're still opening new bases this year in Toulouse, Bordeaux, Marseille, South End and there's one other I've forgotten off the top of my head. And to do that though, because we won't have those aircraft the Mackay for next summer, we have to close some bases this winter. So we're closing bases this winter in the 3 Canary Islands. Each of those bases will close in January. Hamburg is closed. We're cutting capacity in East Bradford. East Midlands is under threat. Girona, it looks like it will close as well in January. So But a lot of that focus has been in the German market. In the short term, the German market is loss making for most of the players in Adigi and Ourselves and Lufthansa, I think until Lufthansa sort of what they're going to do with the Air Berlin, Eurowings capacity, which is heavily loss making, They have too much capacity in that marketplace. We are very happy with our presence in the German market. We're still growing with Lauda in Stuttgart and in Dusseldorf. Ryanair itself is growing in Berlin with our base in both Schonefeld and Intego. But Germany is not one of the markets that we would We see for huge future growth. And if we have to pare back a little bit of capacity in the this year into next year, Because we need that capacity, we have other more profitable markets elsewhere where we can allocate that, then we'll do it. David, what's your view on the German market? One of the weaker markets this summer, as we've mentioned, has been Germany into Spain and Portugal. So some of our trimming back is in that As is, I should say, Lufthansa Eurowings, will cut back, I would have thought, even more than we have in Germany, which is creates for a better environment. Also, Germany is home to some very, very expensive airports who have yet to learn What that means? So Hamburg is a very, very expensive airport and it doesn't it hasn't earned the right to be that expensive. And for Hamburg, We're closing our base there. We're going to reduce our traffic by about 50%. Additionally, I'd say that the Frankfurt's new terminal is slower on stream than it was originally planned, and we'll be back to growth there when that term comes on stream. So it's not particularly significant if we're going to take Traffic away, German leisure and some of the higher cost German airports are natural candidates for cost. And we also do Congress and the German government is also planning another crazy environmental tax on air travel from April of next year Mark, as it already has said, the 2nd highest environmental tax in Europe behind UK APD. So we were right to be cautious in Germany, but It's more driven by the scarcity or the shortage of MAX aircraft. It's what's driving our capacity allocations this winter with an eye on next summer. Understood. And I assume if there were a fair floor that would accelerate your need for flexibility. If there was a fair floor? Yes, as it's being proposed or at least moved by parts of the German government. So Mike, that's just another bullshit suggestion coming out of Lufthansa. Suggestion last year was the German government should block all growth at German airports because German ATC couldn't handle the capacity. Look, Lufthansa can't tell themselves when they get to a monopoly in the German market, they want growth To be outlawed and they want minimum fares, anything below €300,000 to be outlawed as well. It's nonsense, but that's what you get from Lufthansa on a Regular basis. Thanks. Thanks very much, Steve. Next question. That's from Jamie Rowbotham at Deutsche Bank. Please go ahead. Hi, Michael. 2 from me. Sorry to come back to the MAX, but just quickly for next summer. If that 20 MAXs goes to 0, What do you think you can do on capacity, somewhere between 0% and 3% presumably? Clarity would be helpful. And secondly, Going from the German market to the French, you highlight the base openings in Bordeaux, Marseille, Toulouse, etcetera. France is another market where the government Seems quite keen on introducing ecotaxis. Is that putting is that changing your approach at all to that market? Is it further encouraging you or putting you off? It'd be great to hear a couple of comments. Thanks. Yes. Thank you. I mean, look, it's very difficult at this stage to give you sort of accurate guidance on the MAX aircraft. I mean, all we can really give you at this stage is themes. I thought originally we'd get 30 aircraft for next summer. We're now down to 20 aircraft. It could move slightly further to the right. If that's the case, then I think we're looking at flat capacity next summer, no growth at all. We would then though still be taking some capacity in the winter. We have some like so really until we have a better And on when the first aircraft is going to be delivered, there's not much point in us repeatedly changing the guidance for traffic or for capacity next summer. I think it's still reasonable to look at kind of a plus 20 ish, plus 30 aircraft for the summer being a midpoint of traffic next You're about a $157,000,000 $158,000,000 on top of $153,000,000 this year. But it's moving and there's not much we can more we can tell you. I mean, we would have a much I'll handle this by the time we get to the Q3s in February. And as to the French, look, I don't hold You have too many loss making flight carrier airlines around Europe. The one airline that can't afford eco taxes is Air France. The French are great for talking about eco taxes. But as you would have seen with the Mayo Jeon protests, there's a lot of many a slip between COP and LIP In imposing eco taxes, there is no justification for further eco taxes on air travel. We, as an airline issue, will pay 60 $30,000,000 in eco taxes in the UK, Germany, ETS in Europe, the cost of ETS is rising rapidly. This is a tax on low fare air travel. And the environmental justification disappears when they exempt the most economic the least Environmentally friendly flying, which is to transfer traffic, people taking 2 flights to get to a destination instead of one is exempted, whereas the environment Efficient point to point flying is taxed. So there'll be talk about it. It's politically there's certainly political expedience in it. Over the medium term, I mean, we and I think the airlines are very conscious of the fact we need to push back against this because we're an industry that accounts for 2% of Europe's CO2 emissions, Whereas marine transport accounts for 5%. So if you really want to improve the environment, you should tax the ferries and not the airlines. But it's a challenge. I don't think it would affect our discussions at the moment with the France is a market where we will grow in, but it's a market we would grow slowly in. We have 3 bases now, Toulouse, Marseille, Bordeaux. We have not much interest in Paris. We've no interest in Charles We might do something in Beauvais if the conditions were right. But France will not be We're already the 3rd largest airline in France we fly to, I think, over 20 French airports. But as a country where there'll be a lot of bases there in the next couple of years, no. We will have most of our growth will continue to be in countries outside of France across Europe, but there'll still be growth in Ireland, the UK, Spain, Portugal, Italy, Jeremy. Central Europe, we're growing very strongly where the only competition is essentially whiz, who are generally charging higher fares than us in most markets. So it's reasonably easy growth for us. France, nice to have, but not have to have. Got it. Thanks, Michael. Thanks, Jamie. Next question, please. That's from James Hollander at Sanddollars. Please go ahead. James, hi. Hi, Michael. Yes, this one's for you. Just sort of following from Jamie's question. I think if you take this environment where you yourself are talking about industry of flattish capacity in summer 2020. And obviously, you're saying you've got pilot availability or more than you own most of your fleet. You can get access New aircraft, particularly from Thomas Cook, which you're obviously doing louder. I think if I go back historically, this is sort of an environment where Michael Alira would go bananas and growing just as fast as he possibly could. Is it just not possible given aircraft availability? Obviously, there's the MAX issue. Or you have you sort of you and your management team Slightly philosophically changed how you approach your growth? No. I would be growing now like gangbusters that I could. I'd be pushing Norwegian over the bloody edge if I could. If I To get 50 MAX aircraft with 4% more seats and 60% lower fuel, I would be trying to get 50%, 60%, 70 of them. The reality is I can't get them because they're grounded. And there is going to be a backlog, even Boeing, even once they go back flying, it's going to take Boeing Many months to deliver the backlog, get them back in the air, service them, etcetera, etcetera. The challenge and you've got to be careful too. Even if you take the aircraft coming out of Thomas Cook, like the world is short of aircraft. The MAX haven't delivered now for nearly 12 months. Airlines are out there paying over the odds to lessors for even for secondhand aircraft. So I'm up for taking 2nd hand aircraft, but only if they're cheap. We have turned down lots of offers of Thomas Cook Aircraft, For example, where lessors were looking for 6 7 year commitments, lessors were looking for monthly lease rates of $250,000 $300,000 $320,000 a month, Maintenance reserves being paid all the rest of it. So I would never compromise our cost base or our rigid Cost discipline in favor of short term growth. That's something that's the model that Norwegian have been pioneering for a number of years now. Grow like fuck, don't mind the cost, then it will all work out all right. It won't. You'll bankrupt yourself. But If I'm stuck in the marketplace for the next 12 months where there's very limited capacity growth and for a year we have to take it on fares and yields, It would be one of those rare years in every decade where shareholders do better than Ryanair shareholders do better than Ryanair customers, But it wouldn't be our choice. We would still be working actively with Boeing and the assets to get the MAX aircraft delivered. Honestly, these MAX aircraft will be game changers. I have never in my 30 years this industry come across a plane that had 4% more seats and burned 16% lower fuel. And we're a lead customer, so we have them at very low prices. One of the things that gives me nothing but Optimism for the future and for Ryanair's position in the future in Europe is our discussions with Airbus where They talk completely insane numbers on aircraft values and pricing of aircraft, because that's what our competitors are paying for their aircraft. I now understand why every time Wizz grows their aircraft costs rise faster than their traffic growth because they're paying too much for airplanes. So I wish my competitors well. I hope they all fly expensive Airbus, more and more expensive Airbus while we're flying Lower cost, great Boeing MAX airplanes. Okay. Thanks very much. Thanks, James. Next question, please. Thank you. That's from Stephen Furlong with Davy. Please go ahead. Stephen, hi. Hi, Michael. Hi. Could you talk about Buzz, Please. I see you're up to 24 aircraft and 6 Polish bases. But it also mentions in the release that you Look at other Central EU countries. So just how you think Buzz is developing and your plans? Thank you. Buzz is developing very well, very good management team there In Warsaw, I think what we see in Buzz is an opportunity though to expand the model at some of the Central European bases. Part of our MAX kind of issue that we're closing some of our bases this winter in Central European airports in Prague, in Sofia, and Boz is opening up bases in those markets. So Boz is a better brand, I think, for growing in those Central European It has more lower cost pilot and cabin crew than Ryanair has. And it enables us, I think, Buzz to be very competitive on the labor side against Wiz, taking advantage of local Station, which we're able to deliver within Buzz, which we're not able to deliver in Ryanair, with adding more of the The 737-800s, there's a buzz fleet going forward. I think it'll be one of the areas where buzz will be able to deliver us lower operating costs than Ryanair DAC Ken, deliver. Partially because we have this arcane EU2, our 127 tax Issue in Ireland, where we have to tax all the pilots and chemicals who are paying Irish tax, which I know Ireland has a reputation as a tax haven, but only if you're a company. If you're an individual, Ireland is a penal country in which to be well paid in. So part of our commitment in the union discussions We'll allow them or we'll find ways to put them on to local contracts, local taxation, where in many of those countries in Hungary or in the Central European countries, the rate of taxation is lower From a personal point of view than it is in Ireland. So Buzz, I would see a future where Buzz Will be the vehicle for growth for Ryanair in most of the Central European countries, although the sales will still be done across the ryanair.com website. It will still So as Ryanair dotcom, but Buzz will be doing the flying for us on a wet lease basis. Understood. Thanks, Michael. Thanks, Stephen. Next question, please. That's from Catherine Leonard at Numis Securities. Please go ahead. Catherine, hi. Hi, good morning. Just in terms of the cost Guidance, you've reiterated this morning ex fuel at plus 2%. Could you just give a little bit more color on, obviously, in the Q2, I hope my numbers are right, but ex fuel looks like you've done Negative, minus 9.5%. And you also talked about that in respect to the MAX and that's in spite of not seeing those benefits. Could you also maybe just perhaps give us a bit of a feel on what the MAX would have done to that number, what it would have been contributing to give us a feel for how FY 2021 might look? Thank you. Neil, do you want to give some color on the second half cost without obviously Speculating on what the MAX might have done, we'll do that only when we get the MAX in and what it go away in next year? Yes. Well, for the second half of the year, having had a 2% increase in unit caustic fuel for first half, it'll be marginally higher. So just over 2% In the second half, which gives the blended 2 for the full year. On the MAX, it's going to have a number of positives for us. 1st and foremost, the aircraft are hedged $124,000,000 on the euro dollar, which will have a positive impact immediately on the depreciation. But more importantly, it will enable us to exit some of the older aircraft that we've now extended in the fleet. The likes of 7 of our 10 Aircraft that we've sold are now extended out for a number. We're doing expense of 17 year checks on those. So it'll immediately enable us to get the maintenance and the amortization line down and clearly, it will help also spread the other fixed costs. Think that's a question from Yokohama. Sorry, Alarm there. Sorry, there's a number of positives, but As Michael said, we don't have enough visibility on how many MAXs we'll be operating into the summer and what we've taken over with. At this Sage, I can't give you too much guidance other than to say it's going to be a game changer on the costs going forward. We'll be working on the budget over the next few months, and we'll give you more color when we come back out with the Q3s and Q4s. Okay. Thank you. And just if I might be as bold and to have a bit of a follow-up in terms of the question asked earlier about the MAX, sorry to get back to it. But to ask it a different way, you've actually not changed your guidance this morning. You've gone down from 30 to 20 aircraft. And I presume that's because of the changes you've made to delaying the sales of those aircraft and lease extensions, which Neil just mentioned, is there more you can do on that? I mean, if we see further delays, does that then result in that 3% going lower? Or is there other things you can continue to do? No. What I'm trying to communicate is let you know, there's no point to just changing the number every time we have a call here until we get some certainty. I mean, I think we're still looking at north of 30 aircraft for Lake Summer. It is a combination of lease deferrals, sale postponements, Hoping we'll still get 2025 aircraft from Boeing and taking some additional Airbus COs within Lauda. The 157, 158 number, which is our the guidance into FY 2021, could move slightly upwards. I don't think it will move backwards, but because at some point, But because at some point, even if we don't get them in time for the summer peak next year, we will still take of those aircraft over the following winter and we would do some winter growth, although that will surely be less remunerative. So honestly, We would go nuts that we were trying to on every conference call give you the accurate position with Boyd because we don't have an accurate position with Boyd. If we don't really have an Number into FY 2021 yet as Neil said, once we get to the budget and we make some assumption. I think we will be in a position to give you a more accurate figure in February of that. For the moment, take it, we moved it back from 30 to 20 and we haven't changed the number next year, the FY 2021 on traffic, which is about 157, 158. Okay. That's very helpful. Thanks guys. Thanks, Catherine. Next question, please. That's from Johannes Braun at MainFirst. Please go ahead. Johannes, thanks. Yes. Sorry to ask another question on the MAX. But just generally with the MAX delays, it seems that FY 2021 winter, Also FY 2022 summer, we'll have a lot of deliveries as you catch up on the late deliveries and you also take on the scheduled deliveries. So how do we have to think about the growth in this particular period? It seems there will be a lot of growth, and that can have a detrimental effect on fares. So Would you try to mitigate that, Charles, why are you delaying some deliveries or by phasing out older aircraft sooner? Or how do you think? I think that's a discussion that's ongoing, Johannes, with Boeing. I mean, we've made it here to Boeing that There's a couple of things. We want to take all these aircraft, but we're not taking more than 8 a month, which is the max we think we can safely deliver is 8 a month. We're not taking aircraft in January, in July, August, September either because frankly we don't need them. But we will I mean, If you take we get to next summer, I'd say we've only taken 20 of our 60 aircraft. The following winter, we're due another 50 aircraft. So are we going to take 90 aircraft in 1 winter? No, we're not. We will postpone some of those aircraft deliveries into the following winter. So But some of that will depend on how fast Boeing can actually deliver and or produce these aircraft anyway. There's an enormous Amount of work that needs to be done with Boeing and its customers, once these aircraft are open flying, the backlog is now 500, 600 aircraft Between you, they're producing 40 a month still. So there's a discussion to be had with Boeing that's really and we can't have that. I mean, We have an ongoing dialogue with them when are we going to get our 1st aircraft, when is our 1st aircraft given the delivery program in advance of summer. But really nobody is focused on what happens into the winter of Spring of 2021, yes, either. I would think though, and again, I would be I would certainly be of a mind If we went through a summer in 2020 where there was not much capacity growth in Europe and fare environment is reasonably positive, We only grew by 5,000,000 past years from 1.53 to 1.5.78 ish. I would certainly be mindful to try to catch up Some of that growth, that missed growth in the following year. So maybe it grow from 157, 150,000,000 ish. And we try and grow by 10,000,000 or 12,000,000 passes the following year. So we'd go from 157, 158 to maybe 170 ish. Now again, I'll give you back of the envelope numbers here, but we're not suddenly going to grow by $20,000,000 in the following year because Boeing wants to take delivery of 100 aircraft. So that's the discussion we still have to have with Boeing. We will try to smooth out that, the capacity growth. But Yes. David will indicate there are we have far more airports and far more markets who want growth and who want our aircraft. At that stage, Norwegian, I think, will have disappeared, which will create opportunities in Scandinavia, in Spain, in Italy, In Gatwick, although we don't have much interest in Gatwick, there will be opportunities out there. And other airlines will have gone bust or been taken over As the consolidation process continues. Michael, the only other thing I would add in there just as the counterbalance is that, Johannes, We would also like at this stage to be further down the process in selling aircraft. We've been delayed on that. So when we start to get a flow of MAXs Back in again, that will enable us to go back to the cargo guys and start selling some of the older aircraft out of the fleet. How many aircrafts you're selling this year? Well, we have 10 that we've already So 3 will be delivered in this financial year and 7 are now delayed into the winter of next year, so FY 2021. We would love to get back to that market, but we can't, obviously, certainty on the MAX. And Andy, anything you want to add on the growth in DAC on the MAX aircraft side? No, I mean, no, I think you've answered that quite well there. I mean, I don't think like we know what's actually going to happen with it. We can't make those plans. And there's no point in trying to over engineer what our thoughts are going to be on capacity. Okay. But I guess firstly, we would want to restore, I mean, David and Eddie, you feel free. We would want to restore the lost growth as quickly as we could without shooting or without overdoing it or without doing anything crazy on Capacity at roadside. That fair? Yes. I think another added dimension is that there's a growing realization at a national level In certain pretty big markets, this over reliance on the intrusive tour market is a mistake. Thomas Cook has told Some big lessons there. And there will be more opportunities as that market begins to become disassembled essentially. Okay. Next question, please. Yes. Thanks, Johannes. That's from the line of Nnebuk Kiani of Bank of America. Please go ahead. Hi. I wanted to ask about ancillary revenues. You've seen good growth there from the priority boarding and preferred seat services. With that kind of the year on year benefit coming to an end by the end of this calendar year, what drives the ancillary revenues going forward? I think we will continue to see some modest growth in ancillary revenue certainly for the next year or 2. I think what we'll be as penetration max Certainly on some of the bigger items, I'd say, the priority boarding, seat revenue, we you see us continue to yield manage those over the next, I would say, year or 2. So I would expect ancillary revenues to continue to grow at a faster rate than scheduled traffic growth, but we won't do a double digit. You won't see ancillary revenues go up 16% per passenger as we've delivered in the first half of this year. They will lap each other in the second half of the year anyway. But I think it's certainly, I would be disappointed next year if we don't deliver, say, 3% or 4% traffic growth and an Revenue growing in a high single digit percentage as we focus on continued penetration and some yield management to some of those services, which You are very attractive to our customers as demonstrated by the rate of which they're converting presently. Thank you. Thank you very much. Next question, please. That's from the line of Walter Schulz at Commerzbank. Please go ahead. Hi, good morning, Michael. Can you please update us a little bit on the cost difference within your Airlines, I mean, is it so that particularly bus has a significant cost advantage over Ryanair Deck? And how do you expect to develop over the next year. So will it narrow or is it a sustainable cost benefit? Thanks. Eamon, if I give you general guidance, I would say DAC at the moment is the midpoint on the unit cost side. Buzz As lower unit costs than DAC, Lauda has higher unit costs, and Mere Malch is too small yet to kind of be relevant. But the cost base in Lauda is coming down towards the DAC kind of median and both continues to outperform DAC. But I mean, some of that is because DAC kind of shoulders some of the overhead of the entire group. DAC still has commercial, it has labs, It has, yes, it's doing a lot of the EU to have the customer service side as well. So it's a little bit distorted. I think Really, the opportunity is to grow Buzz a little bit faster because it has lower unit costs, particularly on the more efficient on the labor side And continue to challenge the management in Lauda to continue to deliver improved operating cost efficiencies and lower costs, Despite the fact, with a fleet of operating lease aircraft, it probably will never quite get to the Ryanair unit cost base, but it should get much closer to the next year or 2. Hey, Steve, is that Steve? Yes. I mean, I think we'll get to a stage where we'll have much more sophistication in terms of allocating our costs Out of that into the airlines as they even out, I suppose, over the next number of years. Yes. Okay. Next question, please. Thank you. The next question comes from the line of Damian Brewer, RBC. Please go ahead. Your line is open. Hi, Good morning. How are you? Hi. Good. Two questions, please. I'm sorry to revisit the MAX, but maybe just One final one on it. Could you just tell us a little bit more about anything that you or the Board have been thinking about, about compensation from Boeing, Given the sort of kind of desk thumping we've heard from some other CEOs on that and that their shareholders shouldn't carry the cost for this, what is Ryanair thinking about there, If indeed, you can say anything. And then secondly, just more generally, there does seem to be a sort of a shift of gravity From the growth, if one can put it that way, towards Eastern Europe, with bars and some of the other route announcements you've made further east. Could you give us a broad feel about what Central and Eastern Europe would look like as a percentage of summer 20 seats versus last summer, please? Okay. Let me start with the first one. On the MAX, look, there's a dialogue that's ongoing with Boeing. I think there's an Acceptance by Boeing that this has cost it imposed real costs on some of their larger customers like Ryanair. I don't think and that dialogue will continue. I think there will be an agreement on I don't think compensation is the right Phrasing, but I do think they will there's a dialogue about them, us recovering what are Obvious consequential costs from them. But that's the dialogue I think that can't really be completed until we can until we know when this aircraft is going to return to service And when we can actually expect to get these aircraft over, say, the next 2 years, when we can return to our original growth plans. So I would say no more than the dialogue continues. Boeing has clearly made very substantial provisions in their accounts, A lot of which is, I think, just for reimbursing customer costs. I am more interested in getting these aircraft back flying and delivering the cost Unit cost savings, I think the game changer aircraft will deliver. Then I am in having a torturous discussion with Boeing over compensation. Let's get the cost recovered. Let's get the aircraft back flying. Let's get on with lowering our costs and using the game changer aircraft Transform not just our business, but Air Travel in Europe generally. Growth into Central and Eastern Europe, yes, there's more. I mean, I'd be cautious here. Now look, The underlying kind of philosophy of Ryanair is our growth is opportunistic. Our growth will always be where we get the best kind of within margin measure, where we get the best Airport deals where we have the lowest cost handling and those economies where the governments are not worried about taxing air travel out of existence. So At the moment, there is a lot of growth taking place in Central and Eastern Europe, but it's not some geographical strategy. It's an Trudystik strategy that we tend to follow. Now not always, I mean, obviously, the growth in Vienna, for example, which is very rapid is It's not based on the Vienna being particularly low cost, although they do have quite a good growth incentive scheme in place in Vienna that we are taking advantage of. But clearly, there's a land grab going on in Vienna, and we're if there's a competition or a land grab, we're going to grab more than anybody else will. So try not to look at our growth as a kind of a geographic expansion. It's not some kind of Napoleonic Pain it is we will move the aircraft around based on wherever we see it being most advantageous and most profitable for us to do so, Which if I go back to an earlier question, is why we are cutting closing bases, for example, this winter in the Canaries in Spain, in some of the German bases. David, I don't know if you want to add anything on that. Except to agree, and that's what I'm in absolute terms. There is a shift in our growth because there are and the capacity allocation because those deals are now emerging. The biggest airports this winter are Vienna, Budapest, Kiev, Prague, all of which are comparatively lower cost than the German, for example, German equivalents. All the Spanish. And to be fair, one of the more interesting things has been the closures of these bid. The announced closure is based in Spain, I think, has brought about our realization. I think, among the Spanish combined, the combination of our base closures, the Thomas Cook failure, among others, has brought about a realization that In the Spanish government, that actually maybe they need to relook at the AENA cost structure over there. Their own the way they encourage, I think route and tourism growth in Spain needs to be reassessed, and we're part of that dialogue with the Spanish government at the moment. We would want to encourage it. Thanks very much, Michael. Very interesting given the rig to review about Tappan there. Thank you. I wouldn't have Rick used you being Napoleonic. True. I preferred Wellington. He was Irish. And he won. That's the key bit. Thank you. Yes. Next question, B. Thank you. The final question in the queue so far comes from the line of James Goodall at Redburn. Please go ahead. Your line is open. Hi, everyone. Just a quick one for me on winter. Given the way We are most of the way through the quarter. Is there any color you can give us on the expected progression of both fares and ancillaries for Q3? And then I guess any detail on Q4 would be great too. Thanks. Yes. The answer to that is no. It's in our full year guidance. We don't get into these kind of Any color on a per quarter basis? So I think there's a reasonable prospect and without being just cautious, there's a reasonable prospect, I think, this winter A modest fare growth, but more as a function of how awful the fare environment was this last year. Ancillaries will continue to perform, grow effectively on a per passenger basis this winter, But by less than in the first half of the year simply because of the it begins today. Some of the services, the priority boarding And the reserve seating will begin to lap itself in the second half of the year. And on the cost side, Neil is already covered. It will be marginally above the 2%, but Well, I feel a very good cost performance given that a huge amount of the winter cost forecast during the budget It was predicated on having 30 MAX aircraft in operating and flying for most of the winter schedule. We won't have those aircraft flying in the winter schedule. And yet, other cost savings, most notably, some of the on the crew efficiency side, some of the base closures, We're making particular some significant savings on the EU261 costs, which this time last year were horrendous. Whereas I think one of the things as a team we're most proud of is that in DAC, we brought the on time performance this summer back up over 90% despite Quite significant ATC disruptions. And that has had a huge impact on EU261 cost savings. And we expect those to continue through the winter. So we won't if you don't mind, James, I'm not going to give you color on Q3 or Q4 I wanted to point to the general annual trends that are built into the annualized numbers. Understood. Thanks very much. Thanks. Any other questions before we wrap up? No further questions so far. Okay. Neil, I'll ask you to a quick wrap up, so then I'll Eddie Wilson here, give you some wrap up, and then we'll call it a day. Okay. Well, I think the key point to take away is that the cost base is in very good shape. The ancillaries are performing well, although they'll be a little bit slower into the second half of the year. And we've given a little bit more clarity on the guidance in We've narrowed the range this morning to €800,000,000 to €900,000,000 And obviously, we'll be meeting Lots of people on the road this week, and we'll answer as many questions as we can. And Eddie, any final thoughts? I mean, as I said at the start, I see the winter in particular as Time to renew our emphasis on cost control and efficiency and also sort of tasking Particularly on the ancillary side with Kenny and John and how we can better develop the products because like labs is really just coming into its own. I mean, it's Therefore, about 4 or 5 years, but rather than us telling the labs people how to come up with the ancillary solutions, we now have those people coming up with Solutions themselves and the work that we've done there in terms of AB testing has been particularly fruitful over the last number of months. And there is still some Way to go on that. And David as well on the on what we can do on the yield side. But it's really for me, it's going to be about cost and efficiencies. We've got a surface of cruise at the moment. We're going to have to that's going to be particularly complicated for us if there's going to be a delay, a further delay in the MAX aircraft. What we would hope to do in the discussions that we've had with the union state so far is that if we can keep a large amount of those crews And organize unpaid leave and annual leave so that we don't have any interruption in the supply. But if we've got a further interruption in the MAX aircraft, that's going to be challenging in how we deal with that the next 6 months. Okay. And from my point of view, I think where there's a reasonable set of results out this morning. Rather than focus on Q3 and Q4, I would kind of encourage everyone again to look out over the next kind of 2 to 5 years. The industry, the market in Europe is going to consolidate. It's going to consolidate around 4 or 5 large players. Ryanair will be the largest of those players. The unique opportunity here is that Ryanair will have a huge unit cost and a pricing advantage over the other 4 players in a consolidated space. And as that consolidation story plays itself out, I think you will see a return to pricing, but with a very With good management in each of the 5 major airlines, good control over costs. And I think in much to say with the industry in North America Over the last 4 or 5 years, you'll see the delivery of reasonable returns in an industry that certainly in Europe for the last 20 or 30 years have been characterized by overcapacity, the emergence of low fare airlines, Some of it, a lot of which has now disappeared. I think we're returning to a much more sensible industry where you have an opportunity now to invest in Ryanair, which will be front and center of a much more sensibly well run industry, but with a huge cost and price advantage over everybody else. With that, I'd say thank you, everybody, for joining this morning. We have an extensive roadshow program on the road, Ireland, U. K, Europe, North America. Shay, if you haven't got a meeting, you'd like to join 1 of our other groupies or get a 1 on 1 please feed it through Citi or Davy, our own Investor Relations team headed by Shane O'Toole, and we look forward to meeting you at some stage on the road over the next week. Thanks very much, everybody. Talk to you soon. Bye bye. That concludes the conference. Thank you all very much for attending. You may now disconnect your lines.