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 H1 results conference call. I'm here with a group of our managers here in London, most notably, Eddie Wilson, the new CEO of Ryanair DAC, David O'Brien, Shane O'Toole, among others. We're also joined on the call from different parts of the world by Neil Sorahan, CFO, Kenny Jacobs, John Hurley, CTO, Juliusz Komorek, and others. I don't propose, in the interest of brevity here, I'm not going to read you the press release. We put it up on the website this morning. We've also done an extensive Q&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 up 2%, which is in line with our original forecast for the year, despite the fact that we won't get the benefit of any MAX aircraft, I think, in the current fiscal year. We continue to reduce fares. Fares are down 5% in the half year, traffic up 11%. Ancillaries continue to be performed very well. Spend per passenger up 16%. I think what's most impressive 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 inexorably, the market is moving towards consolidation. The bankruptcy of Thomas Cook 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 is a bad deal from a competition point of view. It is a merger to monopoly in Madrid, and I think we would certainly be looking for the competition authorities to require some competition divestment, particularly of the Air Europa short-haul presence on some of the Spanish domestics and the European short haul. Otherwise, we would certainly be supportive of that type of consolidation. It is what needs to happen in Europe. We clearly think the next failure would be that of Norwegian. EUR Six and a half billion of net debt is not the way to run an airline. The equity is now worthless, and even if they can engineer a rights issue this year, they will just be throwing more good money after bad.
I think the business model doesn't make money, and if the business model doesn't make money, and you have EUR six and a half billion in net debt, the sooner you go bust and disappear, the better. Other than that, I think we are looking forward over the medium term with cautious optimism. There will be less capacity in Europe in summer of 2020. The MAX delays continue. We're now looking at taking— I think Boeing will be lucky if the aircraft returns to service this side of Christmas. It now looks like a return to service, I think, in North America, maybe just after Christmas. That means we're not expecting our first MAX 200 until March or maybe April of next year. The real challenge in that is it means we've now further reduced our summer 2020 or our growth expectation for next year.
We now expect to take just 20 aircraft instead of the original 30 aircraft we were predicting three months ago. It may well be zero aircraft if it moves further to the right and we're not able to take aircraft. We won't take aircraft through July and August of next year. If we can't get them in in March, in April, May, or 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 and average fares in yields into the summer of next year with the demise of Thomas Cook, Aigle Azur, Adria in Slovenia having gone bust certainly helps the growth outlook for Lauda in Vienna. It also helps the supply of Airbus pilots.
Going over a year or two, 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 are the only airline in Europe that has a MAX simulator. We put all of our senior 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% less 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 market base in Europe that I think will continue 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 reasonably high fuel hedge at $71 a barrel. We are now 63% hedged into next year, FY 2021, at about $61 a barrel. I think all the indications are that oil prices, absent any unforeseen events, will continue to hover somewhere 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 to 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 to us 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 EU 261 compensation well down thanks to our
In the year, as you said, we're retaining the +2% 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. Continues to be very, very strong. 70% of the fleet is debt-free, the impact of the new lease accounting standard, IFRS 16, has very limited impact on us. It accounts for just over EUR 220 million of the EUR 460 million net debt at the end of the period.
Okay. Thanks, Neil. I think maybe before we open it up, I'm going to ask Eddie Wilson, the new Chief Executive of DAC, to maybe give you a few words on what a pleasure it is to inherit my mantle and what a privilege it is to work with me and learn from me over recent weeks. Eddie.
Well, what can I say?
Well, you can say that to Steve Rosenberg in Dallas.
This new role is very privileged for me to follow in Michael's footsteps. It's not about the personalities, it's about the business model. My focus is certainly going to continue to be on cost control and operational efficiency. I've got the background, not only on the people side, but on the ops side and on the ancillary revenue side. 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. If you don't mind, in the interest, we're going to limit everybody to one question at a time so we get through it as fast as we can. If you'd open it up one question at a time, but 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. If you wish to ask a question, please dial zero one on your telephone keypads now. First question comes from the line of Daniel Röska of Bernstein Research. Please go ahead. Your line is open.
Daniel, hi.
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 that job? Are you considering changes for functions that benefit multiple operators? Will Labs in Kenny and so on, continue to report into Eddie, as Ryanair DAC CEO, or how do you think about those functions that span across the group going forward?
Looking forward, we think the senior managers in DAC, and DAC continues to be by far and away head and shoulders the largest airline, will remain within DAC, reporting directly to Eddie. That would be Kenny, David, John Hurley, and others. The group function will be confined, and I've always admired the Willie Walsh model in IAG. You keep a very small group function, which is essentially myself, Neil as Group CFO, Juliusz Komorek, Group Chief Legal Officer. We would draw on the skills set of the senior management in DAC. Clearly David on the commercial side, new route development, airport contracts. 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.
Those other line functions will remain within DAC, reporting directly to Eddie Wilson. The other group companies, Lauda, Buzz, and Malta Air, will be able to draw on those resources. We're setting up a structure now where there's a weekly group meeting as well, where each of the CEOs, we get together in Dublin, Vienna, Warsaw and in Malta. Myself, the Chief Legal, Chief Financial, and the individual airline CEOs get together and try to benefit from each other's experience, particularly in where we can drive costs down and increase 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.
Mark, hi.
Yeah, 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 EUR 120 million saving on the rebased $157 million guess FY 2021. If you take the capacity growth and then the new hedge positions, really that should be circa $260 million. I'm just wondering, are you telling us that's $140 million loss to increased economical cost?
I think the figure there is you are looking purely at the price. I have added in volume, ETS, and everything else, which gets us to the EUR 120. If you were to strip out the volume growth and just purely look at price, you would be over EUR 200 million.
ETS, essentially you're giving us a what? A 60% increase in that cost?
We're giving you a steer on what the actual absolute growth in the fuel costs will be next year, which will be a saving of over $120 million if the fuel stays where it is. The market is in backwardation at the moment. It may go the other way. I can agree with your numbers if we're talking purely about just the price. When you take in the volume and the ETS, you're looking at a $120 million saving 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.
Duane, hi.
Hey, good morning. 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 2% level in non-fuel cost? Any thoughts on your non-fuel cost trajectory into next year?
Well, are you talking about fiscal 2021 or calendar 2021?
Fiscal.
That's basically summer 2020. I think the reality is we will have very few MAX aircraft or not sufficient MAX aircraft in the fleet in the summer of 2020. Whether that's 20 or 30 at this stage, they're out of a core fleet of nearly 500 aircraft. It's going to have not much impact. At least can't say we 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 aircraft. You'll begin to see meaningful impacts on our unit costs. I think, however, our unit cost story is reasonably stable going forward.
We have, I think Eddie and Darrell Hughes, who's replaced one of the parts there, have done a very good job dealing with the unions over the last six months. We have undoubtedly been helped by what has been a very adverse backdrop economically for pilots, particularly in airline bankruptcies in Europe. We had BALPA, for example, calling seven days of pilot strikes in Europe looking for 100% pay increase, almost laughed out of it by our U.K. pilots. On no day had they anything more than 4% of support from our U.K. pilots. We didn't cancel one flight, we didn't delay one flight during each of those seven days. I think it's important too, for a company like that that 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.
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 shown the Irish pilot strikes will have no effect on us. The U.K. pilot strikes have had no effect on us. We have made very good progress in our discussions with unions in Germany, in Italy, in Spain, and Portugal. We're even in active discussions in Ireland and the U.K. as well. I think they're coming around to a much more sensible level of discussions, if that's true. No, Eddie's going to disagree with me here. Go on.
I mean, the fundamentals on pay and conditions for pilots is very good compared with the market, and 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. The money is right, the rosters are great, and the job security is much better than everywhere else. It's a question of how you deal with that. It's the same market, it's the same airplanes, it's the same airline. That's not going to change because you've got unionization. We're ahead of the market, the 737 low-cost market, and our pay and negotiations positions, our strategy will reflect that.
I think the key thing is we're prepared to put up with strikes. Some of our competitor airlines have never had a strike. They just keep rolling over and conceding cost increases. I think one of the challenges for us this winter is we are now overcrewed. We have a higher-than-expected crewing ratio just because pilots. 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. I think we are doing good work. I think that's 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.
Frankly, if somebody wants to be unreasonable and is lobbying 100% pay increase, off you go with your strikes, but the strikes will be unsuccessful.
Very good. 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 A320neo?
We don't. Airbus are almost unmanageable at the moment. You talk to Airbus at the moment, and the earliest they come and talk to you is 2025. Look, we have no concerns over the safety of the operational performance of the MAX aircraft. Clearly, Boeing have work to do with the regulators in the FAA and EASA to get these aircraft back in the sky. The regulators themselves will tell you that the aircraft are perfectly safe. The regulators expect Boeing to answer all the queries, answer all the questions, and fill in the blanks of any gaps there may be, and we expect Boeing to do that as well. These aircraft, I expect, will fly. They'll certainly be back in the air before next summer.
Because we've ordered a variant of the MAX aircraft, we're running probably two or three months behind the return to service. Boeing will also have a backlog of deliveries when they do start to return to service. It's actually a timeframe issue that we may run out of road by the time we get to the peak of summer or into summer 2020. Having said that, we're stepping up the growth in Lauda, for example, in Austria, where they moved quickly. Andreas and the team, they got three of the aircraft that were 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 pilots, captains, and first officers became available than would have originally been the plan. 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. We will still have growth next summer, even if we don't get any MAX aircraft. I think a reasonable presumption to this date would be about 20 MAX aircraft, and that should enable us to deliver four or five million passenger growth next year. That is much slower growth than we have ever delivered before. If we finish up in that environment, I think the yield environment for the airlines and for shareholders will be better next summer, whereas this summer, clearly it's been better for our customers, and we generally prefer a yield environment that's better for our customers because it's worse for our competitors.
Okay. Thank you.
Thanks, Duane. 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.
I think the losses in Lauda have been higher than we had originally expected. We thought we'd lose EUR 130 million in year one, we'd get to EUR 50 million in year two and break-even in year three. 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 are taking aircraft out of Vienna. Germanwings have now announced they're taking their seven aircraft out at Vienna for next summer. Wizz are still there with about six or eight aircraft, but not growing at anything like the speed that Lauda is. Lauda, meanwhile, has gone from eight aircraft last summer, 12 aircraft this winter. It's going to 18 aircraft next summer in Vienna, which will close out Vienna. Lauda 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 Air Berlin. Instead of taking out some of its loss-making capacity, they've operated all that capacity, losing money heroically. That's not a sustainable model going forward. I think we will see the rapid growth next year will probably postpone the profitability of Lauda by maybe a year, but we're not far away. If you take Lauda's current traffic, if they were earning EUR 4 more per passenger, 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 on very cheap secondhand A320ceo, and there's been a real opportunity in the marketplace there. We're leasing these aircraft, five-year leases, no maintenance reserves. Typically, a lease rental is of EUR 180,000 or less per month.
It's building a really good operation. I think what fills me full of confidence in Lauda is that the load factor is up at 96%, ancillary revenues are growing strongly. Some of the costs were a bit out of kilter at airports handling. They were overstaffed in terms of some of their rostering policies were a bit crazy, but we have straightened all that out. At an operational and commercial level, Lauda is doing very well, but it's growing very rapidly. It's the one area we have of rapid traffic growth, and if that means we have to soak up low fares or losses for a year or two more than we'd originally planned, then we're happy to do it.
I think the numbers are all consolidated into our overall numbers, and you can see this morning our overall numbers, even with higher-than-expected losses in Lauda, are still flat in terms of profitability. 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.
Neil, hi.
Please go ahead.
Morning. Moving from Vienna into Germany. Just interested in your take on your own capacity plans and your strategy in Germany going forward. From the data that I see, it looks like your capacity is down 3% in Germany, certainly in this current quarter, and there seems like there's a decent switch going from the likes of Frankfurt, Cologne, into places like Stuttgart. Are you 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. We are cutting back some capacity in Germany, although it's a bit of a mix. One of the challenges facing us this winter is we are short of MAX aircraft for next summer. We're still opening new bases this year in Toulouse, Bordeaux, Marseille, Southend. There's one other I've forgotten off the top of my head. To do that, though, because we won't have those aircraft, the MAX aircraft, next summer, we have to close some bases this winter. We're closing bases this winter in the three Canary Islands. Each of those bases will close in January. Hamburg has closed. We're cutting capacity in Leeds Bradford. East Midlands is under threat. Girona looks like it'll close as well in January.
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 it, easyJet, ourselves, and Lufthansa. I think until Lufthansa sort out 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 Düsseldorf. Ryanair itself is growing in Berlin with our base in both Schönefeld and Tegel.
Germany is not one of the markets that we would see for huge future growth, and if we have to pare back a little bit of capacity this year into next year because we need that capacity, we have other more profitable markets elsewhere where we can allocate the capacity, 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. Some of our trimming back is in that space, as is, I should say, Lufthansa Eurowings, who cut back, I would have thought, even more than we have in Germany, which creates for a better environment. Also, Germany is home to some very, very expensive airports who've yet to learn what that means. Hamburg is a very, very expensive airport, and it hasn't earned the right to be that expensive. 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 terminal comes on stream. 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 cuts.
We also have the Congress and the German government is also planning another crazy environmental tax on air travel from April of next year in a market that already has the second highest environmental tax in Europe behind UK APD. We're right to be cautious in Germany, but it's more driven by the scarcity or the shortage of MAX aircraft is what's driving our capacity allocations this winter with an eye on next summer.
Understood. I presume if there were a fair floor, that would accelerate your need for flexibility.
If there was a fair floor?
Yeah. As is being proposed or at least mooted by parts of the German government.
Don't mind that. That's just another bullshit suggestion coming out of Lufthansa. Whose suggestion last year was the German government should block all growth at German airports because the German ATC couldn't handle the capacity. Look, Lufthansa can't help themselves when they get to a monopoly in the German market, they want no growth to be outlawed, and they want minimum fares, anything below EUR 300 to be outlawed as well. It's nonsense. That's what you get from Lufthansa on a regular basis.
Thanks.
Thanks very much, Neil. Next question.
That's from Jaime Rowbotham at Deutsche Bank. Please go ahead.
Jaime, hi.
Hi, Michael. Two from me. Sorry to come back to the MAX, just quickly for next summer. If that 20 MAXes goes to zero, what do you think you can do on capacity? Somewhere between 0% and 3%, presumably. Clarity would be helpful. Secondly, going from the German market to the French, you highlight the base openings in Bordeaux, Marseille, Toulouse, et cetera. France is another market where the government seems quite keen on introducing eco taxes. Is that 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.
Yeah. Thank you. Look, it's very difficult at this stage to give you sort of accurate guidance on the MAX aircraft. 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 start taking some capacity in the winter, and we'd have something. Really, until we have a better handle on when the first aircraft is going to be delivered, there's not much point in us repeatedly changing the guidance for traffic or for capacity next summer. I think it's still reasonable to look at kind of a plus 20-ish, plus 30 aircraft for the summer.
Being a midpoint of traffic next year, about EUR 157, 158 million on top of EUR 153 million this year. It's moving, and there's not much more we can tell you. I think we would have a much better handle on this by the time we get to the Q3s in February. As to the French, look, you have too many loss-making flag carrier airlines around Europe. The one airline that can't afford eco taxes is Air France. The French are great for talking about eco taxes, but as you will have seen with the Gilets jaunes protests, there's many a slip between cup and lip in imposing eco taxes. There is no justification for further eco taxes on air travel. We, as an airline, this year, will pay EUR 630 million in eco taxes in the U.K., Germany. ETS in Europe, the cost of ETS is rising rapidly.
This is a tax on low-fare air travel. The environmental justification disappears when they exempt the least environmentally friendly plane, which is the transfer traffic. People taking two flights to get to a destination instead of one is exempted, whereas the environmentally efficient point-to-point flying is taxed. There'll be talk about it. There's certainly political expedience in it. Over the medium term, 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%. If you really want to improve the environment, you should tax the ferries and not the airlines. It's a challenge. I don't think it would affect our discussions at the moment with the French.
France is a market where we will grow in, but it's a market we will grow slowly in. We have three bases now, Toulouse, Marseille, Bordeaux. We have not much interest in Paris. We've no interest in Charles de Gaulle or Orly. We might do something in Beauvais if the conditions were right. We're already the third-largest airline in France. We fly to, I think, over 20 French airports. As a country where there'd be a lot of bases there in the next couple of years, no. Most of our growth will continue to be in countries outside of France, across Europe. There'll still be growth in Ireland, the U.K., Spain, Portugal, Italy, Germany. Central Europe, we're growing very strongly where the only competition is essentially Wizz, who are generally charging higher fares than us in most markets. It's reasonably easy growth for us.
France, nice to have, but not have to have.
Got it. Thanks, Michael.
Thanks, Jaime. Next question, please.
That's from James Hollins at Exane. Please go ahead.
James, hi.
Hi, Michael. Yeah. This one's for you. Just sort of following from Jaime's question there. I think if you take this environment where you yourself are talking about an 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 to new aircraft, particularly from Thomas Cook, which you're obviously doing in Lauda. I think, if I go back historically, this is the sort of environment where Michael O'Leary would go bananas in growing just as fast as he possibly could. Is it just not possible given the aircraft availability? Obviously, there's the MAX issue. Have you and your management team slightly philosophically changed how you approach your growth?
I would be growing now like gangbusters if I could. I'd be pushing Norwegian over the bloody edge if I could. If I could get 50 MAX aircraft with 4% more seats and 16% lower fuel, I would be trying to get 50, 60, 70 of them. The reality is I can't get them because they're grounded, there is going to be a backlog. Even once they go back flying, it's going to take Boeing many months to deliver the backlog, get them back in the air, service them, et cetera. You've got to be careful, too. Even if you take the aircraft coming out of Thomas Cook, the world is short of aircraft. The MAX haven't delivered now for nearly 12 months. Airlines are out there paying over the odds to lessors even for secondhand aircraft.
I'm up for taking secondhand aircraft, but only if they're cheap. We have turned down lots of offers of Thomas Cook aircraft, for example, where lessors were looking for six and seven-year commitments. Lessors were looking for monthly lease rates of EUR 250,000, EUR 300,000, EUR 320,000 a month, maintenance reserves being paid, all the rest of it. I would never compromise our cost base or our rigid cost discipline in favor of short-term growth. That's the model that Norwegian have been pioneering for a number of years now. Grow like fuck, don't mind the cost, and it'll all work out all right. It won't. You'll bankrupt yourself.
If I'm stuck in a marketplace for the next 12 months where there's very limited capacity growth, and for a year we have to take it on fares and yields, it'll be one of those rare years in every decade where Ryanair shareholders do better than Ryanair customers. It wouldn't be our choice. We would still be working actively with Boeing in the asset to get the MAX aircraft delivered. Honestly, these MAX aircraft will be game changers. I have never in my 30 years in this industry come across a plane that has 4% more seats and burns 16% lower fuel, and we're a lead customer, so we have them at very low prices.
One of the things that gives me nothing but optimism for the future and for Ryanair's position in the future in Europe is our discussions with Airbus, where they talk completely insane numbers on aircraft values and pricing of aircraft. If that's what our competitors are paying for their aircraft, I now understand why every time Wizz grows, their aircraft cost rise faster than their traffic growth, because they're paying too much for airplanes. 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 six Polish bases, but it also mentions in the release that you'd look at other central EU countries. Just how you think Buzz is developing and your plans. Thank you.
Yeah. 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. Buzz is opening up bases in those markets. Buzz is a better brand, I think, for growing in those Central European markets. It has a lower cost pilot and cabin crew than Ryanair has. It enables us, I think, Buzz to be very competitive on the labor side against Wizz, taking advantage of local taxation, which we're able to deliver within Buzz, which we're not able to deliver in Ryanair, with adding more of the 737-800s to the Buzz fleet going forward.
I think it'll be one of the areas where Buzz would be able to deliver us lower operating costs than Ryanair DAC can deliver, partly because we have this arcane S127B tax issue in Ireland, where we have to tax all the pilots and cabin crew are paying Irish tax. 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. Part of our commitment in the union discussions was we'll allow them, or we'll find ways to put them onto 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.
That's great. Thanks.
Buzz I think will continue to grow. 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 sell as ryanair.com, 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 Kathryn Leonard at Numis Securities . Please go ahead.
Kathryn, hi.
Hi. Morning. In terms of the cost guidance, you've reiterated this morning ex-fuel at +2%. Could you just give a little bit more color on, obviously in the second quarter, I hope my numbers are right, ex-fuel looks like it was done negative, -0.5%. You also talk 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've done to that number, what it would've 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 costs without obviously speculating on what the MAX might have done? We'll do that only when we get the MAX in and what it next year.
Well, for the second half of the year, having had a 2% increase in unit cost ex fuel for the first half, it'll be marginally higher. 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. First and foremost, the aircraft are hedged at 124 on the euro/dollar, which will have a positive impact immediately on the depreciation. More importantly, it'll enable us to exit some of the older aircraft that we've now extended in this lease. The likes of seven of our 10 aircraft that we've sold are now extended out for a number. We're doing expensive 17-year checks on those. It'll immediately enable us to get the maintenance and the amortization line down. And clearly, it'll help also spread the other fixed costs. Will shortly follow a fire alarm sound location. Please do not evacuate the building.
I think that's a question from Yokohama.
Fire alarm there. Sorry. There's a number of positives, but as Michael said, we don't have enough visibility on how many MAXes we'll be operating into the summer and what we've taken over. At this stage, 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. Just if I might be as bold to have a bit of a follow-up.
Yeah, Kathryn.
In terms of the question asked earlier about the MAX, sorry to go back to it. 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 the 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 there's no point in us changing the number every time we have a call here until we get some certainty. I think we're still looking at north of 30 aircraft for next summer. It is a combination of lease deferrals, sale postponements, hoping we'll still get 20, 25 aircraft from Boeing, and taking some additional Airbus A320ceos within Lauda. The 157, 158 number, which is the guidance into FY 2021, could move slightly upwards. I don't think it will move backwards. At some point, even if we don't get them in time for the summer peak next year, we will still take some of those aircraft in over the following winter, and we will do some winter growth, although that will clearly be less remunerative.
Honestly, we would go nuts if we were trying to, on every conference call, give you the accurate position with Boeing because we don't have an accurate position with Boeing. We don't really have an accurate number into FY 2021 yet. As Neil said, once we get to the budget and we make some assumption. I think we'll be in a position to give you a more accurate figure in February at that. For the moment, take it, we moved it back from 30 to 20, and we haven't changed the number next year, FY 2021 on traffic, which is about 157, 158.
Okay. That's really helpful. Thanks, guys.
Thanks, Kathryn. Next question, please.
That is from Johannes Braun at MainFirst. Please go ahead.
Johannes, hi.
Yes. Hi. 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, will have a lot of deliveries as you catch up on the late deliveries, and you also take on the scheduled deliveries. How do we have to think about the growth in this particular period? It seems there will be a lot of growth, and it can have a detrimental effect on fares. Would you try to mitigate that growth by delaying some deliveries or by phasing out older aircraft sooner? How do you think about that?
I think that's a discussion that's ongoing, Johannes, with Boeing. We've made it clear to Boeing that there's a couple of things. We want to take all these aircraft, but we're not taking more than eight a month, which is the max we think we can safely deliver is eight a month. We're not taking aircraft in January, in July, August, September either, because frankly, we don't need them. If we get to next summer and say we've only taken 20 of our 60 aircraft, the following winter, we're due another 50 aircraft. Are we going to take 90 aircraft in one winter? No, we're not. We will postpone some of those aircraft deliveries into the following winter. Some of that will depend on how fast Boeing can actually deliver and/or produce these aircraft anyway.
There's an enormous amount of work that needs to be done with Boeing and its customers once these aircraft are up and flying. The backlog is now 500, 600 aircraft. They're producing 40 a month still. There's a discussion to be had with Boeing, and we can't have that. We have an ongoing dialogue with them. When are we going to get our first aircraft? When is our first aircraft due to the delivery program in advance of summer? Really, nobody has focused on what happens into the winter of 2020, spring of 2021 yet either. I would think, though, and again, I would certainly be of a mind that if we went through a summer in 2020 where there was not much capacity growth in Europe and fare environment was reasonably positive, we only grew by 5 million passengers from 153 to 157, 8-ish.
I would certainly be mind to try and catch up some of that missed growth in the following year. Maybe it grow from 157, 158-ish, and we try and grow by 10 or 12 million passengers the following year. We'd go from 157, 158 to maybe 170-ish. Again, I'm giving you back of the envelope numbers here, we're not suddenly going to grow by 20 million in the following year because Boeing wants to take delivery of 100 aircraft. That's the discussion we still have to have with Boeing. We will try to smooth out the capacity growth. Yeah, as David will indicate, 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 a 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. When we start to get a flow of MAXes 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 are you selling this year?
Well, we've 10 that we've already sold. Three will be delivered in this financial year, and seven 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 until we've certainty on the MAX.
Eddie, anything you want to add on the growth in DAC on the MAX aircraft side?
No. I think you've answered that quite well there. We know what's actually going to happen, but 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 growth.
Okay. I guess fair to say we would want to restore, David and Eddie, feel free, we would want to restore the lost growth as quickly as we could without shooting without overdoing it or without doing anything crazy on the capacity or growth side.
Yeah.
That fair?
Yeah, I think another added dimension is that there's a growing realization at a national level in certain pretty big markets that over-reliance on the intrusive tour market is a mistake. Thomas Cook has taught some big lessons there. There will be more opportunities as that market begins to become disassembled, essentially.
Okay. Next question, please. Thanks, Johannes.
That's from the line of Muneer Ahmed 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 your ancillary revenues going forward?
I think we'll continue to see some modest growth in ancillary revenues, certainly for the next year or two. I think what we'll be, as penetration maxes out, and certainly on some of the bigger items, I'd say the priority boarding, seat revenue, you'll see us continue to yield manage those over the next, I would say, year or two. I would expect ancillary revenues to continue to grow at a faster rate than scheduled traffic growth, but we won't do a double digits. You won't see ancillary revenues grow at 16% per passenger as we've delivered in the first half of this year. They will lap each other in the second half of the year anyway.
I think certainly, I would be disappointed next year if we don't deliver, say, 3% or 4% traffic growth and ancillary revenue growing in a high single-digit percentage, as we focus on continued penetration and some yield management of some of those services, which are very attractive to our customers, as demonstrated by the rate at which they're converting presently.
Thank you.
Thank you very much. Next question, please.
That's from the line of Moritz Scholz at Commerzbank. Please go ahead.
Hi. Good morning, Michael. Can you please update us a little bit on the cost difference within your airlines? Is it so that particularly Buzz has a significant cost advantage over Ryanair DAC? How do you expect it to develop over the next years? Will it narrow, or is it a sustainable cost benefit?
Thanks. If I give you general guidance, I would say, DAC at the moment is the midpoint on the unit cost side. Buzz has lower unit cost than DAC. Lauda has higher unit costs, and Malta is too small yet to be relevant. The cost base in Lauda is coming down towards the DAC kind of median, and Buzz continues to outperform DAC. Some of that is because DAC kind of shoulders some of the overhead of the entire group. DAC still has commercial, it has Ryanair Labs. It's doing a lot of the customer service side as well. 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 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. It should get much closer in the next year or two. Eddie, does that say a little?
I think we'll get to a stage where we'll have much more sophistication in terms of allocating our costs out of DAC into the airlines as they even out, I suppose, over the next number of years.
Yeah. 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?
Great.
Good. Two questions, please. Sorry to revisit the MAX, but maybe just one final one on it. Could you say a little bit more about anything that you or the board have been thinking about compensation from Boeing, given the sort 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? 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 Buzz and some of the other route announcements you've made further east. Could you give us a broad feel about what Central and Eastern Europe would look like as a percentage of summer 2020 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 imposed real costs on some of their larger customers like Ryanair. That dialogue will continue. I think there will be an agreement on, I don't think compensation is the right phrasing, but I do think there's a dialogue about us recovering what are obvious consequential costs from them. That's a dialogue I think that can't really be completed until we know when this aircraft's going to return to service and when we can actually expect to get these aircraft over, say, the next two years. When we can return to our original growth plans. I would say no more than the dialogue continues.
Boeing have clearly made very substantial provisions in their accounts, a lot of which is, I think, just for reimbursing customer costs. I am more interested in getting these aircraft back flying and delivering the unit cost savings that the game changer aircraft will deliver than I am in having a torturous discussion with Boeing over compensation. Let's get the costs recovered. Let's get the aircraft back flying. Let's get on with lowering our costs and using the game changer aircraft to transform not just our business, but air travel in Europe generally. Growth into Central and Eastern Europe, yes, there's more. I'd be cautious here. Now look, the underlying kind of philosophy of Ryanair is our growth is opportunistic.
Our growth will always be 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. At the moment, there is a lot of growth taking place in Central and Eastern Europe, but it's not some geographical strategy. It's an opportunistic strategy that we tend to follow. Not always. Obviously, the growth in Vienna, for example, which is very rapid, is not based on Vienna being particularly low cost, although they do have quite a good growth incentive scheme in place in Vienna that we are taking advantage of. Clearly, there's a land grab going on in Vienna, and if there's a competition or a land grab, we're going to grab more than anybody else will.
Try not to look at our growth as a kind of a geographical expansion. It's not some kind of Napoleonic campaign. We will move the aircraft around based on wherever we see it being most advantageous and most profitable for us to do so. If I go back to an earlier question, is why we are cutting and closing bases, for example, this winter in the Canaries, in Spain, in some of the German bases. David, I don't know whether you want to add anything on that.
Except to agree in absolute terms. There is a shift in our growth and our capacity allocation because those deals are now emerging. The biggest airports this winter are Vienna, Budapest, Kyiv, Prague, all of which are comparatively lower cost than the German equivalents.
The Spanish. To be fair, one of the more interesting things has been the closures of these. The announced closures of these bases in Spain, I think, has brought about a realization, I think, among the Spanish government. 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. The way they encourage routes 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 regulatory review about to happen there. Thank you. I would never accuse you of being Napoleonic.
It's true. I preferred Wellington. He was Irish.
He won.
That's the key bit. Thank you.
Yeah. Next question, please.
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.
James, hi.
Hi, everyone. Just a quick one from 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 ancillary to Q3? I guess any detail on Q4 would be great too. Thanks.
Yeah, the answer to that is no.
Frustrating.
It's in our full-year guidance. We don't get into these kind of additional color on a per quarter basis. Look, I think there's a reasonable prospect, and without being discourteous, there's a reasonable prospect, I think, this winter of modest fare growth, but more as a function of how awful the fare environment was this time last year. Ancillaries will continue to perform, grow slightly on a per passenger basis this winter, but by less than in the first half of the year, simply because some of the services, the priority boarding and the reserved seating will begin to lap itself in the second half of the year. On the cost side, Neil's already covered it.
It'll be marginally above the 2%, but still a very good cost performance given that a huge amount of the winter cost forecasts are in the budget was predicated on having 30 MAX aircraft in operating and flying for most of the winter schedule. We won't have those aircraft flying in the winter schedule, yet other cost savings, most notably on the crew efficiency side, some of the base closures, and we're making particular significant savings on the EU 261 costs, which this time last year were horrendous. 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. That has had a huge impact on EU 261 cost savings. We expect those to continue through the winter.
If you don't mind, James, I'm not going to give you color on Q3 or Q4 other than to point to the general annual trends that are built into the annualized numbers.
Understood. No, thank you very much.
Thanks. Any other questions before we wrap up?
No further questions so far. Once again, if there are any final questions, please dial 01 on your telephone keypads now.
Neil, I'll ask you to do a quick wrap up thought, then I'll ask 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. We've given a little bit more clarity on the guidance insofar as we've narrowed the range this morning to EUR 800 million-EUR 900 million. Obviously we'll be meeting lots of people on the road this week. We'll answer as many questions as we can.
Eddie, any final thoughts?
As I said at the start, I see the winter in particular as a time to renew our emphasis on cost control and efficiency, and also tasking, particularly on the ancillary side with Kenny and John on how we can better develop the products. Because Labs is really just coming into its own. It's been there for about four or five 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 the solutions themselves. The work that we've done there in terms of A/B testing has been particularly fruitful over the last number of months. There is still some way to go on that. David as well on what we can do on the yield side. It's really for me, it's going to be about cost and efficiencies.
We've got to surface the crews at the moment. That's going to be particularly complicated for us if there's going to be a further delay in the MAX aircraft. What we would hope to do in the discussions that we've had with the unions to date 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. If we've got a further interruption in the MAX aircraft, that's going to be challenging in how we deal with that in the next six months.
Okay. From my point of view, I think there's a reasonable set of results out this morning. Rather than focus on Q3 and Q4, I would encourage everybody again to look out over the next two to five years. The market in Europe is going to consolidate. It's going to consolidate around four or five 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 four players in a consolidated space.
As that consolidation story plays itself out, I think you will see a return to pricing, but with a very strong or with good management in each of the five major airlines, good control over costs, and I think in much the same way the industry in North America has over the last four or five 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, 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 say thank you, everybody, for joining this morning. We have an extensive roadshow program on the road, Ireland, U.K., Europe, North America. If you haven't got a meeting, you'd like to join one of either the group meetings or get a one-on-one, please feed it through Citi or Davy or our own investor relations team headed by Shane O'Toole. 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.