Earnings Call: Q2 2020

Nov 4, 2019

morning, ladies and gentlemen. Welcome to the Ryanair Half Year Results. I'm Michael O'Leary, Group CEO, and I'm joined by Neil Soren, the Group CFO. This morning, you'll have seen results from Europe's favorite airline group. We have the lowest fare, the lowest cost of any airline in Europe. We're number 1 for traffic, rising to growing to 153,000,000 passengers this year. We're number 1 for coverage. We're adding to the group airlines, Buzz, Lauda and Malta have joined the group and are growing strongly. EU airline failures and sales accelerate, which we believe creates a better growth environment for the Ryanair Group going forward. We are committed to reducing our environmental impact, and that's especially important because Ryanair is Europe's greenest, cleanest airline. And because we have the lowest Unit cost means we are the structural winner. You know our route map well, 86 bases, 240 airports. I think critical in the current year is we've opened up new bases in Marseille, Bordeaux, Toulouse and France, in South End and Berlin, in South End in the UK, obviously, Berlin and Germany, and new countries in Armenia, Georgia, Ukraine, Turkey and Lebanon as we grow to 153,000,000 guests. Our average fare this year will fall by 6 Percent to €37 per passenger, significantly lower than all of our other EU competitors, and that's why We're able to deliver such strong and sustainable traffic growth. Key to Ryanair's success is our cost leadership, which is what underpins our fair leadership And that we continue the gap, if anything, is widening between us and our closest competitors here in Europe. Between Ryanair and Wizz, we are between Our airport and handling costs is €7 per passenger or onethree of Easyjet's €21 per passenger. And our €6 per cost aircraft ownership and maintenance is less than 50% or more than is less than 50% of the equivalent costs within Wizz. Our average Total cost per passenger, excluding fuel of €29, is significantly lower than the €39,000,000 in Wizz, the €53,000,000 in Easyjet or God help us, the €80 plus of Norwegian. Neil? In the half year, we saw an 11% increase in traffic It's 86,000,000 guests. This was driven by a 5% reduction in average fare, which was marginally better than the minus 6% that we previously guided for the first half of the year. Ancillaries performed strongly, up 16%, which as a result saw revenue per passenger increase by 1%. Unit costs We're just up 2% in the first half of the year, and profit after tax as a result was broadly flat at €150,000,000 with EPS up benefiting from the share buyback programs. Current developments. So lower fares this year and higher Few will have driven more airline failures, more airline restructurings and more airline sales. In Ryanair, our cost control and our cost leadership has been And if anything, the gap between us and the competition is widening. Critical from a customer service point of view, our on time performance and guest satisfaction metrics have improved significantly this year. We have have improved significantly this year. We have made substantial progress indeed to completion, a wide number of union deals across most of our major EU Markets, the UK, Germany, Italy, Portugal and Ireland. We have extended and improved our environmental policy announced at the September AGM. The MAX 200s are delayed now into the Q4. It could slip further indeed into the next fiscal year. And we are about onethree of the way through our 700,000,000 share buyback. In AIVA, the key issue here at this time is the restructuring going on within Europe. Remember, we have long predicted that there would be consolidation across Europe into 4 or 5 major carriers, and all the evidence we've seen in the last 6 months supports that thesis. We've seen the large failure of Thomas Cook, Fly BMI in the U. K, Aigla Azur, XL Airways in France, And Adria in Slovenia, all have failed in the last 6 months. That's seen a significant reduction in capacity, But it's also freed up a lot of pilots, cabin crew, who are now looking for jobs. Other airlines currently in restructuring, Condor, the Thomas Cook In Italy, Germany, Italia remains in permanent restructuring, TAP in Portugal, FlyBE in the U. K. And we've seen a number of the existing announced either closures of cuts of bases, particularly focused on the European short haul segment, where pricing has been weak and growth slow over the last 6 months. That's been led most notably by Norwegian, who are closing bases and cutting capacity all over Europe. We play our role. We've closed loss making bases this winter in the Canary Islands, in Germany. Although in our defense, most of Ryanair's base soldiers are because of the delayed delivery of the MAX aircraft. And we think that will lead to a much more modest, if indeed, 0 capacity growth into summer 2020, which should be good for the Ryanair model. The low cost to our airlines, each of the group airlines is developing strongly. It buzzed this summer, they operated a fleet 24 aircraft, Lauda 23 aircraft, Malta Air, 6 aircraft taking over the Ryanair base in Malta and in Ryanair DAC, 425 aircraft. And most recently, you've seen we've appointed Eddie Wilson, formerly the Chief People Officer, as the Chief Executive of Ryanair DAC, and I look forward to working with him and the other 3 airline CEOs over the coming year. This is a slide that demonstrates how our on time performance improvements are translating directly into high customer satisfaction metrics. You can see the couple of dips in the last two years. We had the rostering failure in September of 2018 and the or 2017 rather. And through the summer of 2018, the dreadful performance of European ATC, both strikes and staff shortages, led to a big decline in our on time Mobility. I'm pleased to say with the investments we've made in resilience this year, taking putting in place new handling agreements in Stansted in Spain and in Poland, We've driven our on time performance back above 90%. And as a result of that, we're seeing record positives in customer rate my trip scores and customer rating their experience with the customer service. And I think the customer The metric is almost the important one because people contacting customer service are the people who've had a problem. And even those people have seen are giving us record positive ratings in further interaction with Ryanair, despite the fact they're interacting with us because it's a problem. We made very substantial progress on the union side. We now have union agreements in all major markets. We have CLAs agreed with pilots and cabin crew in Italy, Germany, the U. K, Ireland, Belgium and Portugal. There are ongoing talks in Spain with both Pilots and cabin crew units, they will take longer. The process takes longer in Spain. We did suffer some strikes both in the U. K, Spain and Portugal. During the peak this year in August, September, most of them were abject failures because the vast majority of our pilots and cabin crew recognized a difficult environment in which we're operating in and didn't support the strike. Indeed, the U. K. Pilot Balpa called 7 days of pilot strikes, and we're unable to generate anything never got to 5% support among our U. K. Pilots. There are surplus pilots in cabin crew available in Europe now as a result of the airline failures, and we're responding to that by accelerating the growth, particularly of Lauda in Vienna and hiring, creating more jobs for A320 pilots, many of whom are coming to us from Thomas Cook and from the Adria failure in Slovenia. In Ryanair and the Ryanair Group, High pay and industry leading rosters make us a very attractive employer. But one of the challenges for us is that our pilot turnover has fallen to effectively 0, which means we now have a higher crewing ratio than we had budgeted for. And it's something we're working our way through with both our people and their unions. We will have pilot and cabin crew redundancies this winter, particularly those loss making winter bases that we're closing because of the MAX aircraft delivery delays. We're very proud of the fact that Ryanair is Europe's greenest, cleanest airline. We're the 1st EU airline to publish monthly our CO2 emissions. What's interesting is passengers switching to Ryanair are reducing their CO2 emissions per kilometer by up to 50% compared to some of our major European competitors. Despite the fact that we have the lowest emissions in the industry, we're determined to cut our CO2 emissions by a further 10 sent by 2,030. We've committed ourselves to being plastic free in Ryanair within 5 years. We're up to 53% plastic free now. We are huge Taxpayers are payers of environmental taxes. There's this myth out there that the airlines don't pay environmental taxes. We do. In the current year round, we'll pay over €630,000,000 in ETS payments, ADP in the UK, environmental taxes in Germany and other EU countries. We are opposed to environmental taxes on air travel because they tend to be a tax on poor people. They are regressive. They militate against people from the periphery of Europe traveling across Europe. It's fine in countries like Holland and in Belgium or in France where they have train and other alternatives. But if you live in peripheral countries or in island nations like Ireland, Malta, Cyprus, you don't have an alternative, you must fly. And taxing those passengers who are already paying significant environmental taxes in Ryanair this year, the environmental taxes More than 10% of the average ticket price is an unfair regressive tax on poor people. We also introduced a voluntary carbon offset Program joined the booking phase, and I'm pleased to say that it's a growing there's a growing take up now. It's gone from 1% to almost 3% of our customers are paying the voluntary carbon offset during the booking process. Not content with those impressive figures, we're also going to invest More than $20,000,000,000 over the next decade in buying new, more fuel efficient aircraft that will reduce fuel consumption by 16%, have lower CO2 emissions, reduced them by a further 10% and reduced noise emissions by up to 40%. These are Incredibly efficient airlines or aircraft. And no industry, I think, can compete with the airline industry in Europe, which only accounts for 2% of Europe's CO2 emissions in our determination to drive those emissions downwards. Just a quick update on the MAX. We've been disappointed by the repeated delays in the MAX return to service. We now expect that the first of our MAX 200s will be delivered in March or maybe April of next year. We're waiting for the Boeing are promising or indicating that the MAX will return to service in North America this time at Christmas. We think it will be after Christmas, and there's a risk that those aircraft deliveries might run later into next year. As a result of that, we've now reduced Our expectation of 30 MAX aircraft being delivered to us in advance of the peak summer 2020 down to 20 aircraft, And there's a real risk of none. We've already reduced our passenger growth expectation next year from 7% to 3%. We expect to grow from about 153,000,000 to 157 1,000,000 passengers, we may have to cut that again, but frankly, there's no point in keeping changing the number until we have some more certainty out of Boeing and IASA as to when these aircraft will be delivered. Remember, however, over the longer term, these are great aircraft. They're carrying 4% more passengers. They have 16% lower fuel burn, much more environmentally friendly and sustainable. And these are the aircraft that will allow Ryanair to reduce our unit costs over the next decade and keep passing on the gift of low fare air travel to Europe citizens. Neil? On the full year, we expect to see an 8 Percent increase in traffic to 153,000,000 guests, which is up from the 152,000,000 that we had previously guided, thanks to extra low cost A320s in Lauda. We think revenue per passenger will be in a range of plus 2% to 3%. Unit costs ex fuel We'll be up just 2% despite the fact that we won't have any MAXs in the fleet this year. Depending on where spot prices go, We're anticipating that fuel will be up approximately €450,000,000 on a full year basis. So on the back of that, we're now Owing the guidance range this morning to a range of €800,000,000 to €950,000,000 This, of course, depends on close in H2 Fairs, with no visibility into Q3 or close in Christmas at the moment and adverse Brexit Revenue per passenger rose 1% to €63,000,000 in H1. How did fares and ancillaries perform? Yes, fares were down Approximately 5%, which was marginally better than the 6% that we had guided for the first half of the year. This stimulated an 11% increase in traffic to 86,000,000. Ancillaries had a very strong performance where we saw ancillaries up 28% or on a per passenger basis 16%. Standouts again where they are priority boarding and the reserve seating. What is your outlook on revenue for the remainder of the year? We expect revenue per passenger to rise between 2% to 3%. Ancillaries will still grow at a stronger rate than scheduled traffic growth, but the growth in ancillary revenues will be lower as we lap the change in the bank policy from November 2018. We also expect that the weaker prior year comps will drive a small rise in underlying airfares and yields. Is there any update from Labs? Labs continue to perform very well and underpin the strong growth in the ancillaries in the first half of this year. They've just recently rolled out their new digital platform, which increases and enhances the personalized offers we're putting in front of all of our customers. So we expect we'll have to continue to play a very strong part in driving ancillaries on our back office structures in here in Reiner. Ex fuel costs rose 2% in H1 FYI. Well, with the annualization of the large pilot pay increases last year, We have higher crewing ratios because of, as I said, the effective drying up of pilot resignations over the last 12 months. We also have increased maintenance. We're keeping more of our older aircraft into next year because of the delay in the MAX deliveries. Lauda costs weren't consolidated in the prior year comparative, And those negatives have, to an extent, been ameliorated by a significant improvement in EU261 compensation payments as a result of our Significantly better on time performance and fuel cancellations in the summer of 2019. Is there any change to your full year ex fuel unit cost guidance of 2%? No, we're sticking with just up 2% despite the fact that we're not going to have the benefit of any of the MAXs in our numbers this financial year. Any update on your fuel hedging? Yes. We're now 63% hedged for FY 2021 at around $61 per barrel, which is a significant saving from this year's number where we were hedged at $71 per barrel. Michael, have you responded to the Irish regulator's We were disappointed with the final ruling for the regulator, which allows the DA to keep some of the already very high charges we and other Airline's Pay and Dublin Airport. We had been a supporter of the regulator's first ruling, which was to reduce Dublin Airport charges over the next 5 years. We regret the fact that this reduction will now be smaller, and it will lead to smaller savings and less of the saving being passed on to customers in the form of lower Airfares here at Dublin. Can you talk about your environmental initiatives? Yes. I think we have a very good story to tell on this front. We've got one of the youngest fleets with the highest load factors in Europe, which means we've got the lowest carbon emissions per passenger kilometer of any of the major airlines in Europe 66 grams per passenger. We became the 1st airline in Europe this summer to actually publish these statistics, and we'll continue to do so. Policy, however, is quite ambitious and sees us reducing this further by another 10% to just under 60 grams per passenger over the next decade. I think it's important to note that passengers across Europe can actually reduce their carbon footprint significantly by up to 50% by traveling with Ryanair. What are your thoughts on the recent aviation tax proposals in Europe? I think we're obviously opposed to them. We think environmental taxes on air travel in Europe are regressive. They're unnecessary given that Ryanair this year will pay more than €630,000,000 in environmental taxes already. It's also a tax on poor people. People who are flying across Europe for work to visit friends and relatives on the lowest airfares should not be suffering these kind of penal or regressive taxes. We also believe that the European governments are fundamentally wrong in exempting transfer tax because it rewards the biggest polluters. If you're taking 2 flights to get to your destination instead of flying point to point one flight flying point to point, You're creating double the amount of emissions and environmental damage. If anything, transfer passengers should pay higher rates of tax than point to point passengers. And so we're against environmental taxes. We think there are attacks on poor people and particularly people in the regions of Europe, Ireland, Portugal, Spain, the Baltic States, Cyprus and Malta, where you don't have an alternative of trains or bicycles. Flying is the only way on and off these islands. How about the group airlines developing? They're performing well. Buzz in its 2nd summer of operations increased from 5 to 7 charter aircraft I had 17 scheduled aircraft flying mainly Polish routes for the Ryanair Group. Now we plan to see Buzz grow Outside of Poland over the next number of months, we're going to open up a number of new bases in Central and Eastern Europe. Lauda operated 80 different routes this summer with 23 A320s. And indeed, they have been capitalizing on the availability of cheap And he's to grow their fleet next summer to 38 aircrafts. They are, however, operating in a very tough Price environment, particularly in Austria and Germany, which is putting downward pressure on the numbers this year. However, with the cost control that they're putting in place With the emphasis on ancillary revenues and efficiencies, we think we'll move them towards breakeven at some stage in FY 21, Malta, the 4th airline in the Ryanair Group was acquired last June. They're going to grow from 6 to 10 aircraft in Malta over next 3 to 5 years, and we would anticipate over the course of this year into next year to take over flying operations for the Ryanair Group in Italy, Germany And France. And then, of course, Ryanair DAC with over 400 aircraft, had 2 40 new routes this summer, On 6 new basis, I have 2 new countries in Armenia and Georgia coming online in the winter of next year. Eddie Wilson, our Chief People Officer previously has just taken over as the Chief Executive of Ryanair DAC And he's working with Michael on a handover, and that's going very well. Are there opportunities for Ryanair in the current difficult environment? Yes, enormous opportunities. The fact that we have the lowest cost means more and more airports are coming to us seeking our growth at a time when Their existing customer base, whether it's a Norwegian or Eurowings, is actually cutting or closing basis. We've also seen significant opportunities, for example, within Lauda from the Thomas Cook failure. There was suddenly a widespread availability of secondhand A320s, more importantly, availability of A320 pilots and cabin crew. And Lauda was able to move quickly to take advantage of the failure of Thomas Cook, the failure of of Adria Airlines in Slovenia, to step up next year and add another 3 aircraft at the Vienna base, which will grow from 8 aircraft in summer 2019 to 18 aircraft in the summer of 2020, making Lauda by far head and shoulders the 2nd largest airline in Vienna. The group of airlines gives us those opportunities to move quickly when our customers are in distress. And in all cases, we're doing it on the back of Growth incentive agreements from airports who are desperate to win or attract growth from the Ryanair group of airlines. What's the latest developments on the MAX? Yes. It now looks as if the first MAX won't be in the Ryanair fleet until March, possibly April of 2020, clearly subject to To YASA approval, so on that basis, we're now planning for 20 MAXs in our fleet for summer 2020, which will see a slowdown in our originally forecast growth of 162,000,000 guests to 157,000,000, which is approximately a 3% Increase year on year. We are looking forward to getting our first MAX. It is a game changer from a cost perspective, 16% Lower fuel, 40% lower emissions. We've got 4% extra seats, which will enable us to spread the costs over more customers and indeed Maximize our ancillary opportunities. So a slight delay over what we were expecting, but we're still looking forward to getting the first MAX. Are you talking to Boeing about compensation? I think not so much compensation, but certainly, we expect Boeing to meet the or should we expect to recover our lost costs or consequential costs from Boeing over that period of time. Those discussions are obviously confidential, but They can't really be concluded until we actually have a return to service data. We know with some degree of certainty when our MAX 200s will be delivered and what the delivery program will be over the 1st 12 or 18 months. Is there any change to your FY 'twenty four target of 200 No, not at all. While we see a little bit of a slowdown in the growth next year due to the delay in deliveries of the MAXs, we have every expectation that we'll catch that over the next few years and hit the €200,000,000 target by March 2024. What is the impact of the new IFRS 16, which is accounting standard on Yes, I'll take that one. Definitely one. Absolutely, it's quite modest. About 7% of our fleet It's leased at this point in time, so minimal to the P and L. And on the net debt of €460,000,000 at the end of the period, about €220,000,000 That was due to capitalized leases, so modest in the context of our numbers. How is the buyback progressing? It's progressing well, albeit Slowly, thus far, we've completed about onethree of the program. We've done about just over €250,000,000 of our €700,000,000 program. We've been cautious because partly we're waiting for an outcome on Brexit or at least keeping some firepower available. If there was a hard or no deal Brexit at the end of October, there isn't. It looks like Brexit has moved back now to probably the end of January. We would hope that there will be some definitive outcome of the general in the U. K. In December and at least a removal of uncertainty going forward. We would expect us to continue to roll forward that share buyback program and to complete the €700,000,000 program sometime in the middle of next year. Can you update on FY 'twenty guidance? Yes. We've narrowed the guidance range this morning. So previous range was €750,000,000 to €950,000,000 We've That to between €800,000,000 to €900,000,000 on a full year basis for PAT. The moving parts in There is an 8% increase in traffic to 153,000,000 guests. We think revenue will grow somewhere in the region of 2% to 3% per While ancillaries will continue to track ahead of the 8% increase in traffic On a full year basis, we think it'll slow down into the second half of the year as we start to lap the new bag policy that came in this time last year. We would anticipate Modest increases in fares over the winter. Fuel will be up about €450,000,000 on a full year basis and unit costs ex fuel We'll be up just 2% despite the fact that we're not going to have any MAXs in the fleet this year. Thank you very much. As you know, there will be a roadshow on the half year results. So Neil, myself and other members of the team will be doing the extension roadshow in the U. K, across Continental Europe and in North America. So if you'd like a meeting or to meet with us, please contact us through the Investor Relations team here, headed by Shane O'Toole, are through our advisors, Davies and Citibank. Thank you. We look forward to seeing you all over the coming week.