Good morning, ladies and gentlemen. You're very welcome to the Ryanair Q1 results conference presentation. My name is Michael O'Leary, I'm the Group CEO, and I'm joined today by Neil Sorahan, our CFO.
Hi.
We'll run straight into the slide presentation. As you'll have seen, the model of Ryanair remains undimmed. We are the lowest fare, lowest cost carrier. We're number one for traffic, 152 million passengers for the full year this year, up 7% on last year. We expect to maintain that growth, particularly this winter, as we expect other EU airline failures and sales to accelerate. Malta Air in the quarter has joined the group, and the fundamental proposition in Ryanair is that the lowest cost wins. We're spreading our offering across the continent. We have 86 bases, 235 airports, over 2,100 routes. In FY 2020, we have new bases in Marseille, Bordeaux, and Toulouse in France, in Southend in the U.K., in Berlin, Tegel in Germany, and new country markets in the Ukraine, Turkey, and Lebanon. We remain on track to deliver our promise of 200 million passengers annually by FY 2024.
In the last year, our airfares continued to fall. It's one of the reasons why our profits are down this morning. This is one of the good reasons for a decline in profits. Our customers are getting better value than ever before. Our fares in the last year have fallen 6%. We beat every other airline in Europe on cost, and by a considerable distance, and the gap between us and our competitors is getting wider. On labor, we're slightly ahead of Wizz. They have lower cost central European contracts, but we're significantly cheaper on operationally more efficient than easyJet or Norwegian. We have significantly lower costs in terms of airport and handling costs because of our larger aircraft, our 25-minute turnarounds. In particular, in aircraft ownership and maintenance, we are stunningly below the unit costs of all of our competitors.
We believe we can continue to maintain that low-cost advantage. That's what underpins our ability to offer lower fares, and that in turn is what allows Ryanair to continue to grow. Neil.
In the quarter, we saw our traffic grow by 11% to 42 million guests. Revenue per passenger was flat at EUR 55, as a 6% reduction in average fare due to overcapacity in Europe and price stimulation in the U.K. was offset by a very strong performance in ancillaries, which were up 14% per guest. Unit costs, ex-fuel, were up 4%, and our fuel bill increased by EUR 150 million. As a result, profit after tax was down 21% at EUR 243 million in the quarter.
Just touching briefly on current developments. We have lower fares, higher fuel costs are affecting our earnings, but they're also affecting the earnings of all of our competitors. We believe that will drive more airline failures and sales in the second half of the year. Short-term price weakness, yes, but Ryanair remains the structural winner. The MAX 200s, those deliveries have been delayed until at least Q4 of this year. We now expect to take the first deliveries of our MAX 200s probably in January or February of 2020, and that depends on the aircraft going back flying or the existing MAXs returning to service sometime in September, early October. That does mean that we won't be able to take the original 58 aircraft that we had planned for summer 2020.
We think it's best at the moment to plan for 30 additional aircraft for summer 2020. That means slower growth next summer and into FY 2021. The group structure continues to evolve. We now have four substantial group airlines, Buzz in Poland, Lauda based in Vienna, Malta Air, which joined the group in the quarter based in Valletta, and Ryanair DAC, which was the old Ryanair. For the moment, we've left Ryanair UK off that because we won't need it unless there's a hard Brexit. We are Europe's greenest, cleanest airline. This year, we expect to pay over EUR 600 million in environmental taxes, which I think explodes the myth that the airlines are having a free run or some kind of a free ride when it comes to the environment. We're not.
We're paying very heavy environmental taxes, despite the fact that we're investing massively to continue to reduce our environmental footprint. We have also launched a EUR 700 million share buyback in May. EUR 100 million has been returned to shareholders by that vehicle in the first quarter. Our guidance, I think is the good news today, remains unchanged. Our profit after tax for the full year is still in a reasonably wide range of EUR 750 million-EUR 950 million. That's profit after tax. The reason for the width of the range is we have so little visibility on airfares in the second half of the year. Malta Air, a new Maltese airline, Maltese AOC. We will put our 6-based aircraft in Valletta into Malta Air this winter. We will also transfer most of the aircraft that we have based in France, Italy, and Germany onto the Maltese AOC.
We started that process in May, and it continues on a weekly and monthly basis. The advantage of that is it now means our crews in Germany, Italy, and in France can pay their income taxes in Germany and Italy and France, which is a key part of the agreements we reached with unions in those countries to move to local contracts and local taxation, moving them away from historically paying Irish income tax because they were on an Irish AOC. The management team, which is building rapidly, is based in Malta, and the Malta AOC also facilitates us opening up new routes into North Africa and into the Middle East from Malta, which wouldn't be available to us as an Irish-registered airline. Just to touch briefly on the MAX update. There's still considerable uncertainty there. We have 210 aircraft on order.
We expect to get five in advance of this summer. They've been delayed. We planned to have 58 in place for summer 2020. We now think that'll be about 30 aircraft. We are actively working through plans at the moment to reduce aircraft at certain bases, close other bases this winter from November, because if we don't have these new aircraft coming in next summer, there's no point in flying them during the winter as well. There will be still some new bases and some new routes for summer 2020. We will have to rejig the schedule to accommodate this slower rate of growth. What it means for shareholders is that instead of growing to 162 million passengers in FY 2021, we'll grow about half that rate of growth to about 157 million passengers. We continue our dialogue with Boeing. The predelivery payments have been frozen.
We expect Boeing to cover these losses, and you'll see Boeing making provisions for that in their own accounts. Critically, however, we remain committed to the Gamechanger aircraft. These are aircraft that offer us 4% more seats and compellingly at 16% lower fuel per seat. These are not just operationally efficient, they are environmentally efficient as well, and they facilitate Ryanair's growth to 200 million guests by FY 2024. Just to touch on our environmental commitment, we're the first airline to publish monthly CO2 emissions in 2019. We have the lowest emissions of any major EU airline. We are determined to cut that by a further 10% by 2030, over the next decade. We paid over EUR 540 million in environmental taxes in 2018, and that will rise to over EUR 600 million in 2019. We've committed ourselves to being plastic free within five years.
We're also the first airline to have a voluntary carbon offset program as part of the booking process, all of the funds that are raised from that offset program, about 2% of our passengers this year will commit to it, is being allocated to work with climate change partners here in Ireland, in Portugal and in Africa. Critically, the 210 new Boeing MAX aircraft will allow us to carry more passengers, but at much lower fuel consumption and with a 40% reduction in noise emissions. Here's just a demonstration of the environmental taxes we paid last year and what we expect to pay this year. I would draw your attention to the fact that it runs at around 10% per seat. It's a tax of about 10% per ticket, which is an incredibly high rate of tax for the environment. Guidance, Neil.
Yeah, just on guidance, we're guiding our passenger numbers up 7% between 152 million and 153 million in the current year. Fares, we believe, will be at the lower end of -2% to +1% range for the year. Ancillaries, however, are going to continue to perform well, which is why we're guiding revenue per passenger in a range of +2%-+3% on a full year basis. Unit cost ex-fuel, despite the continued delays in MAX, will just be up 2%, which is unchanged in our previous guidance. Fuel, we believe, will be up about EUR 450 million on a full year basis. As a result, as Michael already said, profit after tax will be in a range of EUR 750 million-EUR 950 million for the full year.
This, of course, depends on close in peak summer bookings over which we still haven't got full visibility, H2 fares and of course, what happens in relation to Brexit in October.
Well done.
Thanks, Michael.
Thank you. With that, we'll now go to the Q&A.
Revenue per passenger was flat at EUR 55. How did fares and ancillaries perform?
Yeah, we saw a 6% reduction in fares in the quarter, which stimulated 11% increase in traffic to just over 42 million customers. This however, was offset by a very strong performance on ancillary revenue up 14% on per passenger basis on just under EUR 0.8 billion in total revenues in the quarter, stimulated by the likes of our reserve seating and priority boarding, which continues to perform very well.
What is your outlook on fares for the remainder of the year?
Well, as you can see, underlying airfares, the first half of the year were down 6%. We have zero visibility on airfares into the second half of the year, but we expect them to come in towards the lower end of our -2% to +1% range. Most of that price softness is due to softer consumer sentiment in the U.K. and excess capacity, particularly with Lufthansa and Eurowings in the German market, leading to very low pricing in the German Austrian markets.
Will the strong performance in ancillary revenues continue?
I think so. As I said, we had a very strong performance in Q1. We expect the likes of priority boarding to continue to perform well, at EUR 50 over the remainder of the first half of the year. We continue to expect the likes of labs to contribute strongly to customer choice and performance. As a result, as we roll out more personalization, we're guiding revenue per passenger in a range of about +2% to +3% on a full year basis, which is all down to the strong ancillaries.
Ex-fuel costs rose 4% in Q1 FY 2020. Why?
Principally, it was the consolidation of the Lauda cost in Q1 this year. They weren't consolidated in the comparable Q1 prior quarter. We've also had a significant increase in staff costs, the 20% pay increase that we negotiated at the start of 2018, and also ramping up pilot and cabin crew recruitment in advance of the peak summer schedule this year. We've also had a number of one-off expensive costs, returning the nine expensive operating lease aircraft to Lufthansa from Laudamotion, the last of which were redelivered at the end of June.
Is there any change to your full year ex-fuel unit cost guidance of +2%?
No, we're sticking with the 2%. This is despite continued delays in the MAX delivery, so just up 2% on a full year basis.
Any update on your fuel hedging?
Yeah. We're now 37% hedged into FY 2021 at about $63 per barrel. We continue to look for opportunities to add to that at rates of under $60 a barrel. We are consistently in line with our rolling program to be typically at 90% hedge on a 12-month basis.
How is on time performance?
Significantly improved year on year. We've invested heavily over the last year in spare parts, in more engineering, and critically in changing our contractors for handling in Stansted, in Poland and over in Spain. As a result, we've seen a seven percentage points improvement in on time performance in the past six months and indeed, a 10 percentage point improvement in the quarter. Cancellations are well down year on year. We had just 20 cancellations in June, for example, as opposed to nearly 1,200 in the prior year comparable. That said, we continue to still see ATC disruptions over the weekends. This is having a negative impact on punctuality for all airlines. We continue to work very well and with Airlines for Europe to try and encourage the air traffic controllers to staff up their numbers and to address overflight issues.
Over 90% on time performance excluding ATC in the quarter.
What's the latest update on the MAX?
Deliveries are delayed. We now don't expect the MAX to return to service until September, October at the earliest this year. That means we're now expecting the first of our Gamechanger aircraft probably in January, February of 2020. That means we will only take delivery of about 30 aircraft for the peak summer 2020 schedule instead of 58. That could move. It could be slightly higher, it could be slightly lower depending on when the MAX is approved by the regulators to return to service. For the purposes of our plans at the moment, that means we will slow down our growth rate into summer 2020. We'll deliver about 157 million passengers in FY 2021 as opposed to previously 162 million passengers.
Have you started discussions with your airports and people?
We have, but I think at this stage it'd be wrong for me to comment in any detail about them as the negotiation's confidential.
Are you talking to Boeing?
We're in daily contact with not just Boeing, but also with EASA, to try to assist the process of the early return to service of the MAX aircraft.
Is there any change to your FY 2024 target of 200 million guests per annum?
No, we're still targeting EUR 200 million by March 2024. As Michael said earlier on, growth will increase by about 3% next year to EUR 157 million, which is slightly slower than we'd anticipated. However, we believe we'll catch that up in future years.
What does this mean for your cost-cutting initiatives?
It means we don't get the unit cost reductions that we had hoped that the MAX aircraft would deliver in the second half of the year, but we're still finding other areas where we're pairing and shaving some costs, which is why we're holding to our 2% unit cost increase for the full year. Some of that was contingent on getting the MAX aircraft. They now won't arrive, but we're making up cost savings elsewhere.
What is the impact of the new IFRS 16 lease accounting standard on the balance sheet at Q1?
For us, it's relatively immaterial. Only 6% of our fleet is leased, so like most other airlines, it doesn't have a huge impact. The P&L impact was totally immaterial in the quarter. At quarter end, however, on the balance sheet, we added about another EUR 220 million of debt, and this will increase to about EUR 330 million by year end due to more leases coming into the fleet over the next number of months. That said, in a quarter where we had buybacks and the impact of IFRS 16, we actually saw our net debt marginally down at just EUR 419 million.
How is the buyback progressing?
Well, we've spent about EUR 100 million in the quarter. That means there's still EUR 600 million to go. We expect to run that program out through to the end of the calendar year. Obviously it will be critical in the run-up to any Hard Brexit if a Hard Brexit is the outcome of the Brexit discussions at the end of October.
Can you update on Malta Air?
Malta Air became the fourth main operational airline in the group back in June. It's got a Maltese AOC. We've recently appointed a new management team based in Valletta. This will operate the six based Maltese aircraft. They'll transition onto the AOC this winter, and we'll grow that to about 10 aircraft over the next three years. Importantly, it'll also operate our French, German, and Italian bases, which enables our crew to pay their taxes locally in those markets, which is an important point for the individual pilots, cabin crew, and their unions. We're also excited at the opportunities that we'll get to open up new markets in the likes of the Middle East, North Africa, and of course, join Malta Air to the rest of the network.
How are Lauda and Buzz developing?
Lauda is growing strongly. This summer it'll operate a fleet of 20 operating leased A320s, actually at a lower cash cost than the 9 aircraft they were leasing from Lufthansa this time last year. Its traffic is growing strongly. We expect to carry more than 4 million passengers in the next year, and the losses will be significantly reduced from the figure of just under EUR 140 million last year, but we're still continuing to turn that around. Buzz is operating profitably in its second year of operation. This summer it's offering 7 aircraft in the charter market in Poland and trading well. It manages operating 17 of Ryanair's. All of Ryanair's Polish-based aircraft are now being operated by Buzz. We'll see some of those aircraft and the uniforms rebranded as Buzz later on this year.
How do you see European short-haul developing this winter?
I think we're going to see more airline failures and consolidation over the next number of months. The current high fuel environment, particularly for the unhedged carriers, is going to cause significant problems as airlines start to get over peak cash flow and move into the winter. Again, they're going to see the cash reduced. They're going to see the credit card companies holding back more and more cash with the weak carriers. I think we're moving towards more failures, more consolidation, as we already have a couple of airlines up for sale, the likes of Thomas Cook. Alitalia will get resolved fairly soon as well. I think there'll be a lot of opportunities to grow over the next months and years for the four Ryanair Group airlines.
How is Ryanair's environmental performance?
It's industry-leading. We're the greenest, cleanest airline in Europe. We're the first airline to publish our monthly CO2 emissions. We have the lowest CO2 emissions of any major European airline. We are publishing the environmental taxes we're paying last year and again this year, and our investment in the MAX aircraft program will see us significantly reduce both our fuel consumption and our noise emissions over the next decade.
What are your thoughts on the recent aviation tax proposals in Europe?
As Michael said, we've already published the high level of taxes that we pay towards environmental issues every year. We paid over EUR 540 million last year. We're going to see that increase to EUR 630 million in the current year, which, to put that in context, is EUR 4 out of every ticket per passenger out there. With an average fare of EUR 36, we're paying over EUR 4 per passenger. I think this, coupled with the investments that we're making in new aircraft. The carbon footprint that we have, which has reduced significantly over the last decade and over the next decade, addresses these issues.
Is there any update on board succession?
Yes. The market will be already aware that David Bonderman and Kyran McLaughlin will lead the company until the 31st of March later this fiscal year. They will step down from the board in the summer of 2020. Stan McCarthy, who is now our Deputy Chairman, will succeed David as Chairman in the summer of 2020. This morning, the board is pleased to announce that Louise Phelan, who has served on the board now for over six years, a former senior PayPal executive, will take on the role of Senior Independent Director from Kyran McLaughlin when he steps down in summer 2020. We will have entirely refreshed the board, and with the departure of David and Kyran, the two long-serving non-executive directors will also have left the board.
Is there any change to your FY 2020 guidance?
No. We're still guiding profit broadly flat in a range of EUR 750 million to EUR 950 million. As always, a number of moving parts in there. Traffic will be up about 7%, so over the assets between 152 million and 153 million guests this year. Average fares, we think, will be down about 6% in the first half of the year. On an annualized basis, we'll be at the lower end of our -2% to +1% fare range. Ancillary, however, will continue to perform strongly, which is why we're saying revenue per passenger should be in a range of +2% to +3%. Our fuel bill will be up about EUR 450 million in the year, our unit cost ex fuel will be up just 2%, despite the delays in the MAX delivery.
Depending on close-in bookings and H2 bookings, and obviously no adverse Brexit events, we're remaining within that range of EUR 750 million-EUR 950 million.
Michael, Neil, thank you.
Thanks.
Thank you very much.