Good morning, ladies and gentlemen. Welcome to the Q3 Ryanair results presentation. I'm Michael O'Leary, the chief executive of Ryanair, and joined again today by Neil Sorahan, our CFO.
Morning.
We'll take you straight through, as is usual, the slide presentation. We'll run through a quick Q&A session, obviously we'll be holding a conference call later on this morning where we'll be able to answer any detailed questions we don't cover in this presentation. Ryanair remains Europe's lowest cost, lowest fare airline. We are number one for traffic. We expect this year to grow to 142 million guests, 9% up on the previous year, mainly on the back of lower airfares. We cover more airports and we offer more routes than any other EU airline. The key trend at the moment is that EU airlines are consolidating. The number of failures and airlines up for sale is rising in recent months due to the combination of higher oil prices and lower airfares. We expect to take delivery of 210 MAX aircraft over the next five years.
The first five of these aircraft, which bring us more seats, considerably lower fuel consumption, will come in April, May, and June of next year. Unfortunately, the risk of a no-deal Brexit or a hard Brexit is rising, we remain concerned at that, we have steps in place to mitigate those risks. The key thing to remember, always in the short term, in the medium, in the long term, in this industry, lowest cost, lowest price wins, and that means Ryanair wins. Over the last quarter, average fares have fallen by 6% to under EUR 30 per passenger. The key thing, however, is the gap between us and our competitors on costs and ex-fuel costs is widening. We are considerably lower than easyJet on staff costs, considerably lower than them on airport and handling costs, as we are with Wizz.
Wizz talk a lot about these bigger, lower, cheaper aircraft, as they add more of these aircraft, their aircraft and ownership costs rise faster than their traffic growth, we are considerably cheaper than them on aircraft ownership and maintenance. Overall, Ryanair operates with a EUR 27 ex-fuel cost, per unit cost, considerably lower than any other European airline, the gap is getting wider. That is the key to our continuing success and our continuing strong growth in difficult markets. Over the last quarter, we've operated from 84 bases. We now serve 234 airports with over 2,100 routes. As we've repeatedly said, we're about to take delivery of the first of the MAX aircraft, which will enable us to grow, we believe, to 200 million passengers by 2024. We continue to build very strong market positions in all of the major EU markets.
We're either number one or number two. Again, Wizz keep talking about being number one in Central and Eastern Europe. They have a unique geographical definition of what Central and Eastern Europe is, but we're number one in that market too. Our results. Neil.
Michael, thank you. Q3 was a difficult enough quarter. Guests grew strongly, however, up 8% to 33 million customers in the three months. Average fare, however, was down 6% to under EUR 30 per customer. Our ancillaries, however, performed very strongly, driven by the likes of our priority boarding and allocated seating, as a result, total revenue per passenger was up 1%. However, when we take the high fuel costs and the 6% increase in unit cost ex-fuel, we reported a loss of EUR 20 million in the quarter, which is well down on the previous quarter last year. Michael.
Well done. Quick run through current developments. We think the industry in Europe is characterized by excess capacity. We have had two profit warnings in the last six months, both of those have been driven by lower than expected airfares. There isn't a cost issue here. There isn't a growth issue. Fares have been lower than we had expected into the winter period, as you know, the Ryanair philosophy is to be load factor active, price passive. What we have seen in that weaker price environment is an enormous surge of airline failures, consolidation accelerating, airlines up for sale. We've made very good progress in our union discussions over the last six months, most recently with recognition agreements voted on by overwhelming majorities by both the German pilots and the Spanish cabin crew, that process of negotiation agreement continues.
As I said, we're taking delivery of the first five of the MAX Gamechanger aircraft in April, May, or June next year. In December, we completed the 100% takeover of Laudamotion by buying out the remaining 25% that was held by Niki Lauda and his family. Laudamotion is now on a very exciting growth trajectory. We have today announced a new group structure mirrored on what we believe the better features of the IAG group structure, which will see us over the next number of years develop four independent airline subsidiaries, Ryanair DAC, being the Irish-based airline, Laudamotion, Ryanair Sun, the growing Polish-based airline, and Ryanair UK, which has recently received its AOC.
I've agreed to sign a new five-year contract to become the Group Chief Executive Officer of Ryanair Holdings, and by the end of 2019, we will appoint a new chief executive of Ryanair DAC, the airline, and each of the individual airline CEOs will then report to me under this group structure going forward. We're today also announcing a board succession plan, and we're keeping our FY19 guidance unchanged, but we remain very cautious about the summer 2019 airfares, while some of our competitors have been, we believe, somewhat optimistic in recent weeks. Just touch briefly on the consolidation acceleration. In the last six months, we've seen airline failures. Primera Air, a 20-aircraft airline based in Stansted and Spain. Small Planet Airlines, Azur Air, and SkyWork Airlines in Germany. Cello Aviation, Cobalt Air, and VLM Airlines. A number of larger airlines are also for sale at the moment.
WOW air in Iceland, flybe in the U.K., and Germania, a 30-aircraft airline, loss-making airline in Germany. We've also seen, though, some of the bigger airlines announce significant base closures and base cuts this winter. The most dramatic has been Norwegian, which has announced plans to close bases, many of which are in short-haul competition with Ryanair: in Rome Fiumicino, Las Palmas, Palma, Tenerife South, Edinburgh, Belfast. They've announced recently also that their Dublin base, which is six aircraft, will be cut to one aircraft in October this year. We ourselves have announced closures of loss-making bases in Bremen, in Eindhoven, and we've also cut unprofitable capacity in Hahn and in Niederrhein as well. Can we rule out further cuts? No, we can't.
If oil prices keep rising or if airfares keep falling, we will have to keep trimming capacity or keep switching capacity away from those bases that are unprofitable and reallocating more capacity to those bases that are profitable. We're not alone in this. Wizz Air have closed base in Poznań in the last six months. Lufthansa have announced the closure of their Düsseldorf base, and even easyJet has announced significant cuts in their Porto base in Portugal, where they compete head-to-head with Ryanair. The key trend in all of these decisions is that these airlines cannot compete with Ryanair on price or on cost, and in difficult times, they tend to withdraw. The Gamechanger, we believe, will create a new five-year horizon for operating cost efficiencies and unit cost reductions in Ryanair. We have 220 aircraft on order.
We take 50 deliveries over the next 12 months up to summer 2020. All of those orders have been hedged. The CapEx has been hedged at $1.24 to the EUR in the order book. These aircraft critically offer us 4% more seats, so a significant revenue upside, a 16% fuel saving, which is key at a time when oil prices have, in the last 12 months, trended up towards $85 a barrel. From an environmental point of view, they're very friendly. 40% less noise emissions, which we think will facilitate more late-night flying at curfew-restricted airports across Europe. The key thing is that these aircraft and this new fleet will help us to continue to drive unit cost savings. Remember, by summer 2020, the MAX aircraft will account for 10% of our total fleet. Laudamotion we've now moved to 100% ownership.
We have, in discussion with Niki Lauda and his family, also agreed to step up the growth. There are opportunities at the main base in Vienna. There's also slot opportunities in airports in Düsseldorf and Stuttgart and in Palma, where Laudamotion or Niki Lauda has a long history of serving that German market to Palma. In its first year of operation, it's been very difficult because of the late release of seats, very low airfares last summer, and very expensive aircraft leases from Lufthansa. Those aircraft have been returned by agreement to Lufthansa this winter. We have set Laudamotion on a rapid growth course that will take us from 4 million passengers and a loss of about EUR 140 million in the first 12 months to over 7.5 million passengers and profitability within the next two years. We're very excited about the Laudamotion opportunity.
It demonstrates that Ryanair can get involved in small-scale M&A. We can bring our low-cost technology, particularly to an airline in a different jurisdiction, but one that's operating Airbus aircraft as well. To touch briefly on the group structure, we're moving in the next 12 months to replicate the successful IAG group structure. I will lead that as the Group CEO with a very small team of legal and financial resources at the group level. Ryanair Holdings and the group structure will drive capital allocation, aircraft allocations, cost efficiency by encouraging those airlines to compete with each other for resources. Also small-scale M&A if other opportunities like Laudamotion present themselves.
The group will see the emergence of four independent airlines, Ryanair DAC being the Irish-based airline, Laudamotion, Ryanair Sun in Poland, and Ryanair UK, which we've recently secured an AOC for, should in the event of a hard Brexit. There will be a CEO and management for each of those individual airlines, but all of the four airline CEOs will report directly to me as the Group CEO. We're also pleased today to unveil the board succession plan that we promised at the AGM last year would be unveiled before the September 2019 AGM. I'm pleased to announce that our long-serving Chairman, David Bonderman, and our Senior Independent Director, Kyran McLaughlin, have agreed to our request to serve one more year until summer 2020, but both have expressed the wish that they don't wish to go forward or be reconsidered for re-election at the September 2020 AGM.
At that stage, David will have served 24 years as a non-executive director, and Kyran 18 years. In order to manage a smooth transition at board level, we're happy to announce that Stan McCarthy, the former Group Chief Executive of Kerry Group plc, who joined the board of Ryanair as a non-executive in 2017, has agreed to take up the position of Deputy Chairman from April 2019 this year. Upon David stepping down in the summer of 2020, Stan has agreed to succeed him as Chairman, although obviously a legend like David Bonderman will be a hard act to succeed, even for someone of Stan's undoubted international experience, skills, and expertise. We look forward to working with Stan as he guides the board through this succession plan over the next 18 months.
Just on guidance for the rest of the year, we expect H2 fares to be down 7%. Traffic will continue to grow strongly. We're looking at a 9% increase in traffic to 142 million for the Ryanair Group for the full year FY 2019. Ancillaries continue to be strong into the fourth quarter with priority boarding and seats driving that. However, as you will be aware, we've got the IFRS 15 revenue accounting standard unwinding into the last quarter, so that'll offset that somewhat. Unit costs are marginally better than we previously indicated back at the half year. Primarily due to lower spot fuel prices on our unhedged fuel, and we expect our unit cost ex fuel to be up approximately 6%, as previously guided.
As a result of all of that, our profit after tax will be in a range of EUR 1 billion to EUR 1.1 billion, excluding the exceptional year one set of losses of EUR 140 million in Laudamotion. This, of course, is subject to the outcome of Brexit, around which there is huge uncertainty at the moment on any security developments. We would also, I suppose, point out, while it's early in the year and we haven't done our budgets, we don't share the optimism of our competitors. We would be somewhat cautious on fares over the coming months and into the summer at this point in time. Michael?
Thanks, Neil. I think just on that final point, I think we should add, we've seen commentary from some low-cost competitors who have very few bookings in place for the summer 2019 season, promising enormous fare growth or enormous increases in average fares. Frankly, with overcapacity in the European market, we don't see that. We don't share that optimism. They have been over-optimistic before. At the moment, as of today's date, we have about 17% of the seats sold through the six months from April to September 2019, and the average fare is about 1% down on last year. That's not to say that closing fares will be stronger, but on balance, we think we should be cautious, and we do not share the optimism, in some cases, the irrational optimism expressed by some competitors in recent weeks. We turn it over to questions and answers. Shane?
Q3 revenue per passenger rose just 1% to EUR 1.53 billion, well behind 8% traffic growth. Why?
The key reason for this, despite the fact that we had a large increase in passengers, an 8% increase in the quarter, average fares were down 6% to just under EUR 30. That's the key reason, really, for the drop.
Q3 fares fell 6%. Will this trend continue?
We think it will. We're guiding that H2 fares will be down 7%. Some of that is accounted for by the fact that there's no Easter in Q4. Easter will appear in Q1 of next year. As I've said, we have about 17% of the bookings already in the bag for the six months to September of 2019, and even including Easter in Q1. Average fares at the moment are tracking about 1% behind where they were this year. We don't expect a similar scale, a 6% or 7% decline in average air fares into next year, but we would still be cautious. We think fares will be flat to slightly downish as long as the current short-haul overcapacity in Europe continues.
Ancillary rose 26% to EUR 557 million in Q3. Why, and what's the outlook for the full year?
A strong performance, as you pointed out there. I would point out priority boarding and allocated seatings as the key drivers of the increase in the year to date. I would expect that to continue into the fourth quarter, although we will see a little bit of an offset from IFRS 15 against that. Year-on-year, ancillaries will be strong.
Is Ryanair Rooms contributing to the ancillary performance yet?
It is, but the contribution is small because what's driving the volume growth in Ryanair Rooms is that we're giving away most of the commission that we receive to customers, our guests taking up the Ryanair Room service. It is building volume strongly, but not making a major contribution to the net profit line.
Why did you close Ryanair Holidays?
It was a very niche product, and wasn't really contributing a huge amount to the bottom line. We've got more to do with the resources that we have, and we felt we could make more profit concentrating on other ancillary products.
Do you expect EU short-haul consolidation to continue?
We do. As you've seen, we set out the kind of cuts that recently have been announced by Norwegian and among others, airline failures, airlines currently up for sale. Germania is one that we've seen a lot of, for example, pilots and cabin crew applying to Ryanair to join. We expect that to continue. The rate and timing of the consolidation, I think, will be driven by oil prices. At the moment, in recent months in Q3, oil fell back from $84 a barrel to just under $60 a barrel. If that were to spike back up to $84, $85 a barrel, I think there would be great or more distress in European short haul.
I think over the next 12-18 months, we will see more EU short-haul airlines go to the wall, consolidate or sell, and there will be, I believe, a downward pressure on capacity growth going forward, although not in Ryanair. We intend to take all of the aircraft we have on order, and we intend to keep the price pressure on the competition because it's those low fares that are driving our traffic growth.
Following your base closures and downsizing in November, will you reduce capacity further?
It can't be ruled out. With fares guided down 7%, if we see further declines in fares or fuel increases, that's something we'll have to give serious consideration to.
How are the airports reacting to this environment?
We're seeing more and more airports, both primary and secondary, redoubling their efforts to persuade Ryanair to either open new routes or to open bases at their airports. This trend has now been extended to our Laudamotion subsidiary as well. It has a very good growth deal in place with its main base in Vienna Airport. Vienna Airport, thanks to Laudamotion's growth after a number of years of stagnation, is growing very strongly, both Laudamotion and Ryanair are in active negotiations with a number of new potential airport bases for winter 2019 and summer 2020, even as we speak.
Where is the growth in FY20?
There's a huge amount of opportunities for Ryanair across Europe. I would highlight new bases that we've already announced for next summer, the likes of Bordeaux and Marseille in France, and a low-cost base deal in Southend in London. As I said, huge opportunities as we start to take the MAXes and grow to 200 million customers over the next few years.
How is Ryanair Sun performing?
Very well. There's a very good management team in Ryanair Sun based in Warsaw. This year, it completed its first successful charter program. It's been profitable in its first year of operation, to such an extent that actually we've transferred. The fleet this year will grow from five aircraft last year to 24 aircraft in summer 2019, as we've transferred much of Ryanair's short-haul, or aircraft based in Poland into Ryanair Sun, which will now operate a mix of charters and schedules on behalf of Ryanair in summer 2019.
What is the latest update on Brexit?
Well, I'm afraid the risk of a no-deal Brexit is worryingly high. We've taken all plans to make sure that we can deal with a hard Brexit in the event that it happens. We've received our U.K. Air Operator Certificate, which means that our domestic U.K. routes are secured. Indeed, in the event of a hard Brexit, we have plans to restrict the voting rights of our non-EU shareholders, which will secure our EU majority ownership and control. We'll also limit their ability, the non-EU shareholders, to sell shares to non-EU nationals. That's the best strategy I think out there in relation to a hard Brexit.
Michael, is there any update on group structure?
There is. We've announced today a group structure which will mirror much of the success of the IAG group structure going forward. I'm going to move to become from being chief executive of Ryanair the airline to become chief executive of the group, or chief executive of Ryanair Holdings, being the group holdings company. Under that, we will have four active operating airlines, Ryanair DAC, which is the Irish airline, which will appoint a replacement for me as chief executive before the end of the year. Laudamotion, Ryanair Sun in Poland, and Ryanair U.K. in the U.K.
Each of the four chief executives will report into me as the Group CEO. I believe that this group structure will enable us to focus on cost reduction, efficient allocation of capital and aircraft going forward, and also to take up or create space for other small-scale M&A opportunities if they arise, much like the Laudamotion. We will not be engaging in large-scale or expensive M&A. We have 210 MAX aircraft to deliver over the next five years, so our organic growth is set in place. The group structure will enable us to do small-scale opportunities like Laudamotion if such opportunities arise.
What about your own contract?
In that, I've now signed up a new five-year contract as the Group CEO. You'll be happy to know that I'm doing that on a reduced basic pay and on lower bonus going forward. Therefore, I'll be leading by example in continuing to deliver a low-cost product for Ryanair and the Ryanair Group.
Is there any update on board succession?
Yes. As we've said, both David Bonderman and Kyran McLaughlin, who have served respectively 24 years and 17-18 years on the Board, have agreed to our request to serve one more year until summer of 2020. Neither of them wish to be considered for re-election at the September 2020 AGM. To ensure a smooth succession, Stan McCarthy, a distinguished and experienced former Group CEO of Kerry Group, who joined the Ryanair Board in 2017, has agreed to take up the position of Deputy Chairman from April 2019. He will succeed David Bonderman as Chairman of the Board sometime in the summer of 2020 in advance of the September 2020 AGM. That clarifies the Board succession. It addresses all of the concerns that were raised about long-serving directors and the management succession plan as well.
Ex-fuel unit costs rose 6% in Q3. What are the drivers of this?
This is a year of growth for Ryanair. We're investing in the growth before we take the MAXes in over the spring and the summer. As a result, we've seen our pilot costs increase by 20%. These are the pay increases that we agreed with our people over the past number of months. We also invested heavily in training for our pilots and cabin crew. We're taking on a large number of engineers to man our new hangars and facilities across Europe. Unfortunately, like all airlines, we've seen our EU261 compensation costs increase quite significantly due to the high level of ATC disruptions this year.
Will these increased costs continue?
Not at this rate. We expect over the next 12 months that unit costs will be flat to slightly down, particularly as we take more and more of the new MAX Gamechanger aircraft into the operation and build towards our summer 2020 schedule, when the MAX aircraft will account for 10% of the fleet.
Have you increased your fuel hedging?
We have. We're now 90% hedged on jet out to the end of FY 2020 at about $71 a barrel. Indeed, we've put a little bit of cover in place into the first quarter of FY 2021, 13% at about $63 a barrel.
Could the EU261 costs increase further in FY 2020?
We expect they will. Like most other airlines in Europe, we are expecting a torrid time with ATC staff shortages and disruptions as a result, particularly among German ATC, U.K. NATS, and French ATC, particularly in the months of March, April, May, and June this year. There has been short staffing among NATS even in the months of December and January when they're not particularly busy. We think the disruptions will continue. It will be particularly painful for airlines and customers in Europe in March, April, May, and June of this year, that's why we're continuing to campaign forcibly with our other partners in the Airlines for Europe group to call on the European Commission to take action now. The states are not willing to reform the very inefficient and badly run ATC services. We need the European Commission to step in and do it.
They need to put the needs of consumers ahead of the narrow vested interests of a tiny numbers of air traffic controllers.
Has on-time performance improved?
It has. It's much improved. We spent a lot of time working on the issues within our control. I'm happy to say that in January, excluding ATC disruptions, we had over 90% on time performance, which I think is a big improvement on where we were last summer.
Do you expect these air traffic control disruptions into next summer?
Yes, we think sadly, they'll be worse than they were last summer, particularly the shoulder months of March, April, May and June.
When do you start flying the new MAX aircraft and what are the benefits?
We have five of them coming into the fleet between May and June of this year. They're fantastic aircraft. We've called them the Gamechanger because they're going to be the next step change in cost evolution for Ryanair. They've 16% less fuel than the current fleet, 40% less emissions and 4% more seats, which means we'll be spreading our fixed costs over more customers but also getting more opportunities on the ancillary side. I think this is a big and important step in the cost control within the Ryanair Group.
With the difficult trading environment, would you consider deferring some deliveries?
No. In fact, if anything, I would accelerate the MAX aircraft deliveries, partly because they offer us more seats, lower unit costs, and a 16% fuel saving per seat. We think these are the aircraft that will deliver the next five years of unit cost leadership and widen the unit cost leadership gap we have over all other EU airlines.
Why has your net debt increased at period end?
We've had a large capital expenditure in the first nine months of the year, over EUR 1.2 billion, primarily for aircraft. We've also been investing in simulators, spare engines, new hangars as we arrange for growth over the next few years. At the same time, we've returned EUR 560 million to shareholders through buybacks. Of course, profitability is down.
Would you consider another aircraft order?
There's no doubt that pricing is currently weakening, I think in the marketplace. There's not much availability of close-in of new aircraft for deliveries in 2021 or 2022. I think you have seen a lot of airlines defer orders and cancel deliveries further out. I think the notable development we've seen, particularly in Laudamotion, has been quite a significant decline in the monthly lease rentals for very young secondhand Airbus A320 aircraft. With that, Laudamotion has been very successful in securing fleet growth from 19 aircraft, 19 Airbus aircraft in summer 2019. They will rise to about 30 Airbus aircraft in summer 2020, and those LOIs are already signed at lower monthly lease rents than the first 19 aircraft we had done.
We see further opportunities for reasonably low-cost fleet growth within Laudamotion on the Airbus side in the next couple of years.
What's the latest full-year guidance?
We expect average fares to be down 7% over the second half of the year. However, this will drive strong traffic growth, which will rise to 142 million customers in the current year. Ancillaries will continue to perform strongly, driven by priority boarding and allocated seating, although there will be an offset from the IFRS 15 accounting standard in Q4. Unit costs are marginally better, primarily due to weaker fuel on our own hedged fuel in the fourth quarter. Unit cost ex fuel up about 6% on a full year basis. As a result of all of that, we're guiding profit after tax in a range of EUR 1 billion to EUR 1.1 billion excluding Lauda.
It's very early in the year, but do you have any thoughts on FY20?
Well, you're right, we're just doing the budgets at the moment. We're getting our head around the numbers. That said, we've heard a lot of commentary from our competitor airlines talking pricing up into the summer. We're not seeing that. We would be somewhat cautious, particularly due to the overcapacity in the market at the moment. Failing a large fall over of one of the airlines, I think pricing will remain under pressure for the coming months.
Is Lauda in the FY19 guidance?
No, it's not in the FY 2019 guidance, although we're pleased to report today that the expected loss, a first year start-up loss in Laudamotion, has been reduced from EUR 150 million to EUR 140 million due to a better unit cost performance in the winter period. Looking forward into the second year of operation, Lauda will grow to carry just over six million passengers. We're working on a budget that shows a materially lower loss, something between a loss of EUR 50 million all the way to breakeven, depending on what airfares and yields will be like in summer of 2019. In the case of Laudamotion, their fares in summer 2019 are materially up on where they were in summer 2018, but that was because their summer 2018's capacity was released so late into the market that they were effectively dumping those prices most of summer last year.
Strong forward bookings, particularly in the German-Spanish market into summer 2019. We think a very successful and growing city market with a strong base out of Vienna, where Laudamotion is competing with both LEVEL and Wizz, but LEVEL appear to have given up on Vienna, and Wizz have arrested their somewhat optimistic growth plans for Vienna now that Laudamotion is growing much faster and will be much bigger than Wizz in Vienna.
Michael, Neil, thank you very much.
Thank you.