Hello, welcome to the Ryanair H1 FY 2019 results 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, this conference call is being recorded. Today, I'm pleased to present Michael O'Leary. Please go ahead with your opening.
Thank you. Good morning, ladies and gentlemen. You're very welcome to the Ryanair H1 conference call. As is usual at these things, we've done a pre-record, which is available to you on the investor page of the ryanair.com website, setting out the H1 press release, the detailed MD&A, the shareholder slide presentation. There's a Q&A section with myself and Neil Sorahan. I would direct you all to the investor page at the ryanair.com website. While you're there, please feel free to book one of our 1 million seats at EUR 9.99 for travel in November, December, January, and February. One of the good news of having lower fares is that we can sell more and more cheap fares than anybody else and put further pressure on the competition over the coming months. This morning we reported H1 profits down 7% to EUR 1.2 billion.
It's really a function of lower fares, higher oil, and higher EU261 costs in the first half of the year. We've left our full year guidance unchanged from the last change, which we made on the 1st of October. The full year range remains in a range of between EUR 1.1 billion and EUR 1.2 billion. H1 highlights include traffic growth of 6% to 77 million passengers. The load factor was unchanged at 96%. Average fares are down 3%. Ancillary revenues continue to grow strongly, up 27%, with 6% traffic growth. Laudamotion investment increased to 75%. We have made very significant progress by signing up union agreements with our Irish pilots and cabin crew, U.K. pilots and cabin crew, the Italian pilots and cabin crew. Last week, we've signed up the Portuguese pilots as well as the German cabin crew.
I think there's been far too much noise in the background about unions and labor issues. We've had 8 days of strikes this year. Really, they've been reasonably small. We had 5 days of strikes by 25% of our Irish pilots. We canceled less than 20 flights out of 300 flights to and from Ireland. Three days of strikes by cabin crew across 5 countries, in which we completed more than 90% of the scheduled flights in all of those cases. That hasn't, however, shouldn't take away from the fundamental strength of the continuing delivery of the Ryanair model. We're still growing strongly. This winter, we've cut or trimmed capacity by 1% with closures of the bases in Eindhoven and Bremen on the 5th of November next. We've cut some flights from Niederrhein. Already for summer 2019, we expect we will grow traffic.
We've announced two new bases in France in Bordeaux and Marseille, a new base at London Southend, and increased capacity in Luton. That takes place against a backdrop with oil rising, spot oil rising to $85 per barrel. Already we've seen the first wave of casualties across Europe, SkyWork Airlines in Switzerland, VLM Airlines in Belgium, Small Planet Airlines and Azur Air Germany in Germany, Cobalt in Greece last week, and Primera Air in Scandinavia and in Stansted have all collapsed in the last three or four weeks. We expect more failures this winter. Mostly, we think one of the two Scandinavian airlines is likely to fail over the coming months, largely because they're unhedged on oil or essentially unhedged on oil, and they couldn't make money when oil was at $40 a barrel. They're certainly not going to make any money when oil is at $85 a barrel.
In our case, we've increased our investment in Laudamotion to 75% at the end of July. We think that's going to be a very, over the medium term, a very successful investment. In the first year, though, it will suffer exceptional losses of EUR 150 million, mainly because the aircraft it had expected to receive from Lufthansa arrived late. They were late to put that fleet on sale this summer, and therefore the yield suffered. Already we've restructured a lot of that business. The Airbus fleet will grow from nine to 18 aircraft for summer 2019, and those seats are already on sale, focusing on three big bases in Vienna, Stuttgart, and Düsseldorf. We believe Laudamotion will come close to break even in its second year of operation, which would be our FY March 2020. Ancillaries continue to grow strongly.
The underlying message I want to impart today is our cost leadership continues. In fact, if anything, our cost advantage over our competitors is getting wider. As they add more expensive aircraft, they continue to grow at airports where they're unable to manage out of the airport costs or the handling costs. We have had some inflation in our pay, but so have they. There's been a shortage of pilots in the last 12 months. I think that shortage is ironing itself out, particularly as more and more airlines suffer casualties this winter. We're about to enter into a period of new aircraft deliveries. We take the first five of the MAX 200 aircraft, the game changers, in March and April of next year.
Remember, these have 4% more seats, but 16% lower fuel consumption per seat, and these will drive very significant unit cost gains for us over the next five or six years. Punctuality this summer has suffered meaningfully at the hands of European air traffic control. We're on target for the worst ever year of air traffic control strikes and disruptions. All airlines have suffered a very significant impact to their punctuality, and in particular, we've suffered an impact to the increase in EU261 costs. While we may not be responsible for ATC strikes or disruptions, EU261 obliges the airlines to pick up the right to care costs, reaccommodation, and right to care, and we are by law prohibited from recovering those costs from the ATC providers. It has become a shambles. Our punctuality in the half year has declined 11 percentage points from 86% to 75%.
13 points of that 11 points is accounted for directly by air traffic control itself. We have made very good progress in our union discussions. We've now signed agreements in most of our bigger European markets. I think what's been interesting about most of those issues, particularly the noise in the background, is that it's not about pay. I think our people and the unions would accept that in many cases, we pay better than the competition. We're certainly the best-paid 737 low-cost pilots. We pay better than Norwegian, Jet2, and in the German market in particular, we pay significantly more than the union agreements with Eurowings, the German subsidiary. Brexit remains. We have more to do. We would expect and hope that we would conclude agreements with most of our pilot and cabin crew unions over this winter period.
I think the failures of a number of airlines in recent weeks have provided, or certainly provided a stimulus to those negotiations and made both the unions and our people much more conscious of the fact that they enjoy excellent job security. They don't want to threaten that. Brexit remains a big challenge for us. It hangs over us in April of next year. The risks of a no-deal or hard Brexit have risen materially, although on balance, we still expect that the U.K. will stumble into transition at the end of March. That transition period will last at least 21 months out to December 2020 and probably be extended thereafter. The real challenge and the concern for us is that the U.K. government may fall. You might stumble into a general election year, and there will be a degree of political uncertainty.
What is clear is that if there is a hard Brexit in March of 2019, there will be or may be a disruption to flights. We suspect that disruption will be for a very limited period of time because I think it's politically unacceptable to the U.K. population that they would not be able to access flights to holiday destinations in Spain, Portugal, and Italy next year. It does, I think expose a lot of the myth-making undertaken by the Brexiteers is that either the German car manufacturers or the Spanish hoteliers would persuade Europe to give Britain a good deal. It hasn't happened.
These talks have proceeded very much along the lines that we predicted at the time. We would hope to see a resolution and a resolution that allows for a very long transition period, which would not cause any disruption to flights or to our share ownership base thereafter. In terms of guidance, therefore, I think we're entering into what I described this morning as a grim winter. It's characterized by declining airfares, which we thought on the 1st of October was a kind of a Ryanair phenomenon. It was a lack of customer confidence because of a perceived threat to our reliability or union disruption. In actual fact, I think we now believe it's a much wider industry phenomenon. Short-haul capacity in Europe is up around 8% this winter. Airfares across the piece seem to be falling. It's not related to Ryanair or unions.
It's related to excess capacity and certainly our willingness to continue to lower airfares into this winter. If there's going to be a fare war, we want to lead it and win it. As a result of that, we have reduced our guidance as we did on the 1st of October. We've taken it down slightly to a range of EUR 1.1 billion-EUR 1.2 billion. We've a 3% reduction in average fares in the first half of the year. We expect fares to fall by about 2% in the second half of the year. That is contingent upon there being no further adverse movements in oil. We are now 90% hedged out to September 2019 at about $68 a barrel. We're unhedged for about 10% of our oil requirements. That is a much stronger position than most of our competitor airlines.
For example, Norwegian is 85% unhedged for the next 12 months. Wizz is about 60% unhedged. I, therefore, much prefer our hedging position to theirs, given where oil is at the moment and where it's likely to go to. We have not ruled out that there may be further base closures or capacity reductions this winter if oil moves materially higher than $85 per barrel or if airfares fall further than the 2% we are guiding at the moment. We can't rule out there might be some upside as well. If there was further failures or competitor failures this winter, then the winter trading might be positively impacted. On balance, we remain comfortable with the new guidance of EUR 1.1 billion-EUR 1.2 billion. The fuel bill will be significantly higher.
Ancillary sales will be significantly higher. The guidance is driven by the expectation that airfares will fall by 2% and that oil or unhedged oil won't rise more than $85 per barrel. Our guidance for the full year of EUR 1.1 billion-EUR 1.2 billion excludes Laudamotion's results. We expect it to lose approximately EUR 150 million out to March of 2019. As I said, in the second year, I expect it to go close to break even. A small loss or close to break even. It's fundamentally dependent on how fares will operate during the summer of 2019. Laudamotion already has its inventory on sale for summer 2019. Forward bookings are strong and at notice of the higher fares than they obtained in the summer of 2018. With that, I think we just go straight now to Q&A.
Neil, is there anything else you want to add? I think we take the MD&A as written. Any kind of points or themes you'd like to raise?
I think it's well covered, Michael, in the pre-record, as you mentioned. I suppose the key thing is that while we have a little bit of pain this year on the cost front, we're in pretty good shape as we look forward with the MAXs coming in next year. Equally, as you said, I'd highlight the fuel hedging, 90% hedged for the next 12 months at well below current spot prices. Total revenue performed well with the help of ancillaries. Although we did take the pain on the cost front from fuel, staff, and the EU261 this year. Other than that, no, nothing else to add, Michael.
Let's open it up now for Q&A. We're going to limit everybody to two questions, please. I don't want three and four-part questions. We'll shoot through it as fast as we can.
Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. Once again, that's 01 on your telephone keypad for any questions. Our first question comes from the line of Duane Pfennigwerth from Evercore. Please go ahead. Your line is now open.
Duane, hi. You could talk a little bit about how you see Ryanair's role in consolidation going forward. You mentioned on the webcast that the new org structure sort of helps you with consolidation. Can you expand on that concept generally?
Yeah. I don't expect us to be a player in consolidation this winter. If you take it, our expectation that Norwegian will probably go bust this winter. IAG and Lufthansa have been kind of rumored or have admitted that they have expressed some interest in Norwegian. I can't imagine why they'd be interested in something that loses that much money, but that's a matter for them. We don't expect to play a role in that consolidation process. We have moved towards or are moving towards a group structure where we would have three main or at least three airlines or AOCs within the group, or four. We have Ryanair itself, Ryanair DAC, which currently has a fleet of about 440 aircraft. Laudamotion, which next year will have a fleet of 20 aircraft, and Ryanair Sun, which next year will have a fleet of about 20 aircraft.
We would expect over the next number of years that much of our growth will take place through either the Ryanair Sun vehicle in Poland and/or Laudamotion in Austria and in Germany. I think that's a more sensible way for us to grow, is to have multiple AOCs, a number of different brands within the business. As for being a player, I think our contribution to consolidation this winter is we would expect to speed up the consolidation process by being very aggressive on pricing, driving down airfares in markets where, in particular, our competitors are not able to compete with us on price and are essentially unhedged on oil.
Fair enough, Michael. Then just for my follow-up, given the outlook for fares and higher fuel, how do you think about the buyback going forward? Thanks for taking the questions.
I think we've committed to continuing our buybacks, but I think it's appropriate. We've just finished the EUR 750 million buyback, Duane. I think it's appropriate given how close we are to Brexit. We should wait and get some certainty as the outcome next March. As I said, I think it's likely that the U.K. will stumble into transition, and therefore the can will get kicked down the road for at least another 21 months. Once we have some degree of certainty on that, I think we would then begin to probably look at another buyback in the spring of next year that would run through the summer. The reason I'd be a little bit cautious is just on the off chance that there is a no-deal Brexit.
We've already agreed measures with the European Commission, which is we would, for a period of time, I suspect 6-12 months, we would disenfranchise all non-EU shareholders from voting, and we would put restrictions on all non-EU shareholders, or at least the non-ADR non-EU shareholders, that they could only dispose of their shares to EU citizens, residents, which would very quickly bring us. If you treat the U.K. shareholders as non-E.U.s, we'll probably move on in a hard Brexit to 54%-55% non-EU shareholding. By restricting their voting rights and by requiring them only to sell to EU shareholders, we would right that from 54%-55% back down to 49%, I think in a number of months or pretty quickly. The Commission is happy that those are the appropriate steps for us to take to protect our EU ownership and control.
Once we have got it back down to 49%, we would reallow the non-Europeans to vote, and we would remove the kind of share ownership restrictions once we've protected the EU licenses. I think we would, certainly for the 6-month period, not do more share buybacks until we have some more certainty on Brexit. A share buyback might be one of the ways we respond to a no-deal or hard Brexit.
Thank you.
Thanks, Duane. Next question, please.
Thank you. Our next question comes from the line of Jarrod Castle from UBS. Please go ahead, Jarrod. Your line is open for your question.
Jarrod, hi.
Two new French bases. I'm just going to get a bit more color if we could see more and also just about Scandinavia base opportunity. Secondly, just on extra unit cost performance. Obviously quite a challenging year this year. Thinking a little bit ahead to the next financial year, should we start to expect kind of a more normal kind of extra unit cost performance from Ryanair, i.e. flat to maybe even negative again? Thanks.
Thanks, Jarrod. Yeah, we have a lot of opportunities in France and in Scandinavia. I'll ask David maybe to give you some flavor. We had very serious offers on the table. I think about seven offers from French, mainly regional airports, with no particular desire to have a base in Paris. Most of the other of the large French regional airports, we've selected Marseille and Bordeaux. We certainly have good deals on the table for another three or four. Eddie Wilson, the Chief People Officer, is already in dialogue with the French pilots and the cabin crew union. We could take it that as we open those bases, we'll do so in compliance with the French labor law and Scandinavia is also interesting. I would be reluctant at the moment to do anything in Norway or in Sweden, where they are adding travel taxes.
Copenhagen is certainly an airport where we've grown very strongly in recent years. I think we're the number three airline in Copenhagen. We do have a plan to grow there pretty rapidly, if anything untoward were to happen to either SAS or Norwegian. We have more, as is always the case, we have more growth opportunities than we can handle, and they don't require any further growth in France or in Scandinavia. We have much more growth in Spain, in Portugal, in the U.K., Ireland, all over Europe. Unit costs, yes, I would expect next year, particularly as we begin to spool up the volume of deliveries of the MAX 200 aircraft. We will have very modest airport and handling cost. Unit cost would be flat to slightly down. Route charges could be up. It depends what they do.
Aircraft ownership and maintenance costs will be meaningfully down. Sales, marketing, and other will depend on ATC disruptions and, at the moment, the EU261 cost of disruptions. We'll have a very higher or penal prior year comp from this year's ATC disruptions. I would expect staff unit costs to be flattish going forward for the next year or two as we bed down the national agreements based on national law and local labor, local law, and local regulation with the unions across Europe. I think what's been interesting about the dialogue with unions this year is it's been very few have been seeking more money. I think there's an acceptance that Ryanair does pay well, the pilots and the cabin crew. Most of the issues have been around local pay, local labor, local tax, et cetera.
We have already signaled our willingness to move to local tax, local regulation from the 1st of January. I would expect that from next year onwards, unit costs, particularly as we spool up the MAX 200, will continue then to be flat, maybe slightly down. In a marketplace where most of our competitors, their unit cost control will continue to be pretty poor as it is at the moment. What's interesting about our unit cost increase this year is it will probably still be less than most of the ex-fuel unit cost increase of most of our competitor airlines. David, do you want to comment on France and Scandinavia?
Yeah. In the case of France, I can see us more than doubling our activity in France in the next 18 months. In the case of Scandinavia, that's a market I think that will come to us rather than us rushing there. There are no real barriers to entry. It's far away from everywhere. There are a lot more opportunities closer to the center of Europe. We'll see what happens there, but there's no particular urgency. I think it's worth emphasizing again how within our existing big markets, there's still so much scope for growth. Like this winter, 60% of our growth is in our top four markets. Next summer, more than 50% in our top three markets. There's no particular urgency about Scandinavia. France, we've made our decision, and we will certainly continue to grow there.
Neil, do you want to add anything on unit costs? I should before I ask you anything on unit costs. Also remember our hedging position is very strong. We're now 90% hedged on oil out to September 2019. Almost equally as important, we've hedged all of the CapEx, the dollar CapEx on the MAX 200s, which run out to 2024 at a $1.25. Compared to current rates are about $1.10. We're in very good shape on the dollar, on the OpEx and the CapEx hedging as well. Neil, unit costs, anything you want to add?
Yeah, just the only thing I'd add there, Michael, is that from the back end of FY 2020 onwards, we start handing back some of the old leases. We'll also start disposing some of the older aircraft, which will be helpful on the maintenance line. We start to see the benefit of the MAXs really coming through as we have the critical numbers, particularly into FY 2021, but we'll see some of that into FY 2020 as well.
Good. Okay. Next question, please.
Thanks very much.
Thank you. Our next question comes from the line of Daniel Roeska, Bernstein Research. Please go ahead. Your line is open.
Gentlemen. More near-term on the European consolidation. Given that your fleet delivery pace is slowing down a bit in 2019 and 2020, how do you see the opportunity on capitalizing of that consolidation? Is that more about pivoting out of less profitable routes today into that white space? Or is it more about really additional growth and opening bases in Cyprus, for example? Secondly, a little bit more strategically on your revenue management. Once we get through the current sector phase of high capacity and high fuel, would you consider shifting some IT development capacity, kind of within the Ryanair Labs to improve your inventory revenue management systems? Would you see more opportunity here in being a little bit more yield active on the fares? Would you rather look at starting to revenue manage some of the ancillaries a bit more? Thanks.
Thanks, Daniel. Capitalizing on consolidation, I think it would be opportunistic. We do have a slowdown this year. This winter, we only take 20 new aircraft. Next winter, which is the winter of 2019, 2020, we back up to 45 aircraft deliveries. This is the one year, the one winter, where we have a slowdown in capacity. I think we would be very happy to see the capacity cost Europe consolidate. We think 8% short-haul capacity growth this winter is clearly too much. I think that's why there is such a bearish pricing environment out there, even as oil prices are rising. I expect some of that capacity will fail and come out of the market this winter. I think I would be an optimist on summer 2019. I think the last five cycles, airfares tend to follow fuel with about a 12-month lag.
Fuel has been rising for more than 12 months now, I think into next summer you'll see the major legacy airlines restore fuel surcharges. I think certainly Lufthansa in the German market, IAG and Air France, you'll see the reemergence of fuel surcharges. We'll be very happy to let our fares track up behind somebody else's fuel surcharge. I would rather see that capacity come out of the marketplace. Would we move some capacity around? Yes, we would, if there was an appropriate opportunity, and clearly we think that opportunity is in Scandinavia. I wouldn't rush mad long headlong into Scandinavia either. The Norwegians are still talking about raising travel taxes, which is somewhat ironic for a country whose main export is oil. Sweden has a similar attitude.
If there was a major failure up there this winter, I think there will be, certainly we are already in negotiation with a number of the Scandinavian airports over moving some aircraft up there if they confirm and it's an appropriate incentive for us to do so. Going forward on revenue management, no, we wouldn't be using labs to somehow re-engineer the revenue management system. We operate a load factor management system. It's a very successful formula. We maintain a 95% year-round load factor. I think in the next 12 months, we'll maintain that 95% load factor. Certainly, if there's more capacity consolidation or if oil prices remains 85%, there will be upward momentum in pricing certainly into the summer of 2019. We will and will continue to use labs, to exploit and identify other means of boosting ancillary revenues.
I think if you look at the 27% jump in ancillary revenues in the first half of the year, you can see the kind of job that labs are doing. The next big step, that will be on the 1st of November when we move to restricting the non-priority passengers to only one carry-on bag. Admittedly, that carry-on bag is 40% increased in terms of size. We're seeing, I think, a material up step in the uptake of priority boarding. There will be some trading down of passengers with checked-in bags in the 20 kg checked in bags to the 10 kg checked in bag. I think labs has clearly demonstrated over the last two, three years that it is the way forward. We started a big program in labs this winter that will take about 12 months.
I might ask John Hurley to talk with labs 3.0, where we begin to do much more and develop much more personalization on the mobile app and on the website. That when you come to the website in the summer of next year, in each case, it will identify the routes that you've flown on in the past. It will identify the services you've taken in the past. If you haven't, for example, taken hotels in the past, it won't bother you with offering you with hotels. We have a much more personalized product. I think that's key to when we're doing big seat sales. Instead of us sending you an email going with a million seats on sale today at EUR 9.99, it'll be much more a, "Dear Daniel, we know you flew to Faro last year.
We have a EUR 9.99 seat sale on the Faro route in November, December. Would you like to take up an opportunity with us?" Much better personalization. I think that's where the future would be in labs. In terms of revenue management and using it to boost somehow airfares at the expense of load factor is not in the plan for a very long time.
Right. Thanks very much. Kind of spooky that you picked Faro, though.
There we go.
Thanks.
Thanks, Daniel. Next question, please.
Thank you. Our next question comes from the line of Savanthi Syth from James. Please go ahead. Your line is now open.
Savi, hi.
I wonder if you could discuss if there's any changes as a result of going into local contracts on either the system side or operational side. Does that create any complexities or anything like that? For my second question, just could you provide an update from an operational standpoint and then a sort of revenue standpoint, kind of the result of the change in the bag policy recently?
Okay. Sorry, I'm just writing the notes here. On the local contracts, there'd be very few changes operationally or in terms of efficiency. Remember, there's a kind of a myth put out there or a narrative by the unions that somehow we all have people on Irish contracts because Ireland is some kind of social dumping ground. Ireland complies with exactly the same EU labor law as all of the other EU countries. The one penalty of operating out of Ireland, actually, though, is that personal tax rates are high in Ireland. Ireland has an image as a tax haven for corporates, but personally, you're paying the top rate of tax, which is 55% at about 33,000 EUR. Unusually, for many of our people, both pilots and cabin crew, there will be an income tax saving by moving to local contracts and local taxation.
That's why we're trying to move them there by agreement with the unions as early as we can in 2019. We're hoping for 1 January 2019, subject to agreement with the unions. There is very few restrictions. There's certainly no operational restrictions that would cause us any issues. In almost all cases, The pilots are very keen to stay on our fixed five on, four off rosters. In terms of change the bag policy, no, there's nothing to share really at this point in time. We see a significant uplift in priority boarding. We see a diminution in baggage revenues because there'll be some trading down from people who are currently booking our 20 kg bag at 25 EUR, there will be some trading down of those guys to the 10 kg bag, which you can now buy from 8 EUR.
I think the critical thing for us is we're happy for this to be a revenue-neutral change as long as it can eliminate gate bags or the gate bag problem, which has caused flight delays through the summer period. That will help us to deliver improved punctuality and a better customer experience. What's been interesting, despite some regulatory pushback, actually, the feedback from customers has been overwhelmingly positive. A lot of customers have seen and experienced the flight delays this summer, the inconvenience of the gate bags, and are certainly welcoming the move to clarifying that the priority customers can have the two gate bags, and the non-priority who choose to be non-priority will travel with one.
Have you seen that operational improvement, Michael, as you make the change?
No, I wouldn't expect to yet. I think we really won't see the operational improvements, Savanthi, until next summer. We introduced this change in November. It's the winter schedule. We tend not to have a lot of gate bags during the winter schedule. We don't have a lot of leisure travel. There will be some at Christmas, but it's essentially a way we have of into the summer of next year, particularly a lot of European airports where you're doing remote stands or you're boarding passengers with buses. The key there is to reduce the amount of bags being brought to the gate. It speeds up the customer experience at airport security, and it speeds up the aircraft boarding process.
Got it. Thank you.
Thanks, Abby. Next question, please.
Thank you. Our next question comes from the line of Stephen from. Go ahead, your line is open.
Stephen, hi.
Yeah, Michael, can you just talk about Italy, how do you see that playing out with Alitalia? It's an important market, obviously, for you. The second question, maybe we could go through just a bit about the new handling provider at Stansted and what that's going to do or help you at least with the OTP. That'd be great. Thank you.
Thanks, Stephen. Yeah, Italy continues to be a major market for us. We're the number one airline in Italy. I think the key development in Italy is obviously the new government, which is a coalition of Five Star and the Northern League, look to have moved, I think, decisively away from a sale of Alitalia to other more competent management, Lufthansa or somebody else. I think they're now talking about possibly refinancing Alitalia or selling it to the Italian railway system. I think anything that keeps Alitalia in Italian ownership is good, both for Alitalia and for the Italian market generally, and it's certainly good for Ryanair's continued expansion in the Italian market. We're very happy with the Italian market.
We'll continue to grow in the Italian market. We see further opportunities for growth, particularly as some of the others, the easyJet, Lufthansa, and others, continue to trim capacity in the Italian market. The new handling provider in Stansted was a recognition that I think Swissport have mismanaged our handling this summer. We have had some problems there, particularly with staffing and staffing at weekends. We put it out to tender again. For reasonably similar costs, there'll be no change in cost. We are much more now in control of the staffing levels per shift, the number of teams per crew. We are investing. Ryanair itself is buying the ground handling equipment now, the steps, the tows, to make sure that we are. I think one of the problems we had this summer was we think Swissport took on too much third-party business.
There was a surge in flights this summer, and we found they had people who were supposed to be handling our flights were off handling charter airlines or something else during the peak period. The critical element of the OmniServ contract next year is it's dedicated to Ryanair. They will not be handling any other airlines. They're not going off to handle somebody else's flights. They're not going off to de-ice somebody else's aircraft. We will have more staffing, more on the ramp and at front of house, and they will be dedicated solely to handling Ryanair's passengers in the front of house and Ryanair's aircraft on the ramp. We think that that will probably add three or four points to our punctuality because Stansted is critical to the entire punctuality operation because so much of our business is in and out of Stansted through the day.
Right.
It's critical that we get Stansted right next summer. I think at majority of weekends this year, they were understaffed, and the staff that were there were running off to handle somebody else's aircraft when we account for 90% of their business, and we're not willing to accept that again.
Okay. Thank you.
Thanks, Stephen. Next question, please.
Thank you. The next question comes from the line of James Hollins from. Please go ahead, James. Your line is open.
James, hi.
Yeah. Hi. Good morning. Just two for me. Just on guidance, actually, probably both for Neil. On the Laudamotion, if we go back to Q1, I think you were talking about a year to EUR 50 million loss. Probably needed 40-50 aircraft to be making a positive contribution. We're now talking about break even up to EUR 30 million loss. Does that sort of relate to some of the bullish comments on summer 2019, or is it something else? The second one on guidance. Just wondering if you'd be happy to put a number on ancillary unit revenue guidance. You've obviously done about 11% underlying in H1. I think at the full year, you talked about plus 3%-5%. I was wondering if you could put a number on it again for us for the full year. Thank you.
Okay. Just looking at the Laudamotion guidance. Since we've gone up to 75%, James, we're now helping them out with their hedgings that are included in our hedge program for next year. We're looking at their airport deals. We've managed to source, along with their team, relatively inexpensive leases for next summer. Their costs are going to be transformed as we look into next year. They also have managed to get their flights on sale significantly earlier than they would have done this year. They were very late to market this year. They're now eight, nine months in advance of the summer already selling their schedule. Again, we would expect to see their revenues increase significantly. They'll also get more access to ancillary products that they mightn't otherwise have had in the current year. That's what's really driving the improved performance into FY 2020.
That's why we're talking about possibly break even, more likely a small loss, and then in the black fully in the third year of operations.
Ancillary unit cost
Yeah. We would expect ancillary unit costs to be in low double digits on the full-year basis.
You mean unit revenue, right?
This is on the revenue, yeah.
Sorry. Okay.
Revenue per pax.
Yeah. Cheers.
The one other thing I'd add to the Laudamotion guidance for next year is that Laudamotion, one of the big problems, challenges they faced this summer is they were unhedged on oil, so they've been paying full spot. Whereas in our hedge program right out to September 2019, we have hedged Laudamotion's fuel at EUR 68 a barrel next year. There's material aircraft savings, material fuel savings, and a much better run into it. The reason we're so wide of the guidance, banning between 0-EUR 30 million is, we're really not sure where the fares will finish up into the peak of next year.
We think with a strong base in Vienna, Stuttgart, Dusseldorf, and a large program of flights to and from Palma de Mallorca where the Germans love to go in the summer, the yields will be materially better.
Brilliant. Cheers, Michael and Neil.
Thanks, James. Thank you. Next question, please.
Thank you. The next question comes from the line of Damian Brewer from RBC. Please go ahead, Damian. Your line is open.
Damian.
Good morning.
Morning.
Morning. Two questions if allowed. First of all, can you just give us an update on what happened with the European competition complaint, and particularly the expected earlier aspect of it about other companies' crew being involved in union negotiations? Secondly, can you just come back on the airports? I hear what you're saying that the underlying cost per passenger is up just shy of 4% in Q2. Could you give us a feel for what the constant currency level looks like, and in particular, what's changing there that will keep that constrained and even maybe slightly better than that into next year? Thank you.
Okay. I'll ask Julius just to address the competition complaint. On the cost per passenger this year, much of that was the impact of sterling on the cost base of the U.K. airports. We do expect with the new deals that David has been doing at places like Bordeaux, Marseille, some of the growth incentives we've put in place, we would expect that the airport cost per passenger will be flat, slightly downish for the next year or two once we get through this year. That again, would be material growth in Stansted, where we continue to have a significant incentive, and there has been a noticeable improvement in some of the growth deals being offered to us at airports in Scandinavia, in Italy, and in some of the German airports where there's been failures in recent weeks. Julius, you want to touch base on the competitor complaint?
Just briefly to remind everyone, our complaint, which is now about three weeks old, has two pillars supporting it. The first one is a thing which is called collective boycott. It is a relatively unknown competition law term. It's quite challenging, but we firmly believe in this case. The second pillar is the more immediate one, and that is competitor employees' participation in union negotiations involving Ryanair. This is the one where we have asked the European Commission to issue an urgent decision confirming that it would be illegal, that it would be a breach of competition law for competitor employees to participate in our union negotiations. We have been in touch with the European Commission on this matter several times since we have filed the case.
There has been a change of personnel in the unit in the Commission which deals with this case, we are discussing this matter with the new person involved on Wednesday this week. We will hopefully have an update in the coming days.
Some of the unions have been very helpful, I think, in aiding that case in recent weeks. Some of you may have seen we had that faux, the fake photograph of a cabin crew allegedly sleeping in a crew room in Málaga, which was entirely staged. What's remarkable is that most of the commentary comes out of a guy called Fernando Gandra, who's an easyJet cabin crew in Portugal. Our friend, fake Fernando, who's widely quoted as this is in day when he started off, I think this is cabin crew sleeping on the floor. He's now moved his position to this was just a protest photograph, which I think is a euphemism for just a fake photograph by fake Fernando. Here you have an easyJet cabin crew making the running in Portugal on this issue.
In Spain, we have a Norwegian cabin crew doing the same thing. Last week we had a somewhat silly press release issued by a guy, a Lufthansa captain, on behalf of the ECA, calling for declarations of war on Ryanair. What Lufthansa pilots and easyJet cabin crew or Norwegian cabin crew are doing in the middle of our negotiations with our pilots is somewhat unusual, and the point we have made is that TAP wouldn't accept a Ryanair cabin crew negotiating with them, and Lufthansa certainly wouldn't accept having a Ryanair pilot negotiating there on behalf of the Lufthansa pilots with Lufthansa. It is bizarre, and it's unacceptable. We're very happy to deal with the unions. I think what's unusual is the vast majority of our negotiations with the unions, the unions have had no difficulty in eliminating competitor employees.
The German pilots have taken Lufthansa out of the room. The Portuguese pilots have taken out the TAP pilots. It's just in Spain and Portugal, we have to deal with these. The Norwegian cabin crew has no interest, even when we're in front of the mediator in Spain, in coming out with a sensible agreement. He just wants to cause as much disruption as possible. We're put up with it, but we've been making the point that this is fundamentally anti-competitive in much the same way that if Ryanair people were employees when they're disrupting negotiations between easyJet and their people, easyJet would feel equally aggrieved. We would hope to have some ruling. That's not to constrain what the people that the unions can choose to have in their delegation. You choose who you want.
Preferably they should be Ryanair employees aided and assisted by full-time union officials. They shouldn't be competitor employees who have a vested interest in disrupting Ryanair services for the betterment of their employers. Next question, please.
Thank you. Our next question comes from the line of Johannes Braun from MainFirst. Please go ahead. Your line is now open.
Johannes, hi.
Yes. Hi. Just two technical financial question, I guess, for Neil. Firstly, your operating cash flow has been down 30% in H1. In the cash flow statement, I can see a negative impact of EUR 94 million write-up of intangibles and also some EUR 80 million year-over-year negative impact from other current assets. I guess this has to do with the Laudamotion acquisition. Is it right to assume that excluding these write-ups, the losses at Laudamotion would have been worse than the EUR 45 million loss which is reported in your P&L for H1? Secondly, there was this unusual low tax rate in Q2, I think only 8% or so, driven by some EUR 30 million total tax credits. I think some refer to Laudamotion and some to yourself.
Is this something that will reverse in H2, or will that impact full-year profits and therefore is relevant for your net profit guidance?
Okay, Johannes, on the intangibles first, that's tied in with the slot valuations on the slots that we've acquired from Laudamotion. We've only consolidated Laudamotion into our numbers from early August. You'll recall that we treated any losses prior to that as associate losses where we took 25%. They've only been fully consolidated from early August into the numbers, which is what you're seeing, and the intangibles effectively are the slots that we've acquired. On the tax rate, you're correct. There was a one-off adjustment in relation to Laudamotion there, where we've booked a deferred tax asset on the losses that they have post-consolidation. On a full-year basis, ex Lauda, we would expect our tax rate to be somewhere in the region about 9.5%-10%, close to 9.5%, I would estimate.
There are some timing differences in there as we take delivery of more aircraft over the course of the year.
Great. Thank you.
Thanks, Johannes. Next question, please.
Thank you. The next question comes from the line of Mark Simpson from Goodbody. Go ahead, Mark. Your line is open.
Two ancillary. It could be said that the second quarter ex IFRS 15 performance was a little bit disappointing, 9.3% underlying per pax rev against 11.5% in Q1. I wonder if you could just tell us in a sense what might have driven that change. With Lauda, I think you mentioned obviously expectation of ancillary to come through on that. The presentation in the release shows zero ancillary. I don't know if that's just part of the presentation, or what do you think you can do with Lauda passengers going forward in terms of achieving, I don't know, like-for-like ancillary per pax numbers?
Okay. I wouldn't get into the quarterly breakdown on the ancillaries, but we're very happy with ancillary revenue growth up 27% in H1, with a lot of the lines moving favorably. Our passenger penetration on reserved seating, priority boarding, even baggage rising a bit in the first half of the year. The one that continues to underperform almost to plan is hotels, where we continue to give away the commission in order to build revenue. It has an impact on the revenue line, but we don't get a contribution from it. We would expect that to continue over the next year or two. We would expect ancillaries to continue to perform strongly at or ahead of scheduled traffic growth, certainly for the next year or two. In Lauda didn't have any ancillary income in the first half of the year.
One of the things we inherited was a contract with Laudamotion where they gave away the in-flight revenue to a third-party provider for no contribution. We have now terminated that contract with effect from the end of January of next year. Ryanair will be taking over the in-flight and the ancillary revenue management from Laudamotion. We would expect in reasonably short order that Laudamotion would be generating a pretty significant ancillary revenue, not necessarily as quite as high as Ryanair, but certainly in line with the general Ryanair numbers. Laudamotion don't want to sell scratch cards. That's fine. We said, "That's your decision." They also want to have some slightly different policies in relation to baggage. We said, again, that's their decision. They can copy our policies. If they choose to divert from our policies and it works for them, that's fine.
We're happy to see that happen. The key issue is that they subcontracted away all of their in-flight sales for the first 12 months, that contract we have now terminated with effect from January, end of January, Ryanair will have a significant ancillary income stream building up over the second year of operations.
That's great. Thanks.
Thanks, Mark. Next question, please.
Thank you. The next question comes from the line of Alexander Paterson from Investec. Please go ahead, Alex. Your line is now open.
Two questions, please. Firstly, just on the
lease savings from Laudamotion where you're exiting the leases with Lufthansa and going elsewhere. I wonder if you could give an approximate quantification of that. Secondly, just on your reporting going forward, will you show Laudamotion separately? This is for sort of passenger numbers, revenues, that sort of thing, or just provide a combined business as you go into FY 2020, please.
Okay, thanks. The Laudamotion leases, obviously we are constrained by the settlement agreement with Lufthansa from what we can say. Laudamotion has agreed with Lufthansa to return the nine aircraft. I think it's safe to say though that the monthly lease rentals of the 18 aircraft that we have now negotiated for summer 2019. The monthly lease rental is a fraction under EUR 200,000 per month, that would be a material benefit improvement on where we were. I mean, the monthly outflows on the Lufthansa leases were more than double that EUR 200,000 per month. They were way significantly above market. We can't obviously specify the detailed numbers, because it's subject to a confidentiality agreement. Going forward, I think what you'll see us do in disclosure, but Neil, you're more expert in this than me.
I think what we'll see into year two, is we'll separately report Laudamotion on traffic, monthly traffic, customer stats. It'll be consolidated for the purposes of the quarterly and the annuals because at that stage we will at some point in time over, I expect over the next 12 or 24 months, we will move to take, we'll buy out Niki Lauda's 25%, we'll move to 100%. I think we were anxious to show it this year as exceptional because really the year-one losses are truly exceptional in Laudamotion because of the late start, the fewer aircraft numbers, the fact that we had to lease them 10 aircraft so that they could take up and use the slots this summer. Next year, therefore, it will simply be it's incorporated into our numbers at the group line, and we won't show it separately, separate trading. Is that fair, Neil?
That's correct, Mike. The reason why we're splitting it out this year, Alex, as Michael just said, is that we want to make it easier for you guys to understand the business X and the business including Laudamotion. The plan is as we move into next year, we'll be guiding on a full Ryanair Group basis, and we'll be consolidating on a full Ryanair Group basis on the numbers and the P&L and balance sheet.
Great. Thank you.
Okay, thanks Alex. Next question please.
Thank you. The next question comes from the line of Morgan Stanley. Please go ahead, Penny. Your line is open.
Penny, go ahead.
Hi there, guys.
No, next question please.
Oh, sorry.
Oh, sorry. Penny, go ahead.
The line cut out, so we couldn't hear who the person was. Just one question on my side. Just to check in on the status of agreements in terms of, I guess what we call JVs with, Aer Lingus and other carriers, in terms of transfer passengers and those types of deals. Is there any update you can share on that front as to the progress?
I'm sorry to say we can't. Unfortunately, the Aer Lingus one is going nowhere. We're still waiting for them to get their IT shit together, and we have no update from them when they'll write or rewrite the programs they need to do. The delay in it, we've done our IT work. I think they're still running six, nine, 12 months delay on Aer Lingus. They subcontract a lot of their IT, so it falls into some sort of a sequencing within, for them. David has done a deal with Air Malta, so we're now-- Are we connecting or feeding into Air Malta, David, is that correct?
No, we're simply selling them at the moment. Connection is some time away.
Connection there is some time away. Really, I would say, we're some time away on the feeding of those airlines and other airlines for the moment.
Okay, thanks very much.
Next question please.
Thank you. Our next question comes from the line of Catherine O'Connor, UBS. Please go ahead. Your line is now open.
Catherine, hi.
Hi. Morning, everyone. Two from me please. Just wondering if you could give us an update on, in the last three weeks, what you've seen in terms of progression on yield for the third quarter and in particular for the October and Christmas key trading periods. Just wondering whether it's deteriorated or better and how that 3Q contributes to that minus 2% you're roughly guiding to. The second question, just in terms of the ancillary penetration, I know we talked about the guidance for the full year. Just wondering where we are on the priority boarding penetration and reserve seats. I know you've previously spoken about sort of 50% threshold for those two.
Yeah. I'll come back on the ancillary penetration. I mean, obviously if you did priority boarding, it would cap at 50% of seats, because beyond 50% clearly it wouldn't be priority. We are certainly moving close to 50%. We would expect after November that we will be at or close to the 50% cap on most flights. That the revenue boost there will be eaten up somewhat by some trading down or yield softness on the checked-in bags where people will trade down from the current 20kg, EUR 25 checked-in bag to the EUR 8 checked-in bag. On yield progression, there hasn't been anything significant movement. I mean, we saw the yields getting soft into the third quarter, really at the last week of September, first week of October.
I think what's changed in the last two, three weeks is at that point in time, we thought it was a Ryanair-specific issue. As is always the case, as soon as we see something, we warn. We thought it was a Ryanair-specific issue relating to kind of customer contact on union. I think what we've seen in the last three weeks is it's not that issue. It's much more a sectoral issue to do with overcapacity in the sector this winter. We have seen a number of failures in the last couple of weeks. Our forward bookings are strong. Certainly, we will maintain the load factor year-over-year. Our forward bookings through November, December, January are running about 1% ahead of where they were this time last year. The fares are slightly lower than last year. I think the 2% lower yield guidance is reasonable.
There is a risk it could get slightly worse than that over the winter. I think we should be cautious. We're certainly being aggressive on airfares. We've a EUR 1 million seat sale out there at EUR 999 for travel today in November, December, January and February. We see other airlines pricing down below where they were pricing this time last year. We see that in easyJet, Wizz, Norwegian, but also we see it materially in Aer Lingus, BA, Air France, and Lufthansa short haul. Which is somewhat of a surprise given that Lufthansa now controls the German domestic market itself. The yield progression hasn't altered materially in the last three weeks. I wouldn't rule out that our yield guidance could move for the winter from minus two to minus three. I don't think it'll go to minus four.
I think there's going to be more bad news before there's good news this winter.
To that extent, therefore, I would expect to see further failures. In many respects, if there's a large failure, then that will alter the pricing outlook for the remainder of the winter period. It's hard to tell, Catherine, but there has been no material worsening in the last three weeks, and there's been no material improvement, if that makes any sense or if that's helpful.
Yeah, that's great. Thanks very much.
Thank you. Next question, please. Guys, we've got about five more minutes, and then we've got to go and do investor meetings. If you don't mind, but we'll try and take as many questions as we can now in the next five minutes.
Thank you. Our last question comes from the line of James Goodall from Redburn. Please go ahead, James. Your line is open.
One, if you've only got five minutes. On the ex-fuel costs next year being flat to down, does that include Laudamotion? I assume that's got a fairly dilutive impact. If it does the guidance still hold?
Yes, it includes Laudamotion, but I'm not sure you got cut off there. You said, does the guidance still include something?
Yeah. Does it include Laudamotion? If you would then exclude Laudamotion, what would the guidance be? Would it be flat, slightly down still, or flat, slightly up?
Which? The unit cost guidance?
Yeah. Ex-fuel cost.
No, I think ex-fuel flat for FY 2020 is a reasonable assumption. We'll be trying to deliver slightly down, but I would start off with flattish.
Okay.
We can stay up for another couple of minutes, so if there's any more questions, we'll take another one or two.
We just had another question registered, and it is a follow-up question from the line of Alex Paterson from Investec. Go ahead, your line is now open.
Point. When you say, let's call it flat for FY20, including Laudamotion, would that be historically adjusting 2019 numbers to include Laudamotion in the base? Or is it off what you would report in 2019 to what you would report in 2020, and then 2020 you'd have Laudamotion, and 2019 you would not be consolidating other than at the exceptional level?
Jesus, that's much too complex a question.
Alex-
Neil, do you want to have a guess at that fucking answer? Beyond my pay grade. I would imagine we will not.
Just going to jump in. From a pure accounting basis, Alex, at year-end, we'll give you a statement like we did today, breaking it out. We will ultimately have to consolidate Laudamotion into our GAAP numbers at year-end. We'll be talking on a like-for-like GAAP accounting basis as we guide into next year.
Okay. Thank you very much.
I would still think that that would give a still slightly flat unit cost. What it will do, if we fully consolidate Laudamotion, is that the yield this year would be down, and the prior year comparable would be easier for the following FY 2020. Most of the Laudamotion, EUR 150 million loss this year, has been on the yield and ancillary revenue side rather than on the cost side. Their costs aren't bad, apart from the aircraft leases.
Okay. Thank you very much.
Okay, thanks Alex. Okay, everybody, I think that's all the questions done. We have a roadshow on the road for most of this week. If you haven't got a meeting and you'd like one, please talk to us through Cindy or David, who will be happy to facilitate a meeting. Otherwise, or Shane O'Toole, the head of IR. Otherwise, we hope to see you sometime later during the week. Remember that the key things here is there's a lot of background noise out there at the moment on oil, on unions, and on disruptions. It's really noise. There has been no change to the fundamental Ryanair story, which we have a very strong unit cost leadership, pricing leadership over every other airline in Europe.
We are facing into a five-year period where we start taking delivery of 200 MAX aircraft, which will give us 4% more seats and 16% lower fuel costs. We will roll out that incremental fleet on routes all over Europe, where I expect there will be consolidation over the next 12 months on the back of higher oil prices. Moving into summer 2019, I expect to see some upwards traction on pricing and airfares as pricing begins to follow or trend up behind oil prices with a 12-month lag. I would be generally optimistic. There will be short-term pain this winter, but thereafter, over the next one to five years, there will continue to be a restoration, very strong for deliveries by Ryanair and a very strong performance both on the top-line passenger growth and bottom-line profit growth. Hold tight for the next six months.
Ignore all the background noise, because all it is background noise. Continue to focus on our monthly delivery of traffic and profitability. Thanks very much, everybody. We'll see you at some stage during the week. Bye-bye.
This now concludes our conference call. Thank you all for attending. Participants, you may now disconnect your lines.