Earnings Call: Q2 2019

Oct 22, 2018

Hello, and welcome to the Ryanair H1 FY 2019 Results Call. Throughout the call, all participants will be in a listen only mode and afterwards there will be a question and answer session. Thank you. Good morning, ladies and gentlemen. You're very welcome to the Ryanair H1 conference call. As usual, at these things, we've done a prerecorded, which is available to you on the Investor page of the Ryanair.com website setting out the H1 press release, the detailed MD and A, the Shareholder slide presentation and also there's a Q and A session with myself and Neil Sorrell. So I would direct you all to the investor page at the ryner.com website. While you're there, please take feel free to book 1 of our 1,000,000 seats at $9.99 for travel in November, December, January 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. So this morning, we reported H1 profits down 7% to $1,200,000,000 It's really a function of lower fares, higher oil and higher EU261 One cost in the first half of the year, but we've left our full year guidance unchanged from the last changes we made on the 1st October. The full year range remains in a range of between $1,100,000,000 and $1,200,000,000 H1 highlights include traffic growth of 6 to 77,000,000 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%, and 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. And last week, we've signed up the Portuguese pilots as well as the German cabin crew. And 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, but 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 And 3 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, and 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 our trim capacity by 1% for closures of the bases in Eindhoven and Bremen on the 5th November next. We've cut some flights from, need a ride. But already for summer 2019, we expect we will grow traffic. We've announced 2 new bases in France in Bordeaux and Marseille, a new base at London South End and increased capacity in Luton. That takes place against the backdrop with oil rising, spot oil rising to $85 per barrel. Already we've seen the first wave of casualties across Europe, Skyworks in Switzerland, BLM in Belgium, SmallPlanet and Azure Air in Germany, Cobalt in Greece last week and Premera Air in Scandinavia and in Dan said, have all collapsed in the last 3 or 4 weeks. We expect more failures this winter, Mostly, we think one of the 2 Scandinavian airlines is likely to fail over the coming months, largely because they are 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 was 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 1st year though, it will suffer Losses of $150,000,000 mainly because the aircraft you 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 restructured a lot of Business, the Airbus fleet will grow from 9 to 18 aircraft for summer 2019 and those seats are already on sale focusing on 3 big bases in Vienna, Stuttgart, Dusseldorf. And we believe Laudamotion will come close to breakeven in its 2nd year of operation, which will be our FY March 2020. Ancillaries continue to grow strongly. And the underlying message I want to impart today is our cost leadership continues. In fact, if anything, our cost Advantage over our competitors getting wider as they had 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. And then 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 April of next year. And 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 5 or 6 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 because while we may not be responsible for ATC strikes or disruptions, EU261 obliges the airlines to pick up the right to care costs, re accommodation and right to care and we are by law prohibited from recovering those costs from The ATC providers, it has become a shambles. Our functionality in the half year has declined 11 percentage points from 86% to 75%. We're still the most On time, Airline in Europe, but 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 will accept that in many cases we pay better than the competition. We're certainly the best paid 7 37 low cost pilots, we pay better than Norwegian Jet 2. And in the German market in particular, we pay significantly more The union agreements with Eurowings, the German subsidiary. Brexit remains we have more to do, but we would expect and hope that we will conclude agreements with most of our Pilot and cabin crew unions over this winter period. And I think the failures of a number of airlines in recent weeks Has 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. I 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 UK 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. But the real challenge and the concern for us is that the UK 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 there is a hard Brexit in March of 2019, there will be or maybe 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 UK population that they would not be able to access flights to holiday destinations in Spain, Portugal and Italy next year. But it does I think expose a lot of the myth making undertaken by the Brexiteers is that the German car manufacturers of the Spanish hoteliers would Persuade Europe to give Britain a good deal. It hasn't happened. The talks have proceeded very much along the lines that we predicted at the time, But 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 flight 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 October was a kind of a Ryanair phenomenon. It was a lack of customer confidence because of A perceived threat to our reliability or unit 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 are 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 fair war, we want to lead it and win it. And as a result of that, we have reduced our guidance as we did on the first We've taken it down slightly to a range of $1,100,000,000 to $1,200,000,000 We've a 3% reduction in average fares in the first half of the year. We That will fair to fall by about 2% in the second half of the year. We that is contingent upon there being no further adverse movements in oil. We are now hedged out to 90% hedged out to September 2019 at about $68 a barrel, but 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 and Wizz is about 60% unhedged. And 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 and I think it should make it clear to investors, 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. But There is we cannot rule out there might be some upside as well. And if there was further failures or competitor failures this winter, Then the winter trading might be positively impacted. But on balance, we remain comfortable with the new guidance of €1,100,000,000 to €1,200,000,000 The fuel bill will be significantly higher. Ancillary sales will be significantly higher, but 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 $1,100,000,000 to $1,200,000,000 excludes Look, Laudamotion's results, we expect it to look at approximately €150,000,000 in the first out to March of 2019. As I said in the 2nd year, I expect it to go close to breakeven. Small loss are close to breakeven, But it's fundamentally dependent on how fares will operate during the summer of 2019. Laudamotion already has its inventory on sale for summer 2019 and forward bookings Are strong and at material and at notice of the higher fares than they obtained in the summer of 2018. With that, I think we'll just go straight now to Q and A. Neil, is there anything else you want to add? I think we take the MD and A as written. Any kind of points or themes you'd like to raise? I think it's well covered, Michael, in the prerecorded. As you mentioned, I suppose the key thing is that while we're in a little bit of pain this year, on the cost front, we're in pretty good shape as we look forward with Max is 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. And total revenue performed well with the help of ancillaries, although we did take the pain on the cost front from fuel staff But other than that, no, nothing else to add, Michael. Okay. So we'll open it up now for Q and A. We're going to limit everybody to 2 questions, please. I don't want Thank you. And 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. And you mentioned On the webcast that the new org structure sort of helps you with consolidation, can you expand on that concept generally? Yes, I mean, I don't expect those to be a fair 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 I've admitted that they I've expressed some interest in Norwegian. I can't imagine why they'd be interested in something that gives us that much money, but that's a matter for them. We don't expect to be a play a role in that consolidation process. We have moved towards or moving towards a group structure where We would have 3 May or at least 3 airlines or AOCs within the group or 4. We have Ryanair itself, Ryanair DAC, which currently has a fleet of about 4 40 aircraft Laudamotion, which next year will have a fleet of 20 aircraft And Ryanair Sun, which next year would have leased about 20 aircraft and we would expect over the next number of years that much of our growth will take place through either the Ryanair in Poland and or Laudamotion in Austria and in Germany. And because 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. But as for being a player, I mean, 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 Our competitors are not able to compete with us on price and are essentially unhedged on oil. Fair enough, Michael. And 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 $750,000,000 buyback to Ayn. 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 UK 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 will 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 will be we've already agreed measures with the EU 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, at least the non ADR, non EU shareholders that could only dispose of their shares to EU citizens, residents, which would in very large or very quickly bring us If you take the EU share, the UK shareholders as non EUs, we'll probably move on the in a hard Brexit to 54%, 55% non EU shareholder. By restricting their voting rights and by requiring them only to sell it to EU shareholders, we would write 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. And once we have got it back down to 49%, we would then re allow the non Europeans to vote and we would remove the kind of share ownership restrictions Once we protected the EU licenses. So I think we would certainly for the 6 month period not do more share buybacks Until we have some more certainty on Brexit and a share buyback might be one of the ways we respond to a no deal or hard Brexit. Thank you. Thanks, Wade. Next question, please. Thank you. Our next question comes from the line of Gerard Castle from UBS. Please go ahead, Gerard. Your line is open for your question. Firstly, 2 new French bases. I'm just going to get a bit more color if we could see more and also just about Scandinavia based opportunity. And then just secondly, just on extra unit cost performance. Obviously, quite a challenging year this year. But Thinking a little bit ahead to the next financial year, should we start to expect kind of a more normal kind of extra So unit cost performance from Ryanair, I. E. Flat to maybe even negative again? Thanks. Thanks, George. Yes, I mean, we have a lot of opportunities in France and in Scandinavia, David, 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. But most of the other of the French Large French regional airports, we selected Marseille and Bordeaux. We certainly have good deals on the table for another 3 or 4. And I think, and Eddie Wilson, the Chief People Officer is already in dialogue with the French pilots and the Cabo Cru Union, so we can take it as we open those bases, we'll do so in compliance with the French labor law. 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, but Copenhagen is certainly an airport where we've grown very strongly in recent years, like we're the number 3 or number 2, like we're the number 3 airline in Copenhagen. And we are we do have a plan to grow there pretty rapidly if anything untoward were to happen to either SAS or Norwegian. But we have more as is always the case, we have more growth opportunities that we can handle and they don't require any further growth in France or Scandinavia, we have much more growth in Spain, in Portugal, in the UK, 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, Mark, in other words, will depend on ATC disruptions and at the moment the EU261 costs of disruptions, but we will have a very kind of higher Our penal prior year comp from this year's ATC disruptions. And I would expect staff unit cost staff to be flattish Going forward for the next year or 2, a, as we bed down the national agreements based on national law and local labor, Local law and local ready with the unions across Europe. I think what's been interesting about the dialogue with unions this year Very few have been seeking more money. I think there's an acceptance that Ryanair does pay well the pilots and the cabin crew. So most of the issues have been around local Local labor, local tax, etcetera, etcetera. And we have already signaled our willingness to move to local tax, local Regulation from the 1st January. So I would expect that from next year onwards unit costs, particularly as we spool up the MAX 200s, would continue then to be flat, Maybe slightly down. And in the marketplace where most of our competitors, their unit cost control We'll continue to be pretty poor as it is at the moment. I mean what's interesting about our unit cost increase this year is it will probably be still be less than most of the ex unit cost increase at most of our competitor airlines. David, do you want to comment on France and Scandinavia? Yes. In the case of France, I mean, 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 and there are a lot more opportunities closer to the center of Europe. So 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. And Neil, do you want to add anything on unit cost? I should before I ask you on unit cost, also remember our hedging position is very strong. We're now 90% hedged on oil out to September 2019. But almost equally as important, we are 100, we've hedged all of the CapEx, the dollar CapEx on the MAX 200s, which run out to 20.24 At $1.25 compared to our current rates are about $1.10 So we're in reasonably very good shape on the dollar on the OpEx and the CapEx hedging as well. The unit costs, anything you want to add? Yes. Just the only thing I'd add there, Michael, is that kind of from the back end of FY 2020 onwards, we start handing back some of the older leases. And we'll also start disposing some of the older aircraft, which should be helpful on the maintenance line. So we start to see the benefit of the MAXs really coming through As we go up to critical numbers, particularly into FY 'twenty one, but we'll see some of that into FY 'twenty as well. Good. Okay. Thanks very much. Thank you. Our next question comes from the line of Daniel Rask, 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 2020, 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 in opening bases in Cyprus for example? And 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 labs To improve your inventory revenue management system, would you see more opportunity here and being a little bit more yield active on the fares? Or would you rather look at starting to revenue manage some of the ancillaries a bit more? Thanks. Thanks, Tanya. Capitalizing on consolidation, I think it will be opportunistic. We do have a slowdown this year. This winter we only take 20 new aircraft, but next winter, which is the winter of 2019 2020, we're back up to 45 aircraft deliveries. So This is the 1 year, the 1 winter where we have a slowdown in capacity. I think we would be very happy to see some of the capacity cost curve 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. And I think into next summer, you'll see The May the legacy airlines restore fuel surcharges, I think certainly Lufthansa in the German market, I. E. G. And Air France will You see the reemerge of fuel surcharges. We'll be very happy to let our fares track up behind somebody else's fuel surcharge. But I would rather see that capacity come out of the marketplace. Would we move some capacity around? Yes, we would, if there was an And clearly we think that opportunity is in Scandinavia. But I wouldn't rush Mad Lock headlong into Scandinavia either. I mean 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, but if there was a major failure up there this winter and I think there will be, certainly we are already in negotiation with a number of Scandinavian Airports over moving some aircraft up there if they confirm an appropriate incentive for us to do so. Going forward on revenue management, no, we wouldn't be using labs to somehow reengineer 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 remain 85%. There will be upward momentum in pricing certainly into the summer of 2019. We will and we'll continue to use labs, so to exploit and identify other means of boosting ancillary revenues. And 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, will be on the 1st November when we move to restricting the non priority passengers to only 1 carry on bag. And maybe that carry on bag is 40 Increased in terms of size, but we're seeing a, 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 kilograms checked in bags and the 10 kilograms checked in bag. But I think Labs has clearly demonstrated over the last 2, 3 years that it is the way forward. We started a big program in This winter that will take about 12 months. I might ask John Hurley to start with Labs 3.0 where we begin to do much more and develop much more personalization On the mobile app and on the website, so that when you come to the website in the summer of next year, in each case, you will identify the routes You've flown on in the past, you've identified the services you've taken in the past. And if you haven't, for example, taken hotels in the past, it won't bother you with offering you with hotels. So we will have much more personalized product. I think that's key to when we're doing big seats there instead of us sending you an e mail going with 1,000,000 seats on sales at 9.99 It will be much more. Dear Daniel, we know you flew to Faroe last year. We have a $9.99 seat sale on the Faroe route in November December. Would you like to take up an opportunity with So much better personalization. I think that's where the future will be in last. But 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. Thanks very much. It's kind of stupid that you picked far There we go. Thanks. Thanks, Angus. Next question, please. Thank you. Our next comes from the line of Savi Syth from Red James. Please go ahead. Your line is now open. Savi, hi. What was I wonder if you could kind of discuss if there's any changes as a result of kind of going into local contracts. On either the system side or operational side, does that create any complexities or anything like that? And for my second question, Just could you provide an update on from an operational standpoint and an MSR revenue standpoint, kind of the result of the change in the back policy recently? Okay. Sorry, I'm just writing the notes here. On the local contracts, there'll be very few changes operationally In terms of efficiency, remember, I mean, there's a kind of a miss put out there or narrative by the unions that somehow we all have beeped 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. We have Ireland has an image as a Tax haven for corporates, but personally you're paying the top rated tax, which is 55% at about €33,000 So unusually for many of our people, both pilots 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, I mean, 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. And in Most all cases, both the pilots the pilots are very keen to stay on our fixed 5 on, 4 off rosters. In terms of changing the bag policy, no, I mean, there's nothing to share really at this in time, we see a significant uplift in priority boarding. We see a diminution in baggage revenues because there'd be some trading down from people who are Currently booking our 20 kilograms bag at €25, and there will be some trading down of those guys to the 10 kilograms bag, which you can now buy from €8. But 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. And so that will help us to deliver improved punctuality and a better customer experience. And what's been interesting despite some sort of Regulatory pushback, actually the feedback from customers has been overwhelmingly positive. A lot of customers have seen and Experience kind of, I think you said, flight delays this summer, the inconvenience of the gate bags and are certainly welcoming the move to clarifying That there will be a priority, customers can have the 2 gate back to the non priority, who choose to be non priority, will travel with 1. So have you seen that operational improvement, Michael, as we make the change? No. I mean, I wouldn't expect to yet. Think we will see you really won't see the operational improvements, Javier, until next summer. I mean, we introduced this change in November. It's the winter schedule. We don't 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 into the summer of next year, particularly a lot of European airports where you're doing remote Stands are your 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 airport the aircraft boarding process. Got it. Thank you. Thanks, Abi. Next question, please. Thank you. Our next question comes from the line of Stephen Furlong from Perhaps your line is open. Stephen, hi. Yes. Michael, can you just talk about Italy? Where How do you see that playing out with Alitalia? It's an important market, obviously, for you. And the second question, I just wanted to maybe if you could go through just a bit about The new handling provider, it's Danfid. And what that's going to do or help you at least with the OTP, that would be great. Thank you. Thanks, Steve. Yes, Italy continues to be a major market for us with the number one airline in Italy. I think the key development Obviously, the new government, which is a coalition of 5 Star and the Northern League, look to have moved, I think, I should be 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. So we are very happy with the Italian market. We're continuing to grow in the Italian market and we see further opportunities for growth, Particularly as some of the others, the EG Jet, Lufthansa and others continue to trim capacity in the Italian market. The new Instance, it was a recognition that I think Swissport have mismanaged our handling this summer. We have had some problems there, With staffing and staffing at weekends, and we have moved we put it out to tender again And for reasonably similar costs, there'll be no change in costs, but we are much more now in control of the Staffing levels per shift, the number of teams per crew and 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. And so there was a surge in flights this summer and we found they had people who were supposed to be handing our flights were off handling charter airlines or something else during the peak period. The critical element of the Omniserve contract next year is dedicated to Ryanair. They will not be handing any other airlines. They're not going off to hand somebody else's Slides are 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 would be dedicated Solely to handing riders passengers in the front of house and riders aircraft on the ramp. And we think that, that will probably add Probably 3 or 4 points to our punctuality because Stansted is critical to the entire kind of punctuality operation because so much of our business is In and out of Stansted through the day. And it's critical to be at Stansted right next summer. I think at Virginia weekend this year, They were understaffed, and the staff that were there were running off to handle somebody else's aircraft when we are we account for 90% of their business, and we're not willing to accept that again. Okay. Thank you. Thanks, Eva. Next question, please. Thank you. The next question comes from the line of James Hollins from Morgan Stanley. Please go ahead, James. Your line is open. James, hi. Hi. Good morning. Just 2 from 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 €50,000,000 loss. I probably needed 40 to 50 aircraft to be making a positive contribution. You're now talking about Breakeven up to €30,000,000 loss. Does that sort of relate to some of the bullish comments on summer 2019? Or is it something else? And then the second one on guidance. So I don't know if you'd be happy to put a number on ancillary unit revenue guidance. You obviously done about 11% underlying in H1. I think that the full year, you talked about plus 3% to 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 our 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 the team, relatively inexpensive leases for next summer. So 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 8, 9 months in advance of the summer already selling their schedule. So again, we would expect to see their revenues increase significantly. They'll also get more access To ancillary products that they might otherwise have had in the current year. So that's what's really driving the improved Performance into FY 2020 is why we're talking about possibly breakeven, more likely a small loss and then In the Blackfuly in the 3rd year of operations. And the Ancillary unit cost? Yes. We would expect ancillary unit costs to be in low double digits on the full year basis. So you mean unit revenue, right? This is on the revenue, yes. Sorry, okay. Revenue per pack. Yes. Cheers. And 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, 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 $68 a barrel next year. So there's material Aircraft savings, material fuel savings and a much better run into it. We think there will be a materially better. Mean the reason we're kind of so wide of the guidance, I mean between $0,000,000 to $30,000,000 is we're really much aware the fares will finish up Into the peak of next year, but we think with a strong base in Vienna, Stuttgart, Dusseldorf And a very major a large program of flights doing from Palma to New York 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 Please go ahead, Damian. Your line is open. Good morning. Two questions if 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. And secondly, can you just come back on the airports? I hear what you're saying that the underlying cost per passenger was up just shy of 4% in Q2. So could you give us a feel for what the constant currency level look 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 completely. 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 place like Bordeaux, Marseille, some of the growth incentives we put in place. We would expect that the airport costs per passenger will be flat, Slightly downish for the next year or 2 once we get through this year. And that again would be material growth in Stansted, We'll continue to have a significant incentive and some of the 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. Julia, so you can touch base on the competitor. So just briefly to remind everyone, our complaint, which is now about 3 weeks old, has Two pillars supporting it. The first one is a thing which is called collective boycott. It is a The unknown competition in long term, so 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. And 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 a competitor or 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, and we are discussing this matter with the New person involved on Wednesday this week. So we will hopefully have an update in the coming days. And some of the unions have been very helpful in, I think, in aiding that case in recent weeks. I mean, some of you may have seen we had that boat, the fake Photograph of cabin crew and entity sleeping in a crew room in Malaga, which is entirely staged. It was remarkable Most of the commentary comes out of a guy called Fernando Gandra, who's an easyJet cabin crew in Portugal. So our friend, Fig Fernando, who's widely quoted as this is in day when he started off, I think this is Cameron who's sleeping on the floor. He's now moved his position to this, which is a protest photograph, which I think is a euphemism for just a fake photograph Thanks, Fernando. But here you have an Easyjet cabin crew making the running in Portugal on this issue. In Spain, we have a Norwegian capital doing the same thing. And last week, we had a somewhat silly press release Should buy a guy a Lufthansa captain on behalf of the ECA calling for declarations of war on Ryanair. I mean, What Lufthansa pilots and Easyjet cabin crew or Norwegian cabin crew are doing in the middle of our negotiation with our pilots Is somewhat unusual in 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 from negotiating there on behalf of the Lufthansa pilots with Lufthansa. It is bizarre, and it's unacceptable. We are very happy to deal with the unions. I think what's unusual is that vast majority of our negotiation with the unions, the unions have had no difficulty in eliminating competitor employees. German pilots have taken the Panzer 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. And 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. So we're put up with it, but we'll be making the point This is fundamentally anti competitive in much the same way that if Ryanair were in Ryanair people were employees when they're disrupting negotiations between Easyjet and their people, Yes. We feel equally agreed. So we would hope to have some ruling, not I mean, but that's not to constrain what the people that the unions can Choose having their delegation, but you choose who you want. But 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 Mainstack. Please go ahead. Your line is now open. Yes. Hi. Just 2 technical financial questions, I guess, for Neil. Firstly, your operating cash flow has been down 30% in H1. And the cash flow statement, I can a negative impact of €94,000,000 write up of intangibles and also some €80,000,000 year over year negative impact from other current assets. I guess this has to do with the Laudamotion acquisition. So is it right to assume that excluding these write ups to losses Laudamotion would have been worse than the EUR 45,000,000 loss, which is reported in your P and L for H1. And then secondly, There was this unusual lower tax rate in Q2, I think only 8% or so, driven by some €30,000,000 total tax credits. I think Some refer to a lot of motion and some to yourself. But is this something that will reverse in H2? Or will that impact full year profits And therefore, it's 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 recall that we treated any losses prior to that as associate losses where we took 25%. So 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 rates to Laudamotion there where we've booked 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% to 10%, close to 9.5%, I would estimate. So there are some timing differences in there Thank you. The next question comes from the line of Mark Simpson from Goodbody. Go ahead Mark, your line is open. Thank you, Anssuri. It could be said that the Q2 ex IFRS 15 performance was a little bit disappointing, 9.3% underlying For PAX rev against 11.5 in Q1, I wonder if you could just tell us in a sense what might have driven that change? And then with Lauda, I think you mentioned obviously Expectation of ancillary to come through on that. The presentation in the release shows 0 ancillary, and if that's just a presentation. Or what do you think you can do with louder passengers going forward in terms of achieving, I don't know, like for like ancillary per pack's numbers? Okay. I wouldn't get into the quarterly breakdown of the ancillaries, but we're very happy with ancillary revenue growth, up 27% in H1, With a lot of the lines moving favorably or passenger penetration on reserve seating, Partly boarding, even baggage rising a bit in the first half of the year. The one that continues to underperform sort of underperform almost to plan is hotels, Well, we continue to give away the commission in order to build revenue. So 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 2. We would expect ancillaries to continue to perform strongly at or ahead of Scheduled traffic growth certainly for the next year or 2. In Lauda, Lauda didn't have any incentive 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 an ancillary revenue, Not necessarily as quite high as Ryanair, but certainly in line with the general Ryanair numbers. I mean Laudamotion don't want to sell scratch Cards and that's fine. We said that's your decision. And they also want to have slightly different so there's some slightly different policies in relation to baggage. We said again, That's their decision. They can copy our policies. But if they choose to divert from our policies and it works for them, then that's fine. We're happy to see that happen. But The key issue is that they subcontract the way all of their in flight sales for the 1st 12 months And that contract we have now terminated with effect from January, we had end of January and Ryanair facility will have a significant ancillary income stream building up over the 2nd year of operation. That's great. Thanks. Thanks, Mark. Next question, please. Thank you. The next question comes from the line of Alex Patterson from Invest 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 will have tons and going elsewhere. I wonder if you could give an approximate quantification of that. And secondly, just on your reporting going forward, Will you show Laudamotion separately, and 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. And 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 9 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 200,000 per month and 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 200,000 per month. They were way significantly above market. But 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 the Disclosure, but Neil, you're more expert at this than me. I think what we'll see into year 2 is we'll separately report Laudamotion on Traffic, monthly traffic, customer staff, but it would 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 Laudis 25%. We'll move to 100 But because 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 In Laudamotion, because of the late start, the fewer aircraft numbers, the fact that we had to lease them 10 aircrafts so they could take up and use the SOP this summer. And next year, therefore, it will simply be incorporated into our numbers at the group line, and we won't show it separately, separate trading. That's correct, Mike. The reason why we're splitting it out this year, Alex, as Michael just said, is that we want to easier for you guys to understand the business X and the business including Laudamotion. But 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 in the P and L and balance sheet. Great. Thank you. Okay. Thanks Alex. Next question please. Thank you. The next question comes from the line of Tevitra from Morgan Stanley. Please go ahead. Puneetra, your line is open. Penny, go ahead. Hi there, guys. No, next question, please. Sorry. 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 Deals, is there any update you can share on that front as to the progress? I'm sorry, we can't. Unfortunately, I think this 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 to be able to do the but The delay in it, we can do we've done our IT work, but I think they're still running 6, 9, 12 months A delay on Aer Lingus, because they subcontracts 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. Okay. So Connection there is some time away. So really, I would say, we're sometime 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 Leonard, Numis. Please go ahead. Your line is now open. Catherine, hi. Hi, good morning, everyone. And 2 for me, please. I'm just wondering if you could give us an update on in the last 3 weeks, whether you What you've seen in terms of progression on yield for the Q3 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. And then second question, just in terms of the ancillary penetration, I know we talked The guidance for the full year, but I was just wondering where we are on the priority boarding, penetration and reserve seats. I know you've previously spoken about 50% threshold for those 2? Yes, I'll come back to that. The ancillary penetration, I mean, obviously, the APJ priority boarding is capped 50% of seats, because beyond 50% clearly wouldn't be priority. We are certainly moving close to 50%. We would After November that we will be at or close to the 50% cap on most flights. But the revenue boost there will be eaten up somewhat by some trading down or yield softness on the check-in bags where people would trade down from the current 20 kilograms €25 check-in bag to the Hey, George, take him back. On yield progression, there hasn't been anything significant movement. I mean, we saw the yields getting soft into the Q3 In the first really, at the last week of September, 1st week of October, I think what's changed in the last 2, 3 weeks is At that point in time, we thought it was a Ryanair specific issue. And as is always the case, as soon as we see something we warn, We thought it was a Reiner specific issue related to customer confidence on unions. I think what we've seen in the last 3 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. We have seen very little I mean, our forward bookings are strong. Certainly, we will maintain the loan factor year on year. Our forward bookings through October, November, December, January, 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, And I think we should be cautious. We're certainly being aggressive on airfares. We have a 1,000,000 seat sale out there at $9.99 for travel today in November, December, January February. We see other airlines also, usually, other airlines pricing down below where they were pricing this time last year. We've seen that in these jet with Norwegian, but also we see a maturity 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. So the yield progression hasn't altered materially in the last 3 weeks. We still think it is that the trend is downwards. I wouldn't rule out that our yield guidance could move for the winter from minus 2 to minus 3 minutee, I don't need to go to minus 4. But I think there's going to be more bad news before there's good news this winter. And to that extent, therefore, I would expect to see further failures. But in many respects, if there's a large failure, then that would also the kind of Pricing outlook for the remainder of the winter period. So it's hard to tell, Catherine, but there has been no material worsening in the last 3 weeks And there's been no material improvement, if that makes any sense or if that's helpful. Yes, that's great. Thanks very much. Thank you. Next question please. We've got about 5 more minutes and then we've got to go and do investor meetings. So if you don't mind, but we'll try and take as many questions as we can over the next 5 minutes. Our last question comes from the line of James Goodall from Redburn. Please go ahead, James. Your line is open. 1, if you've only got 5 minutes. On the ex fuel costs next year being flat Flat to down. Does that include Laudamotion? Because I assume that's got a fairly dilutive impact. And if it does, does the guidance still Yes, it includes Laudamotion, but I'm not sure you got cut off there. You said does the guidance still include something? Yes, does it include Laudamotion? And 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? Yes, actual cost. No, I think flat is the reasonable assumption for FY ex fuel, flat for FY 2020 is a reasonable assumption. We'll be trying to deliver slightly down, but I will start off with flattish. Okay. Okay. We can sit up for another couple of minutes. So if there's any more questions, we'll take another one or 2. Okay. We just had another question registered, And it is a follow-up question from the line of Alex Patterson from Investec. Go ahead. Your line is now open. Point, when you say, Let's call it flat for FY 2020, 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. In 2019, you would not be consolidating other than at the exceptional level. Neil, do you want to have a good guess at that point, you can't answer because beyond my pay grade. I would imagine We will just say from a pure accounting basis, Alex, at year end, Well, we'll give you a statement like we did say breaking it out. We will ultimately have to consolidate Laudamotion into our GAAP numbers At your end. So we'll be talking on a like for like GAAP accounting basis as we guide into next year. Okay. Thank you very much. But I would still say that, that would give us still flat to slightly for a flat unit cost. What we will do if we fully Consolidate Laudamotion, is it the yield comparable will be I mean the yield this year will be down and the yield compared to prior year comparable will be easier for the following Most of the Laudamotion, dollars 150,000,000 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 route it. Talk to us through Citi or Davy, who will be happy to facilitate a meeting. Otherwise, Shane O'Toole, they are the Head of IR. Otherwise, we hope to see you sometime later during the week. And I think remember that the key thing here is there's a lot of background noise out there at the moment on oil, on unions and on kind of 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 5 year period where we start taking delivery of 200 MAX Aircraft, which will give us 4% more seats and 16% lower fuel costs. And 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. And then moving into summer 2019, I expect to see some upward traction on pricing and airfares as Pricing begins to follow or trend up behind oil prices with a 12 month lag. So I would be generally optimistic will be short term pain this winter, but thereafter over the next 1 to 5 years, there will continue to be a restoration very strong for delivery by Ryanair and a very strong performance Both on the top line passenger growth and bottom line profit growth. So hold tight for the next 6 months, ignore all the background noise because all it is background noise and then 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.