Hello, welcome to today's Ryanair Q1 FY 2019 results call. Throughout this, all participants will be in listen-only mode, afterwards there will be a question and answer session. Just to remind you, this is being recorded. Today I am very pleased to pass you over to Michael O'Leary, CEO. Please begin.
Okay. Good morning, ladies and gentlemen. Welcome to the Ryanair Q1 conference call. I am joined here by the management team in Dublin. Neil Sorahan, the CFO, is in London, where he is doing the press and the media briefing this morning. As you will see, all of the information, together with the detailed MD&A question-answer session, is up on the investor relations page of the ryanair.com website. We will run through some brief comments, then open it up for Q&A. When we get to the questions, obviously, we are going to limit the questions. Nobody can ask more than two questions each, just so we can try to get everybody into the one-hour duration of the call. As you see this morning, we reported a 20% fall in Q1 profits to EUR 319 million after tax, but excluding exceptionals.
The key drivers of this was a 4% decline in average fare in the quarters, partly due to the earlier timing of Easter. The first half of Easter fell into last year's Q4. Higher fuel and staff costs were offset by stronger ancillary revenue growth in the quarter. Currently, at the moment, bookings are slightly ahead of last year, but at lower airfares. We have seen a number of factors in recent weeks driving that, most notably the impact of the World Cup, the heatwave in Northern Europe, and in recent weeks, a degree of customer uncertainty about the pilot strikes or the threat of cabin crew strikes. Our investment in Ryanair Labs and always getting better continues to drive improvement in ancillary revenue, which has now jumped to 30% of total revenues in Q1.
On costs, we continue to have significantly lower cost per passengers than any of our competitors, we are facing into a number of headwinds, most notably fuel, there is a 10% unhedged balance of our fuel in Q1, where we were buying at spot prices close to $80 per barrel. We have significantly increased in staff costs, which was well flagged, principally as a result of a 20% pay increase to most of our pilots, are agreed by over 90% of our pilots at the start of the year and also our cabin crew. There has been a meaningful jump in the EU261 right to care costs. They are up 40% in quarter one, primarily due to 2,500 air traffic control-related flight cancellations. Despite this, the balance sheet remains strong. Cash generation is strong.
In quarter one, we've had CapEx of EUR 460 million, shareholder distributions of EUR 265 million. We've still managed to cut our net debt by EUR 24 million in the quarter to finish at just under EUR 260 million at the end of June. Air traffic control staff shortages and strikes continue to bedevil our operations and those of many other European airlines. Repeated air traffic and staff shortages, mainly in the U.K., Germany, and Greece, and recurring strikes, particularly at weekends in France, caused us to cancel over 2,500 flights in the first quarter. That cost us the loss of 450,000 guests. It was also a loss of higher-yielding weekend traffic and a steep rise in our EU261 right to care costs.
Punctuality has also been severely affected, falling to 75% on-time flights in Q1 compared to 89% last year, a 14 percentage point decline, all of which is directly related to first-wave ATC staff shortages and strikes at weekends. Fuel, as you see, we are paying significantly higher oil prices for the unhedged balance 10% of our fuel. While this is in the short term painful, we believe over the medium term it's good for our business as there's a number of European airlines who are pretty much unhedged and are suffering significant cash flow squeezes and who are close to breaching their debt covenants. If oil remains in the mid to high 70s or close to $80 a barrel this winter, we believe this will accelerate the rate of EU airline failures and consolidation over the winter period. As you know, we have suffered a number of strikes ourselves.
Despite signing pilot and cabin crew recognition agreements in most of our major markets, most notably the U.K. and Italy, and a recent agreement as recently as last week with our German cabin crew, we're making slower progress in smaller markets, most notably Ireland, Belgium, and Portugal, largely where competitor employees, pilots, and cabin crew, are involved in and impeding progress. To date, we've suffered two unnecessary strikes by a small minority, just that quarter of our Irish-based pilots. There's a third one taking place tomorrow. The cabin crews in Spain, Portugal, and Belgium are also threatening to strike on Wednesday and Thursday this week. Our approach to this has been to confront these strikes.
We've tried to minimize, and we work hard to minimize the impact on our customers by canceling a small proportion of flights well in advance, typically five to seven days, which gives us sufficient room to re-accommodate or refund all of the passengers. Although the impact of this is that it does mean we're losing the ability to sell the last remaining unsold seats at high yields because we're re-accommodating passengers onto those flights from other disrupted flights. We're making good progress here in Dublin, where on the first day with a quarter of our pilots on strike, we canceled 32 out of 290 flights. On the second day, last Friday, we canceled 24 out of over 290 flights, and tomorrow, the third day, we will cancel less than 20 of our 290 flights.
We're extremely grateful to the vast majority of our pilots and our cabin crew in Ireland who are working normally, which means we're able to pretty much minimize the impact of this on our customers, although it does affect our forward bookings and our ability to sell last-minute seats at higher fares. Brexit remains a concern. We remain concerned at the danger of a hard, i.e., no-deal Brexit in March 2019, and we continue to believe that the risk of a hard Brexit is being underestimated. What all this means in terms of our guidance is that we see no reason to alter the full-year guidance at this time. It continues to fall within a range of EUR 1.25 billion-EUR 1.35 billion. That is down on the EUR 1.45 billion we recorded last year. The key drivers of this is the weaker fare environment.
We think that will also be impacted in Q2 as a result of customer concern at the prospect of further pilot and/or cabin crew strikes, and then re-accommodating passengers who have booked at cheap fares well in advance onto these remaining empty high, or what we would otherwise have been selling these seats at high fares. That means our Q2 fare guidance now has fallen. Previously, we had guided up 4% in Q2. Now we think it'll be up about 1%. We continue to have almost zero visibility in H2, the second half of the year, but we see no reason to expect that H2 guidance won't remain broadly flat over last year. Ancillary revenues continue to perform well but will not offset a EUR 430 million higher fuel bill or a 6% increase in our ex-fuel unit costs. I should also touch briefly on Laudamotion.
Their results are not included in this guidance. At the moment, we have an investment of 24.9%. We recently, I think, in the last two weeks, obtained EU approval to increase that to 75%, and we'll be sitting down with Niki Lauda and his team over the coming weeks, hopefully to finalize that investment or increase our investment in Laudamotion to 75%. Laudamotion's trading this summer has been adversely affected by three factors. Firstly, was the late release of its fares and inventory into the summer season, so the fares are lower than we would originally have expected. Two, it was completely unhedged on oil, so it has been badly impacted by having to pay for spot oil prices up at high 70s, close to $80 a barrel.
Three, Laudamotion has continued to struggle with a number of anti-competitive actions by Lufthansa, who delivered less aircraft than they were originally required to deliver to Laudamotion this summer. In recent weeks have sought to artificially trigger a termination event, which would allow Laudamotion to, or Lufthansa to retake the nine aircraft it has delivered to Laudamotion this year so that it could return them to a direct competitor, Eurowings. I'm pleased to report that as a result of a case management hearing in London on Friday, that threat at least has been postponed until late November, early December, thereby removing the threat to Laudamotion's operations for the remainder of the summer season.
However, the combination of lower fares in an intensely competitive market in Germany, higher spot oil prices, has meant that Laudamotion's losses for the first 12 months have risen from an expected EUR 100 million to approximately EUR 150 million in what will be a first difficult year. Already, we're making significant progress in Laudamotion. Next year, the management team in Laudamotion have made good progress at securing additional aircraft, hopefully in time for summer 2019, at lower prices than some of the Lufthansa aircraft. The airline will obviously have a much longer run into the summer 2019 schedules, where scheduled seats, particularly on high-yielding markets between Germany, Austria, and Palma de Mallorca, will be on sale well in advance. Okay, Neil, is there anything you want to touch on briefly or highlight in the MD&A?
No, Michael. I think you covered it all there. Just highlight again the strength of the balance sheet. Very strong despite high CapEx of EUR 462 million in the quarter and EUR 265 million of buybacks. We managed the net debt position down to just over EUR 250 million from EUR 280 million. The balance sheet continues to be in good shape.
Okay, thanks, Neil. We'll open up to Q&A. We're going to limit everybody to no more than two questions or one question in two parts. Let's open it up now, please.
Thank you. Ladies and gentlemen, if you wish to ask a question and you haven't already, please press zero and then one on your phone keypad now in order to enter the queue. After I announce you, just ask that question. If you find that question has been answered before it's your turn to speak, just press zero and then two. The first question is over to the line of Daniel Röska at Bernstein. Please go ahead, Daniel. Your line is now open.
Thank you very much. Good morning, gentlemen. Two questions.
Daniel, hi.
Hi. Good morning, Michael. Number one on Laudamotion, when would you expect that operation to break even, anything that would prompt you to walk away from that over time? The second one may be longer term over the fleet plan, given the current state in the European sector. You also commented on high capacity growth in the videos this morning. Anything you consider changing around your previous statement that you would be taking up all the options on the MAX contract? Thanks.
Okay. Daniel, thank you. At the moment, we're reasonably confident that Laudamotion will break even in year three. I think that will largely be a function of when we can redeliver. That's when the Lufthansa expensive Lufthansa leases will need to be redelivered. It's to a certain extent opaque, though. It depends on the rate and speed of the fleet growth in Laudamotion. Laudamotion and the management team there are making significant progress on sourcing other Airbus aircraft for summer 2019. Clearly, it will need to grow to be a 40 or 50 aircraft over a three or four-year period. At which stage we think it will be a significant profit contributor to the overall group. We see no reason to walk away from it. It has been a very challenging and difficult first summer.
I think some of that was inevitable given the late nature of the reorganization of the administration, Niki Lauda successfully acquiring what was a grounded airline. We remain confident that it will be a profit contributor over time. The fleet plan, at this point in time, it's a bit premature. I think what will really drive the fleet plan over the next number of years will be what the rate and pace of airline failures and consolidation in Europe this winter. Clearly, most of our, and most of the market focus will be on Norwegian, which continues to lose money hand over fist. I think the market generally expects Norwegian will not survive in its current form, whether it's taken over by somebody else or just goes bust this winter, we don't know.
I think that will significantly alter both our growth prospects in certain markets, the availability of pilots in other markets, and may significantly affect the valuation or the lease rates on Airbus aircraft going forward. We remain very pleased with our existing order, which consists now of over 210 Boeing MAX 200 Gamechangers. The first 5 of those come in the spring of next year. It is likely that we will place those aircraft somewhere in continental Europe, particularly those areas where we're growing very strongly. That would presently be in the German market, possibly in Austria or in central Europe, where Ryanair Sun in particular has had a very good summer and is growing. There seems to be very significant demand for Ryanair Sun to grow more rapidly from the Polish tour operators on that charter market.
Excellent.
Next question, please.
The next question is of the line of Savanthi Syth at . Please go ahead. Your line is now open.
Savanthi, how are you?
Hey, good morning. I apologize, my voice is a bit off. I'm a bit under the weather here. Just on the revenue side, I know there's an accounting change that's distorting the base fare versus the ancillary. I was wondering if you could, as a result, provide what your thinking is for total fare per passenger trends for the second quarter. Just a little bit more color on that. On the balance sheet side, I know you're expecting lower year-over-year profits this year. You have the Laudamotion investment. Just wondering if you can give some updated thoughts on your thinking about the use of cash. Thanks.
Yes. We're not going to give any more detail on our outlook for the total fare per passenger. I think our focus is that the underlying average yield is going to be softer. We think flat in the second half of the year. Ancillaries will continue to be strong. I don't think that now it's a bit early in the year for coming up with forecasts on total fare per passenger. Uses of cash will continue to be as before. We continue to be strongly cash generative. The uses of that cash will be CapEx, the new aircraft deliveries, funding those deposits. There will be a funding requirement on Laudamotion, the investment in Laudamotion, as or whenever we move to a 75%, and we expect that to take place in the current quarter, subject to discussions with Niki Lauda and his team.
We have another still 30% of the share buyback to take place.
Thank you.
Thank you. Next question, please.
Is of the line of Jarrod Castle at UBS. Please go ahead. Your line is now open.
Yeah.
Thank you. Hi, Michael. Two. One, you've given a lot of detail in terms of the operational disruption due to ATC and the strikes. Can you actually give us a financial number for the previous quarter and the coming quarter? Second question, just on fuel hedging. Any plans to adjust how you're going to hedge for 2020, just given IMO 2020? If that's changing your thinking on the hedging on the fuel.
Okay. The operational disruption we've set out Q1, there was 2,500 flights canceled as a result of air traffic control strikes and staff shortages. There continues to be, while thankfully the French have stopped striking in the second quarter, we're still suffering, on a daily basis, typically something between 15%-20% of our first wave flights, mainly out of the U.K., Germany, Greece, and France, are being delayed by staff shortages within ATC. Not just us, but all other airlines as well. The problem for us and for other airlines is that with reasonably quick 25-minute turnarounds, this builds up through the day and leads to cancellations later on, almost on a daily basis, either because we can't achieve the curfew limitations at some airports or because our crews are running out of hours as a result of cumulative ATC delays.
In many respects, it's the staff shortages that are the kind of epidemic this summer within ATC. There's a degree of customer understanding when there's a French air traffic control strike at a weekend that there will be cancellations and everything else. It's much harder to explain to customers why flights are running two or three hours late. We had one particularly appalling weekend, last weekend, when the, as you know, France were in the final of the World Cup. On Sunday afternoon, most of French ATC basically down tools. On the Monday when they were all returning back to Paris, most of French ATC just down tools. We were taking three, four, five-hour slot delays without them even being on strike. This is an issue for all of the airlines.
We, IAG, EasyJet, and others have been to the fore in taking legal action now against the French government for the ATC strikes. We are increasingly getting aggressive with the ATC providers, most notably the Germans and the British, who continue to cover up what are staff shortages with euphemisms such as weather and capacity. There is no such thing as an ATC capacity restriction. It's generally that somebody hasn't showed up for work, or they haven't rostered enough air traffic controllers. On the fuel hedging, no. From a practical point of view, we won't be changing our policy, and that is to continue to roll forward on a 12-month basis at around 90% coverage. For FY 2019, we are building in the Laudamotion and the Ryanair Sun fuel capacity as well. Neil, do you want to comment briefly on the accounting policy change?
Yeah. The IMO 20, Jarrod, that's evolving at the moment. Indeed, the technology around scrubbers for the likes of the cruise liners and the cargo shipping is becoming cheaper. I think it mightn't be as big an issue as it was originally feared when this was first announced. Keeping it under review, but as Michael said, I don't see any reason to move away from the kind of hedge strategy that we have at the moment.
Okay.
Next question, please.
Next question, please.
Yes, we are going over to Stephen Furlong. Please go ahead. Your line is now open.
Stephen, hi.
Can we just talk about aircraft for a second? You're happy with what you've seen so far with the obviously important development of the MAX aircraft coming in April. The second thing, I was just wondering if you've had any further discussions either with the manufacturers or with leasing companies for other aircraft types going forward, including for Laudamotion.
Yes, we're happy with the MAX aircraft that's coming in April. All of the indicators are that it will deliver, obviously, it will deliver a 4% increase in revenue per flight because it is 4% more seats, and a minimum of a 16% reduction per passenger in fuel savings. These will be very meaningful cost savings going forward and will widen the gap between us and our competitor airlines. Most notably the likes of Eurowings, who continue to make these mythical claims about having lower costs than Ryanair while their aircraft financing costs balloon through the roof. Ours, we will be adding these aircraft to our balance sheet as net purchase price, giving us materially lower costs than even our existing aircraft costs. Talks with manufacturers and the leasing companies? No. We have an ongoing dialogue with both Airbus or with Boeing.
We have also opened up discussions with Airbus in conjunction with Laudamotion, because clearly we want to secure, I think, a line of Airbus aircraft for Laudamotion, which is an Austrian AOC with Airbus aircraft in it. We haven't made much progress with the manufacturers. Order books are reasonably full. Again, I think we would want to be opportunistic this winter if there's some major shakeout of the European aviation sector or in Asia with oil at $75, $80 a barrel. Laudamotion has made progress with some of the leasing companies in procuring aircraft that are returning from Asia for the summer 2019 schedule, which hopefully will allow Laudamotion to continue to grow. With lower cost Airbus aircraft, which they will need because the Lufthansa leased aircraft are particularly expensive. The leasing is not our chosen way forward.
We would like to place an order with Airbus or a manufacturer for a flow of Airbus aircraft to Laudamotion. We're very happy with our aircraft order book with Boeing. That runs out to 2023, 2024. Again, I think we've had a number of discussions between ourselves and Boeing that are predicated on being opportunistic if there is some major shakeout this winter, which we expect if oil remains up at $80 a barrel. I think both we and Boeing are conscious of the fact that there may be some opportunities there for aircraft, but we're only looking at Boeing aircraft for the period, I think, 2023 to 2027 at this stage. Obviously with a focus on maybe a bigger aircraft, the MAX 10, at that point in time. There's no pressure on us at the moment.
We are very pleased with the order book we have on the MAX 200s, which will be more than sufficient aircraft to take us up to 200 million passengers by 2024.
That's great. Very clear, Michael. Thank you.
Thanks, Stephen.
Next question is over to the line of Neil Glynn at Credit Suisse. Please go ahead. Your line is now open.
Good morning.
Evening.
I'd like to ask two. The first one, they're both actually related to disruption. The first one, clearly you're thinking on an optimal load factor change dramatically over the last few years, and now you're clearly at a very, very high load factor. I'm just interested, is there a growing argument for targeting a lower load factor in some markets to absorb disruption, whether it's even just keeping open seats for lucrative last-minute fares? The second one on the strike impact and your guidance for fares in the second quarter. Can you give us some color as to whether the negative impact from strike concerns is contained to bases where strikes are actually announced, or do you feel that that's a broader issue impacting bookings here, there, and everywhere because of media coverage and pervasive concerns from passengers?
I think it's important, we're conscious today not spending too much time on strikes. Let's put the strikes in some context. In Dublin so far, we've had three days of strikes by a quarter of our pilots that has affected less than 10% of our flights to and from Ireland. Now, because it's Ireland, they have received a disproportionate amount of publicity, and we have undoubtedly seen a downturn, not in bookings, but in the pricing of close-in bookings and forward bookings for the next couple of months. A reasonably limited, in fact, very limited strike by a very small number of pilots in Ireland has had an impact on pricing going forward. Ultimately, that's good for our customers. They're getting lower fares at a peak period, which I think they will appreciate.
I think we've demonstrated too, quite an impressive ability to manage our way around disruptions. Having had three days of pilot strikes in Ireland, the fact that we've now canceled less than, if you take it over the three days, an average of 25 flights, when we do more than 2,500 flights per day, I think it indicates what limited impact these strikes have had. It does damage forward pricing in some geographical markets. We think that is largely focused around the Irish market. Certainly, there's some impact in the Belgian market this week, where there's some sort of cabin crew protest strikes in Portugal, Spain, and Belgium this week. We don't think there'll be much in Italy because of the work we've done with the Italian unions, where we have agreed recognition.
Without wishing to overplay it, even if you look at the big broad scale of a kind of a coordinated strike by cabin crew across three bigger markets, Portugal, Belgium, and Spain this week, we're canceling each day about 300 flights out of almost over 2,500 flights, which is not insignificant, but it's still only 10%, 11% of the traffic on those days. We have, quite impressively, in the seven days prior to those strikes, we accommodated almost over 90% of those passengers have been re-accommodated or received refunds. The challenge for us in that is that by re-accommodating those passengers in the seven days prior to the strike or the five days after the two days of striking, is you're taking up seats. We're filling up seats that we would otherwise sell close in, last minute at higher fares.
There is an impact on our yields, but not on our traffic numbers. To answer the question in that roundabout way, we think there will continue to be some industrial disruptions. It will be reasonably selective around the Irish. We hope the Irish pilots, or at least the quarter of them that are involved in this, largely misled by a couple of Aer Lingus pilots, which is remarkable that our pilots being misled by some Aer Lingus pilots into taking action that directly benefits Aer Lingus. We are where we are. We would like to see that they would come and meet with us to discuss whatever they think their outstanding issues are, but that's a matter for them.
No, we wouldn't adjust our load factor disruption, because if you take the fact that we're running with a 95%, 96% load factor on 2,500 daily flights, the very fact that we have to cancel even 300 of those flights means we're still running with a 96% load factor on the other 2,200 daily flights. That's key to the revenue forecast. It's key to our ancillary revenue potential. It's also key to continuing to drive our very low unit costs and our unit cost leadership over everybody else. Other than that, the strike impacts are reasonably small. They are significant in certain country markets, and I wouldn't underestimate the impact that it's having on forward airfares in the Irish market, to a lesser extent in the Portuguese market, and the Belgian pricing on forward books to Belgium. Spain seems to have been largely unaffected.
We had a very good conclusion last week with the Spanish government on minimum services. We're now operating. In fact, we slightly over-canceled in advance this week. We canceled about 50% of the flights on the Spanish-based aircraft, which is about 25% of our total flights to and from Spain. The Spanish government, who are not particularly happy with the strikes, have imposed minimum services of about 60% of the flights on the Spanish-originating aircraft. Having said that, Eddie Wilson and the personnel team are working their way through meetings. We are making very significant progress certainly in our bigger markets. It was inevitable that where we have unions, there was going to be occasional strikes. There will be a period of bedding down when we have to learn our way around dealing with these unions.
Also, these unions have to learn that Ryanair is not some legacy airline that's going to roll over every time we're threatened with a strike. We will take strikes in those markets where we think that we are facing unreasonable demands. For example, in Germany, we're expecting the German pilots to issue us with some strike notice recently where they now want to determine what the crewing ratios will be. Unions, and particularly Lufthansa unions, will not be determining what our crewing ratios are. We determine that ourselves. We're meeting with the unions in Germany on Friday. We hope that we will be able to at least negotiate with them in a way we haven't been with, say, for example, the Irish Pilots Union.
If we have to take strikes in those certain markets over the next number of weeks and months, we will, and we'll continue to work our way around it. The kind of key message I would want to communicate to both our customers and our investors is these are reasonably limited. Their impact, despite some of the kind of crazy PR and some of the coverage, even in some of the analyst notes, their impact on the overall operation is reasonably small. It is damaging certain geographic markets, which is why we've said today, we're now actively re-looking at some of our base allocations of aircraft for the winter schedule, and we'll be communicating those decisions in the coming days and weeks, depending on how much progress we make in our negotiations with our people and their unions in those country markets.
We have, at the same time, other markets. Again, I would point most notably to the strong growth of Ryanair Sun in Poland, where we're short of aircraft. If we could reallocate more aircraft this winter or next summer into some of those markets, we could grow more strongly in some of those markets. With 450 aircraft across 87 bases, we do and we will, and the board is continuing to look actively at our base allocation decisions and how we can perhaps change some of those allocations so that we devote more of the aircraft assets to those markets that are growing strongly and profitably.
We may be forced to take some aircraft away from markets where pricing is weak or the pricing of forward bookings, in particular, has been affected, or customer confidence may be being affected by unreasonable behavior by a small minority of our people. We would hope to avoid that kind of decision because people will come to work with us. We want to work with our people and our unions. We did say we were serious about union recognition last December, and I think the fact that we've signed recognition agreements with pilots and cabin crew in most of our bigger markets is indicative of how serious we are.
Thanks, Michael. I just wanted to double-check, actually. I probably should have been clearer. The first part of the question was actually more related to the ATC issues. You've probably covered it there. ATC issues and those headaches aren't likely to cause any change in load factor thinking either, I guess?
Again, I don't think so. While it's very painful that we're taking ATC staff shortages, particularly on the first wave during the peak summer period, there will be less impact of ATC staff shortages in the winter period. Even though 10% or 15% of our first wave of flights get delayed, to reduce 100% or the load factor on 100% of our flights throughout each day when we're still running with 75%, 80% punctuality would not be a sensible decision or an economically sensible decision.
Great. Thank you.
Thanks, Neil. Next question, please.
We are now over to Mark Simpson at Goodbody. Please go ahead. Your line is now open.
Mark, how are you?
Good morning, Michael. Hi. Just two questions related to Laudamotion and Tegel. First off, the EUR 150 million loss that you talk about, is that the total loss or the 75% related to your holding once consolidated? Just thinking about the medium term, Tegel, from where you stand at the moment, do you think that's going to stay open or close?
David can do the second half of that. The EUR 150 million refers to the total loss for Laudamotion for the full year, which we will have to incorporate into our numbers, although probably as an exceptional item in the first year if we move to 75% control within the current year. That is the total, not 75% of it. David, you want to give us some insight in what you think is going to happen in Tegel?
Well, nothing for a while. It is obvious Tegel should stay open, but politically they find it unpalatable in Berlin. I think the more likely outcome is simply further delay to the opening of Brandenburg. It will just get pushed along a little further because there is an intractable political problem there. There will be insufficient capacity between Brandenburg and Schönefeld to accommodate the existing traffic. I think it can get kicked a little bit further down the road there. Our presence via Laudamotion in Tegel, I think, is important because the original rules by which airlines would be allocated to Brandenburg were rigged in favor of Tegel Airlines. Our presence via Laudamotion in Tegel will be helpful when that comes to a head.
Okay. Thanks, David. Next question, please.
Over to the line of Damian Brewer at RBC. Please go ahead. Your line is now open.
Good morning. A few questions. First of all, just could you elaborate a little bit more on the ancillaries? If I strip out the IFRS 15 distortion, it still looks like you are up about 12% or just over year-over-year. Could you elaborate a little bit more on what is going well there, whether it is priority boarding, reserve seating, and just give us a little bit more flavor? Secondly, just coming back to Lauda, could you give us a little bit more on the sort of the bridge to breakeven, in particular of the EUR 150 million total loss delta? How much of that would be eliminated just by removing the Lufthansa leases at their expense and replace them at more market-based levels? Secondly, how much would be eliminated by just taking out the very limited lead up you have this summer selling this year?
Thanks, Damian. I touched briefly. No, I'm not going to give you more color on ancillaries. Traffic is up 9%. The accounting accounts for about 5% of the 25% growth in ancillaries in Q1. Most of the stronger performing services within ancillaries is, as set out in the press release, has been the priority boarding, reserve seating, those kind of optional services which more and more customers are now taking or using the better presentation of them, thanks to Ryanair Labs, through the website and the mobile app in particular. We don't want to get into any more detail on that at the moment. It creates too much optimism or irrational exuberance among analysts, whereas we would rather play it reasonably low-key. There's no doubt that more and more customers are taking those services. It also includes Fast Track at a growing number of airports.
Laudamotion, the bridge to breakeven. Laudamotion's losses will be significantly curtailed in year two. If I was to give you numbers, I think the reasonable will be EUR 150 million this year. We think under EUR 50 million next year in year two, and breakeven, maybe a small profit in year three. That's based on having the Lufthansa aircraft in there over those three years. The vast majority of the exceptional losses this year would be in the very late. Lufthansa, Laudamotion didn't. Part of the problem with Laudamotion was that if to go back, when Niki did the deal with the Austrian administrator this year, they were going to do a lot of flying for Lufthansa and some of the Eurowings in the early months of March, April, and May this year.
When he then did the agreement with us, Lufthansa pulled all that flying and left them effectively with low flying for a number of months with a number of aircraft. Lufthansa were then late in delivering the aircraft that they were required to deliver under the European Commission decision of the competition, the decision with Air Berlin. Lo and behold, the leases that did arrive were significantly expensive. By having a reasonable run year, a full run into the summer 2019 schedule, we think that the losses of the order will be reduced by at least EUR 100 million in year two. Also, the EUR 150 million this year allows for a very significant uptake in the base in Vienna this winter. Laudamotion will be operating, I think it's eight aircraft from the Vienna base this winter.
We expect a very material fare war there this winter with other high-cost airlines like Wizz, LEVEL, IAG, and Austrian. Laudamotion will win that fare war because it will have materially lower fares than everybody else. We are kind of kitchen sinking the results in Laudamotion this year in the first 12 months of operation. We would believe that it will lose less than EUR 50 million in year two and will be very close to breakeven. It could be a couple of EUR million either side of breakeven year three. Then again, the profitability into years four and five will depend on how many aircraft we can procure at what rates Airbus Aircraft [pricing] into that period of time. We think Laudamotion has a very bright future as Austria's number one low fares airline.
The Lauda brand is very strong in Austria, whereas brands like LEVEL and Wizz are particularly weak. In the past, wherever we have come up against Wizz in a fare war or an IAG subsidiary, whether it was Vueling or Iberia Express, we've never yet come up with LEVEL, but we don't think it will be particularly low cost. We expect we will win that fare war comprehensively. The numbers won't be pretty in Laudamotion in year one, but we still think the assets in Laudamotion, most notably very scarce slots in Palma de Mallorca and a number of the main German airports in Düsseldorf, Tegel, where we were effectively blocked out of those airports will be medium and long-term, very profitable for the Ryanair Holdings Group. Next question, please.
We're now over to the line of James Holland. Please go ahead. Your line is now open.
James, hi.
Good morning. Yeah. One on cost, one on ancillaries, please. On the cost side, your guidance has not stayed the same. Obviously, EU261s ballooned, et cetera. Are you doing slightly better elsewhere, or is it a rounding issue? Also, what assumptions are you using for your expected cancellations from ATC? Do they stay at elevated levels, or are you bringing that assumption down? Then on the ancillaries, I was wondering if maybe Neil could guide on what the profit impact was from the, I guess, the exceptional accounting changes. Is it all of that EUR 25 million, or is it slightly less? Maybe one for Kenny, if he's on.
That's two.
Okay.
Right. I'll deal with the two you have. Cost EU261, we expect that to continue to balloon. We think that the short staffing, particularly through the summer, will continue right through to September, October. We think that will have a material impact on the marketing, distribution, and cost line. Almost all of that increase in there is the EU261 cost. We expect a material adverse outcome on the EU261, both compensation and claims, through the remainder of this year. The other underlying in there, which is the marketing spend, distribution, commissions to airports, is in line with the 7% growth in traffic. Neil, do you want to deal with the ancillaries?
On the IFRS 15 revenue accounting, James. The EUR 25 million is the net figure that came through in the quarter. That'll increase to about EUR 70 in Q2 and then wash its way out over the second half of the year.
Okay. Thanks, James. If you have other questions, just route them through to Shane here later on today. Next question, please.
Is over to the line of Alexander Paterson at Investec. Please go ahead. Your line is now open.
Morning, everyone.
Morning, Alex.
Just on the Laudamotion, the EUR 150 million. I was just wondering if there's any risk that that gets worse. Excluding oil prices, is there anything else that you're relying on from Lufthansa? Are there any other risks that could see that worsen? Secondly, obviously, you want Laudamotion to be an Airbus fleet. If you are struggling to get aircraft, is there a possibility you could run a mixed fleet, perhaps relocating Boeing aircraft from areas if you have ongoing issues with the unions?
Okay. Yes, the EUR 150 million could worsen. What would materially worsen that is a spike upwards in oil prices. Obviously, if it goes above $80 a barrel this winter, then because it's unhedged, the results will spike. We could also spike because fares would be worse than we're presently, but we're presently pretty conservative on airfares in Laudamotion for the remainder of this summer and into the winter in Vienna. Going forward, we would like it to be an Airbus fleet. It is geared up. It has an engineering structure. It has an AOC that's Airbus related, although it is operating a 19 aircraft fleet this summer that is nine Airbus, and then it's wet leasing 10 of Ryanair's 737. We would not see it operating a mixed fleet going forward.
We will, I think, make a decision at some point in time, largely I think maybe after this winter. The preferred decision would be for it to be an Airbus airline. If we can't get a deal with Airbus, we may well say, "To hell, let's go ahead," and we will put Boeing aircraft in there. That would be a longer-term, more painful outcome. I think it is important that we have within the Ryanair Group of companies, an Airbus operation, not because Boeing or Airbus would be particularly priced competitive against each other because the two compete, they don't. Certainly in the Airbus side of the market, we've seen significant value in the leasing side at the moment.
We would like to have an Airbus operation within the Ryanair Holdings plc. We'd like to have, obviously, we're going to continue to be a very large Boeing customer. The value of aircraft and doing deals comes not because Boeing and Airbus particularly compete against each other, but it comes by having the discipline to wait until there's a major downturn in the industry, which we would be hopeful will happen this winter with oil remains at $80 a barrel. There will be big shakeouts of loss-making airlines in Europe and in Asia, many of whom have humongous aircraft order books that they can't possibly fund. Next question, please.
Is over to the line of Monique Pollard at Citi. Please go ahead.
Monique, hi.
Morning, Michael. Just a couple from me. Firstly, would you be able to give an update on what's going on with your negotiations in Spain with the pilot and cabin crew unions? Secondly, obviously, you flagged that the World Cup had some impact on forward bookings and fares. Are you seeing that now start to reverse and return?
Thanks, Monique. Let me do the second one first. Yeah, we've seen an uptick in bookings post the World Cup, but it's been small. I think where we've been slightly disappointed, two things have happened, obviously, since the World Cup has run down to its last week is, one, we continue to have a heat wave in Northern Europe where normally this time of year, the Irish are all getting depressed and booking last-minute bookings going to Spain and Portugal. There is a noticeable weakness in those markets, some of which we think is caused by the extended heat wave in the U.K., in Ireland, in Northern Europe. Therefore, we're not seeing that surge of last-minute bookings that we would normally have seen at the end of a World Cup period when rain in Ireland prevails.
Also, we think the Irish market is also being affected by the disproportionate kind of coverage of fairly minor strikes by a fairly small number of pilots here. You'd swear the entire country had shut down the way it appears on the front page of newspapers, when it's actually pretty small. There's a number of factors there we think that are affecting forward pricing in the Irish market, also in the Portuguese market, and to a lesser extent, in the Belgian market as well. Spain seems to be reasonably unaffected at the moment, but we continue to monitor closely. Negotiations, I'll ask Eddie to comment briefly. We are having the meetings with the Spanish pilots and with the Spanish cabin crew. We are making reasonable progress there. Maybe, Eddie, you want to give your-
Yeah
insights on that.
Just broadly speaking, the difference between where we're making good progress and little progress is where we have the involvement of competitors involved in the negotiation process. There's the added complication in Spain of a number of unions, a very small one, which is more of a cipher than the larger cabin crew union. The pilots are taking a legal case on local contracts. The negotiations have stalled on that for the time being. We're pretty much, I would say, 90% there with them. On the cabin crew side, negotiations will start again after this strike. The big difference is, if you didn't have competitors involved, we've got a cabin crew member from another airline in the middle of the negotiation process in Spain, and that's-
Yeah, a Norwegian cabin crew. Like it's a joke.
Isn't it?
We had to go to a meeting with the cabin crew union last week in Spain, we find ourselves negotiating with a Norwegian cabin crew. We have the same issue in Portugal where there's a TAP cabin crew is the chairperson of the union. Because of the recognition, the union in Portugal doesn't have any Ryanair people on its committee council because the council elections only happen in August or September each year. It's very difficult for us to go to a negotiation with a Portuguese, a TAP cabin crew, to talk about Ryanair pay and conditions. In Ireland, for example, we've endured seven hour, nine hours spread over two event meetings with this small minority. It's 25% of the Irish pilots, where we sit down with our committee and the Fórsa union. They say they have 11 requirements on seniority.
We've explained to them that our proposals already agrees eight of their 11 points, then they run out of the room for an hour and a half to consult with one or two Aer Lingus pilots, then come back in and say, "No, we want something." They can't even explain what it is they want. Until we get a couple of Aer Lingus pilots out of this process, I don't see there's going to be any significant change in Ireland. We've demonstrated that we can continue to work our way around this. I would contrast that with the progress we've made, with BALPA in the U.K. BALPA had no difficulty agreeing upon day one that there would be no British Airways pilots, no Monarch, no EasyJet pilots involved in these negotiations. We're negotiating with BALPA and the Ryanair council. Same in Italy.
We're negotiating with ANPAC and the group of Ryanair pilots. But yeah, I know of no other industry. If you look at somewhere, for example, you take the media with RTÉ would be sitting there negotiating with a TV3 union rep. It's a bit bizarre, that means, these people holding themselves out. There's a Norwegian cabin crew down in Spain holding himself out as the man who's going to negotiate for Ryanair cabin crew. Even Ryanair cabin crew were surprised to be notified last week that the discussion is being held up by a Norwegian cabin crew member. I'm perfectly willing, we as a group are perfectly willing to accept that we have to learn, there is a process here that we have to go through.
We're not going to learn how to negotiate with Aer Lingus pilots who, Aer Lingus is an airline with 40 aircraft and one base. We're an aircraft with nearly 500 aircraft and 87 bases. Even the Aer Lingus pilots don't know what the hell they're talking about in this process. Some of the proposals that they have designed would damage Irish pilots. Or prevent us. I mean, Give you a flavor, one of them, they want the right to refuse to be transferred somewhere else, even if there's a promotion. Which would mean we couldn't crew a new base. Well, we're never going to agree to that. If first officers want a promotion, normally it happens by being moved to a new base where we have promotion opportunities for. Nearly all of our first officers want promotions.
You've a couple of Aer Lingus pilots in there trying to run negotiations that would now disadvantage almost all of our first officers and limit our ability to grow. In those countries, and again, without looking like this is. Remember, what we're talking about here is 25% of our Irish pilots, which is less than, I think, 1% of our total, or maybe 2% of our total pilot complement. This is reasonably small scale, and I think in time we will move to the same footing as we've established with BALPA in Italy, even in some of the other countries where we're negotiating with the unions and our own people. When we agreed to recognize unions last December, we didn't agree to recognize unions and competitor airline employees, and we're not recognizing competitor airline employees.
It's up to the unions in these countries to come to maybe a discuss or negotiate with us with a group of our own people, not with some competitor hostie or pilot.
Great. Thank you.
That's a fair summary.
There you go. Okay.
Don't want to belabor the point, but nevertheless.
Next question, please.
Next question is over the line of Gerald Khoo at Liberum. Please go ahead, Gerald. Your line is now open.
Morning. Well, a couple of questions. Firstly, I know Ryanair Sun is still small, but I'm just wondering how that's being accounted for. In particular, am I right to say that the revenue is going to be going into the scheduled revenue line, but the passenger numbers don't go into the passenger count? Secondly, you've talked about getting a pay rise deal with 90% of the pilots. I'm just wondering what's the situation with the other 10%?
Okay, I'll do the second happening. I'll get you to answer the Ryanair Sun, the accounting question. Most of the other, the 10%, is a couple of holdouts. We have a small group of some of the Irish pilots have not accepted the pay increase. In most other countries it has been, but the big one would be in Italy, where we're very close now. There's a kind of complicated structure in Italy where our pilots and the unions want to change the basis of pay to mirror what's kind of the same basic and allowance payments in Alitalia, because it's tax advantageous for Italian pilots. As long as you're unionized, it's tax advantageous for Italian pilots to receive more of their payments in expenses and stuff like that, and less in basic pay.
Yes.
It's called some diaria.
Diaria.
The diaria.
It's taken us a number of months, Eddie.
Yeah. The largest number is in Italy, perversely where we're probably making most progress on a comprehensive collective labor agreement because the union didn't want us to go out and offer this individually to pilots in that market. That accounts for the sort of rump of it there. Michael's quite right. The rest of it is.
Odds and sods
odds and sods around the place where people haven't opted into the new structure.
I mean, when we have Italy done, we will have about 97%-98% of all pilots will have agreed. That's the case. They all will have agreed to 20% pay increases this year. I mean, this is the kind of joke of what we are dealing with here in Ireland. We have about a quarter of our pilots who are earning between GBP 150 grand-GBP 200 grand a year, got a 20% pay increase this year, are now engaged in strikes over seniority that doesn't affect them, or base transfers that they don't want. They're already in the base they want to be in. It is nothing other than us being gamed by a few Aer Lingus pilots to the benefit, frankly, of Aer Lingus.
If that's what we have to put up with for a period of time until the majority of our pilots in Ireland actually work out that their interests are better served in dealing directly with us and not listening to a couple of Aer Lingus pilots, we may have to take some more strikes in Ireland. That would certainly cause us, I think, to materially look at the way we allocate aircraft in Ireland this winter or in the summer of 2019. Neil, do you want to take the Ryanair Sun, the accounting?
Sure. On Ryanair Sun, as you said, it is relatively modest. Five aircraft flying this year. The revenue is into the scheduled revenue line. To the extent that they've got any scheduled passengers, and they'll have some, they'll miss the passenger numbers, otherwise they won't. The costs will get broken down over the various cost lines.
Okay, thanks.
Thanks, Neil. Next question, please.
Over to the line of Johannes Braun at MainFirst. Please go ahead. Your line is now open.
Hi, good morning. Just two for me as well. Obviously, despite all this, some progress in union recognition deals with now the German cabin crew union, Verdi also signed. I was just wondering what does a recognition deal with the union actually give you? Obviously, it's not a CLA yet, which would cover working conditions and all that. It seems to me that the really hard part is still to come for all those countries where you do have now a recognition deal in place. Secondly, any new thoughts on France regarding a potential basing of planes there?
Okay, Johannes, I'm going to ask Eddie Wilson to do the first half, and David give you an update on the second question. Eddie.
Yeah. Just in relation to the recognition agreement with Verdi, it just sets up the relationship as actually how you conduct business on that. There is a commitment in that recognition agreement to start negotiations on a CLA pretty much immediately. We already have a deal in place for our cabin crew, which goes up until 2021, which has their 5-3 roster and predetermined pay increases already included there. We'll be sitting down with Verdi in the next week or so to start that in fairly rapid format to try and formalize a collective labor agreement for our German cabin crew.
David?
France?
Yeah.
Just in terms of what it actually regulates in terms of the other countries, U.K., Italy, where you have recognition deals in place. Is this different to the German one, or is it? No. In some countries, you need an actual recognition agreement to have the procedures. It's less stringent in Germany. You pretty much get into a CLA straight away. We at least have agreed the ground rules of how we engage with one another. It's not required by law in Germany, but that's what we're doing, and Verdi are happy with.
I think just to add to the background, what's interesting about the strikes thus far is even the Irish pilots admit it's not about pay. With the cabin crew, even the cabin crew one this week, which is more of a protest thing. Pay is not featuring in these discussions. Our cabin crew earn up to GBP 40,000. Our captains earn between GBP 150,000 and GBP 200,000. You have unions here in smaller markets constructing disruptions over really esoteric stuff like seniority, which we already have seniority offers on the table with the Irish pilots, with the German pilots. We've sent them the seniority list. The good news in all of this is we're not having strikes about pay. We're not a low-pay airline. Even the pilots can't argue that they're lowly paid.
The recognition is the most important thing, so we actually start into the process of negotiating or at least having a relationship with these people. We do not have recognition in Ireland, and nor will we have until we get Aer Lingus pilots off this pitch. David, France.
We've been negotiating with five French airports. We have deals that are more or less acceptable at this point with three, out of which we should select two. Ultimately, it depends on our aircraft availability next summer, which could be determined, in fact, by some of the activities going on at the moment. If we move aircraft out of some of the markets, it'll make France more likely next summer.
Thanks, David. Next question, please.
Is over to the line of Roksandra Gawrylczyk of Kepler Cheuvreux. Please go ahead. Your line is now open.
Roksan, hi.
Good morning. Two questions, please. First, what share of your current capacity is at primary airports, and what fare trends are you seeing at these airports? There is a lot of capacity that entered primary airports over the last years and should have reached maturity now. Second, how do you expect average unit airport costs to develop over the next three years? Some competitors mentioned potential increases in airport costs. Thanks.
Okay. The majority of our aircraft are at primary airports. We don't see maturity. We're growing at the moment by even this year with ATC strikes. Traffic into Q1 grew by 7%. That means if you take our growth this year, we plan to add about another nine, 10 million passengers. We're growing at the same size as the total size of Aer Lingus on an annual basis. I never hold with this idea that because we're at primary airports you won't grow or we're at maturity and we should expect higher yields. The fares are slightly higher at the primary airports, but so are the costs. The average airport unit costs, I think I would generally expect them to be flat going forward.
We've seen, interestingly, in the Q1 numbers, the airport and handling costs have only risen by 5% in a quarter where traffic was up by 7% and block hours were up 9%. As you can see, despite the fact that we have a majority of primary airports, we're still doing very good growth incentive schemes with the primary airports as well as with the secondary airports, and they are competing against each other. I think the reasonable assumption going forward would be flat on airport unit costs, and we might do a little bit better.
Thank you very much.
Next question, please.
Is over to the line of Michael Kuhn at Societe Generale. Please go ahead, Michael. Your line is now open.
Morning. Two questions. One again on ATC, one on Laudamotion. On the ATC side, it looks like some of the problems are quite structural. No willingness on the ATC side to train enough people. Do you see that situation changing, or could that develop into a serious growth obstacle for the whole sector going forward? On Laudamotion, would you be willing to share with us the current expected top line and operating margin that you see for the current year? Thank you.
Okay. I'll do the first one first. No, we wouldn't be able to share it with you. On the first part of the question, ATC, I think one of the issues that has materially changed with air travel. You look at the biggest offender at the moment, it's the German air traffic control service at Karlsruhe. They have deliberately chosen two or three years ago to take on the low traffic forecast. There's a low, medium, and high traffic forecast model so that they could under-recruit air traffic controllers. That allows them then to say they have less flights, charge a higher unit rate, and then under-recruit. They come up, they share, "Oh, we're surprised by the growth in Germany." Which is strange given that Air Berlin went bust in the last 12 months. Now, some of that capacity has been taken over.
It is simply the regulatory gaming by these providers. NATS in the U.K. NATS in the U.K. are doing some system upgrade, funnily enough, most of the system upgrade work seems to take place between 5:00 A.M. and 7:00 A.M. on a Saturday morning and a Sunday morning. Anybody who knows anybody of people working in IT, millennials do not work at 5:00 A.M. on a Saturday morning or a Sunday morning, yet we have a wave of delays. I think yesterday morning, we had 39 departures out of Stansted between 5:00 A.M. and 8:00 A.M., and 32 of those 35 aircraft were delayed largely because of this system upgrade work being undertaken by NATS. It's complete bullshit. They are just understaffed. They can get lots of air traffic controllers to show up to work on Tuesdays, Wednesdays, and Thursdays.
They either don't roster them to work weekends, or they call in sick at weekends, and the delays are just shoveled onto the airlines. It's not just us. IAG will all confirm this is the same issue. The worst offenders are NATS, the Germans, and when Karlsruhe goes down, more of these flights then get shoveled onto neighboring systems in Maastricht. They go down because they get overstressed. You have the French then, whether they're on strike or not on strike, just won't show up on a Saturday or a Sunday morning. The two peak days, you have most of these people understaffed on ATC. Is it structural? Yes, it's structural. It's structural because their regulatory system allows them to game that system. Will it become a growth obstacle?
It is probably a growth obstacle. A lot depends on how much capacity disappears out of the system this winter with oil at $80 a barrel. If there is a bankruptcy of Norwegian or a significant slowdown in their growth plans of loss-making airlines like Norwegian, Alitalia continues to be loss-making, SAS is loss-making. If there was a material change in that kind of capacity, then it would free up some ATC services. The fundamental challenge remains, is they need to hire more air traffic controllers. There is no shortage of sky up there. The shortage is badly managed, badly rostered, but extremely expensive air traffic control services on the ground. The more endemic problem is not the strikes, because people will understand when the French are on strike. It is that they do not understand that there is ATC capacity shortages on Saturdays and Sunday mornings.
On Laudamotion H2, no, we are not breaking down any detail on Laudamotion for the moment. We will probably give people much more color on that when we get to the full-year results in Ryanair, and we won the first full year of Laudamotion revenues, et cetera, in our numbers. That will be about May of next year. Next question, please.
Is over to the line of Duane Pfennigwerth at Evercore ISI.
Duane, hi.
Isi. Go ahead, Duane.
Hey. Good morning. Thanks for the question. Michael, do you have examples historically of bases that Ryanair have closed where you switched completely from serving a market with a local aircraft to serving a market with aircraft from other bases? It seems like where you are today, given the number of bases and the network that you have, this would be really easy. What prevents you from doing this more aggressively?
Okay. That's a good question, Duane. Firstly, we do have examples in the past. The obvious one was Copenhagen about 2 years ago when we announced a 4-aircraft base there. We got attacked by the Danish Union, we flipped the aircraft out of Copenhagen, based them in the U.K., Kaunas, and a couple of other airports, and have still over the last 2 years grown to be the number 3 airline. Are we number 2 or number 3? Must be number 3 behind Norwegian and SAS. We're the number 3 airline in Copenhagen with no aircraft based there. This is absolutely critical, we are not talking about base closures here. Base closures invites an opportunity for competitors to arrive in and take advantage of the work that we have done over many years in growing bases.
What we're talking about is moving a proportion of aircraft out of a base. Say, if you have an aircraft that has 10 aircraft based there, you probably have 20 aircraft worth of flying to and from that base because 10 aircraft will be in base and 10 aircraft will be at other bases outside that base that are flying inbound into those bases. What we're talking about doing is if our business is being hit by customer confidence or lower fares in one market, we might reduce from 10 aircraft in the base to, I don't know, five or six aircraft. Some of those aircraft will go. There will be very little reduction in capacity at that base because we might allocate about 14 of the aircraft elsewhere to flying in and out of that base.
There'll still be largely about 20 aircraft worth of flying to and from the base, but instead of it being 10 based and 10 non-based, it might become 15 non-based and five based. It would also free up the opportunity for us to reallocate some of those aircraft to more profitable flying elsewhere. In particular, we think we have a very significant opportunity in Poland with Ryanair Sun, where it has traded very substantially and profitably this year. There also looks to be some airlines in that marketplace, most notably Small Planet, which is teetering, we think, or struggling financially. We think there will be more opportunities. You take a market like Poland, where the economy is doing well, propensity to travel is rising rapidly.
It's a market where Ryanair is already the number one airline in that market, despite all the talk of Wizz about being number one in the Central Europe, Eastern European markets. We are by far and away the number one airline both in Central and Eastern Europe and in Poland. It would be a very useful allocation of aircraft to switch them to Poland. I think we're also looking at the possibility of as we take the first five of the MAX 200, is that those aircraft might also go to Poland next year to the Ryanair Sun subsidiary. Particularly, where if at markets in Dublin or in the U.K., where it would have been our natural decision, would have been the natural home for those aircraft. If we're having difficulties with pilots in those markets, we may send the new aircraft to a charter market in Poland.
We haven't finalized those decisions yet.
Very clear
We can close a base and move the aircraft elsewhere, but we're not planning to close bases here. If you take those markets like Portugal, Ireland, and Belgium, where we're certainly looking at reducing some based aircraft, we would not be closing bases. We would simply be reallocating, moving aircraft out of Portugal, maybe to Poland for the winter, allocating aircraft to Poland. We would still have a lot of additional aircraft flying down to Portugal from aircraft based overseas where a lot of those aircraft already operate. We have no requirement to have aircraft based in Faro or in Ponta Delgada, Lisbon, or Porto for the winter period. We could readily move aircraft out of there, and we'll do so if we are facing repeated unnecessary disruptions caused by TAP cabin crew.
Yeah. With the network you have today, it seems very straightforward. Thanks for the answer.
Thank you. Next question, please.
Okay. We are now over to Katherine Leonard at Numis Securities. Please go ahead, Katherine. Your line is now open.
Morning, everyone. Just two really quick ones to finish off. Just with the ancillaries, you mentioned, the full year results, Michael, that you saw allocated seating would probably be saturated around 50% level, which you reached in March 2018. I just wondered, given the commentary, have your thoughts on that in terms of saturation of priority boarding allocated seated changed upwards from there? Secondly, just really briefly, you mentioned on the recorded comments, U.K. and U.S. ownership, voting rights, et cetera, and disenfranchisation. Just in terms of, could you update on what percentage of your shareholders are U.K. and U.S. at the minute, please?
Kate, thanks. No, sorry, I think we may have got. Reserved seating, we think will max out at around 50% of passengers. We're not there yet. We're close to it. Priority boarding, again, we would limit priority boarding. It's already limited to just under 50% of passengers. It's limited to, I think, 90 passengers per flight. Beyond that, it makes no sense. It's not priority boarding if it's at or more than 50% of passengers. The reserve seating, priority boarding are continuing to grow strongly as we retail them better using the mobile app. Brexit, we would continue to caution, we have long believed that the risk of Brexit is being underestimated.
We still, like most of the market, believe that there will be a transition agreement that will at least get us from April 2019 through to December 2020, mainly because we don't see any other outcome. There is a growing risk, I think, of political uncertainty in the U.K., and that may lead to everybody falling by accident into a Brexit, a hard Brexit. In those circumstances, at the moment, we have about 44% of the stock is currently held by non-EU. About 20% of the stock is held by currently U.K. shareholders. We think half of that 10% would reflag pretty readily into European shareholdings. Half of it won't, we run the risk of running between 44%-54% non-EU shareholding in a hard Brexit scenario.
In those circumstances, we would immediately disenfranchise all non-Brexit shareholders, which would be the ADRs currently, plus, say, about 10% of the U.K. shareholders. We would also put in place the restriction we've exercised a couple of times before, in that those who are U.K. shareholders who are not able to reflag to Europe, they would immediately be subject to the same restrictions that were previously placed on the ADRs, and that is they can only sell to an EU share resident or EU national shareholder, resident shareholder, which would readily, over a very limited period of time, we think weeks or months, bring us back to 50.1% EU ownership. Once we get back to 50.1% ownership, we would then remove or we would reinstate the voting capacity of non-EU shareholders.
It will be very important to us to ensure that we protect our EU ownership and control in a hard Brexit environment. We've had extensive discussions with the European Commission and others Regulatory agencies who seem reasonably comfortable that those measures would ensure that we continue to remain EU-owned and controlled, even in a hard Brexit scenario. Justin, you want to add anything to that?
No, that's a good summary.
Okay.
Great.
Thanks very much. Next question, please.
This is the final question for today. It's over to the line of James Goodall at Berenberg. Please go ahead, James. Your line is now open.
James, hi.
Hi, everyone. Just a quick one from me. I'm just thinking, what's your current thinking in terms of revenue management between your fare revenue and your ancillary revenue? I guess what I'm trying to ascertain is to what extent, if any, you're allowing ancillary revenue to cannibalize fares. Thanks.
We're not. We don't allow ancillary to cannibalize fares. In our current thinking, we're still, I think, in year three or year four of our five-year program to get ancillary revenues to 30% of total revenues. We've got there 18 months early. Partly, that's a function of the fact that the yields environment has been weaker in Q1 than we had originally thought with the move of Easter into Q4. We don't run ancillaries here to cannibalize underlying airfares. What drives underlying airfares in Ryanair is our commitment to being load factor active, price passive, and therefore, we are price takers in the current environment. This is not new today. On the full-year results, when there was a load of optimism this year that airfares would rise higher into the year, we said we're very cautious. We don't see it. We're continuing to grow very strongly.
We will get to probably 139 million passengers this year. That's very strong growth off 139 million this year. That's 10 million passenger growth. An awful lot of our own yield softness comes from our rate of growth. You'll see other much smaller airlines like the Norwegian and the Wizzs growing at 10%, 20% month on month. Their growth, they may add about four or five million passengers this year. We'll add double that, 10 million passengers. Ancillaries are performing strongly. I think that is the measure of the work that's being done by Kenny and his team on the digital side, and also John Hurley and his team on the Labs side. We continue to see that process continuing to grow. We're not running down the underlying average fare so that we can boost ancillaries.
We will price the average fare at the highest price we possibly can, as long as we continue to maintain 95% or 96% load factors. It's just there are a number of events at the moment, particularly in the current months, such as the impact of the World Cup, the generally good weather, unseasonable heat wave in Northern Europe, and in certain markets, most notably Belgium, Ireland, and Portugal, where some concern a disproportionate coverage of very limited strikes by very small numbers of our people may be having an impact on the forward pricing and the pricing of our forward bookings. That will continue. I think it's important if we're going to preserve our low-cost model and our cost advantage over other airlines, is that while we don't want to invite strikes, we want to resolve these issues by negotiation with our people.
We're inviting our people to meet with us. If we are being dealt with unreasonably, in some cases by competitor employees interfering in the process, the strikes are inevitable, we will take strikes, and we've demonstrated already that we can work our way around strikes while at least trying to minimize the impact on our customers. I would far happier take a hit to our earnings this year, convey the message that we will face down strikes while trying to resolve these issues and negotiate with our people. Eddie Wilson, Peter Bellew, and their team, and we are engaged in very active negotiations. We're down today, for example, in Lisbon, meeting with the Portuguese Pilots' Union and the Cabin Crew Union. There is a really large program of work, and we are making, I think, very considerable progress in those works.
We still have an image of some lazy media want to characterize us as being anti-union. We're not anti-union. We recognized in December that we were going to negotiate with unions. We're open to doing that, we're open to very reasonable accommodations with our people, particularly our very well-paid pilots and cabin crew, who enjoy very good terms and conditions of employment and very favorable rosters. If we're going to be pushed around by a couple of competitor people trying to distort the process, fine. It's inevitable that we will take on those strikes, we will face more strikes during the remainder of July and August. We're prepared for them, we're ready for them, although we hope to avert them because we want to minimize the disruption our customers are on.
Okay. Thank you.
Okay, folks, I think that's reasonable summary of where we are. Thank you for participating in the call. If anybody has any further or follow-up questions, Shane O'Toole is here with the IR team in Dublin, would be happy to answer the questions. We've no road show, as obvious, on the Q1 results. We will continue to communicate with you as best we can. We will hopefully lead up to the half-year results in, I think we show at the end of October.
Yes.
We'll be on a comprehensive road show at that stage. Thanks very much, everybody. Good to talk to you. Bye-bye.
This now concludes the call. Thank you very much for attending. You may now disconnect your lines.