Good morning, ladies and gentlemen. Welcome to the Ryanair full year conference call. I'm Michael O'Leary, Chief Executive. Joining me this morning is Neil Sorahan, and later we'll be joined by Stephen Furlong of our company broker Davy, who will try to liven up our usually boring question and answer session. This morning, as you've seen, we've reported a 10% increase in full year profit to EUR 1.45 billion to the year ended March 31, 2018. That was driven by lower fares. We cut fares by 3% in the last year to stimulate a 9% growth in traffic to over 130 million passengers. During the period, we cut unit cost by 1%, ex-fuel that rose by 3%. We stimulated record ancillary spend. The ancillary spend was up 4% per passenger. We took delivery of 50 new Boeing 737 aircraft last year.
We have negotiated new five-year pay and productivity deals with most of our pilots and cabin crew. We have returned over EUR 800 million to shareholders via buybacks, which brings to almost EUR 6 billion the funds that have been returned to shareholders through buybacks or special dividends over the last eight years. I think the key in the last 36 months was the way we as a company and a management team have recovered quickly from the September 2017 pilot rostering failure. Over the last year, most of our growth has taken place in the larger EU markets of Germany, Italy and Spain. We expect above average EU capacity growth to continue into summer 2019, therefore that will have a downward effect on airfares.
However, significantly higher oil prices will impact margins, particularly of those EU airlines who are continuing to expand despite having no prospect of achieving profitability. We think that will feed into higher airfares, but it will have a lag effect, as it usually does, of about 12 months. Last year, we opened four new bases in Burgas, Memmingen, Naples and Poznan. We launched over 260 new routes. This summer, we are already entering new markets in Jordan, Turkey and Ukraine. Labs has established and continues to grow three development offices, one in Dublin, one in Wroclaw, and Madrid, which is growing rapidly. Labs continues to transform our customer service and our ancillary services. The myRyanair membership has grown to over 43 million customers.
Our improved mobile and digital platforms have delivered a 13% increase in ancillary revenues, an increase in spend of 4% per guest to over EUR 2 billion. We're well on track. In fact, we'll hit our target of 30% ancillaries amounting to 30% of total revenues a year ahead of target. In terms of customer service, we've lowered our check-in bag fees while increasing the baggage allowance. Also that has speeded up gate boardings. In May, we launched our new environmental policy, which commits Ryanair to a series of industry leading environmental targets, including becoming the first airline to commit to becoming plastic free within five years. One downside of the last year has been a decline in our on time performance, regrettably from 88% to 86%.
The entire of this decline is due to the continuing lamentable services provided to us by ATC services in Europe, not just the frequency of French, Spanish and Italian aircraft and control strikes, but also the continuing experience we have of U.K. and German ATC being short staffed, particularly at weekends, are not rostering their staffing properly, which is leading to significant ATC capacity delays, particularly at weekends. On costs, Ryanair has a significant cost advantage over all other EU airlines. In the last year, our ex-fuel unit cost rose 3%, mainly due to the costs arising from the September 2017 cancellations, EU 261 costs, rights to care, passenger refunds, and also the impact of higher staff costs, mainly pilots and cabin crew, which fed into the last six months of the year.
In the next year, FY 2019, we will continue to invest substantially in our people, also in new management, new systems in our business as we scale up now to take delivery of over 200 Boeing 737 Gamechanger aircraft over the next six years to see the fleet rise to 600 aircraft and traffic rise to over 200 million passengers. This year, we expect our staff costs will rise by about EUR 200 million. EUR 100 million of that was the pay increases negotiated with pilots and cabin crew last year. The other EUR 100 million will be the increase in additional headcount. Fuel this year will be a major cost headwind. We are hedged for FY 2019, 90% hedged at $59 per barrel, which is significantly lower than current spot, which is somewhere in the high $77, $78 per barrel. Into FY 2020, I think we're also facing significantly higher oil prices.
We believe that will be reflected as it has been in the last three years, with lower oil leading to lower fares. We think fares will begin to step upwards to cover higher oil prices, but there will be a lag effect of about 12 months. In terms of consolidation, we think the higher oil prices will lead to more airline failures in the EU this winter. Already in the last year, we've seen the bankruptcy of Monarch, the bankruptcy and subsequent sale of Air Berlin to Lufthansa. IAG has made offers to buy the perennially loss-making Norwegian, and we ourselves have participated in that process with a 25% investment in Laudamotion, and we hope to step that up to a 75% ownership within the next number of months.
We've also set up Ryanair Sun, a Polish charter subsidiary which has started flying in April and will be trading profitably in its first year of operations. M&A will continue. We don't see ourselves as being a prime mover in European M&A because we intend to continue to grow strongly and organically with our new low-cost aircraft deliveries. There's no doubt that there will be other opportunities like Laudamotion, and we will certainly be alive to them and will participate in them where we believe it will enhance Ryanair's profitability. On Brexit, we remain concerned at the possibility of a hard Brexit. If there isn't a hard Brexit or there is an extensive or long transition period, then that's fine.
We must prepare, I think, for a hard Brexit either in March of 2019 or in January of 2021. We'll be bringing proposals to the AGM in September, which in the event of a hard Brexit, and that we will need to address our non-European shareholder base, and it is certainly likely that we will seek or move to remove the voting rights from non-EU shareholders, all non-EU shareholders in the event of a hard Brexit. Just briefly to touch on the balance sheet, we continue to have a very strong balance sheet. We have 400 aircraft on the balance sheet at their net purchase price, which is a very significant and substantial discount to current market values. We continue to have very large cash balances, about EUR 3.5 billion.
We maintain a small, in fact, effectively a zero net debt position despite generating over EUR 2 billion in free cash flow over the last year. We spent about EUR 1.5 billion in CapEx. We returned over EUR 800 million to shareholders in buybacks. The net debt position really didn't change. It moved from a figure of EUR 240 million in March 2017 to about EUR 280 million in March 2018. It would have been zero if we hadn't launched the share buyback in February. Turning to the outlook, we are, I think, pessimistically cautious for the next 12 months. We do expect our underlying growth to be strong. Traffic will be up 7% this year to 139 million passengers. Load factors will be flat at 95% because it's not practical to increase them any higher than this. This year, we expect unit costs ex fuel to rise by about 6% per passenger.
Including fuel, they will rise by about 9% per passenger. We think this will be a one-off jump. Thereafter, we've made this adjustment this year, we expect, particularly with the delivery of low-cost Boeing 737 Gamechangers, those with 4% more seats and the 16% lower fuel consumption that unit cost thereafter or after this year will continue to be flat or slightly downwards. We do not believe that the growth in ancillary revenues, which will be strong, will be sufficient to cover that. We have very limited fare and yield visibility.
In the first quarter, the first half of Easter had moved into the fourth quarter of last year. In the first quarter, average fares were down about 4%. We expect in the second quarter to September average fares to be up by a similar amount, about 4%. Again, this is subject to the qualification on the level of last-minute close in bookings. For the remainder of the year, we expect overall fares to be flat. Our outlook for the next year is fares will be flat, ancillary revenues will be slightly up, but not by sufficient to cover two significant increases in costs, mainly on the staffing, EU261, and fuel side. Accordingly, we're guiding full-year profit next year will be down to a range of between EUR 1.25 billion-EUR 1.35 billion compared to this year's EUR 1.45 billion.
None of these figures include any of the investments in Laudamotion. We would hope before the end of calendar 2018 to have received EU approval to acquire 75% share in Laudamotion. We will then make an exceptional provision of about EUR 100 million to cover the start-up costs and the first-year losses of Laudamotion. With that, we'll now take you through the slide presentation. Then we'll open it up for questions. Touch on briefly, some of these slides haven't changed. Ryanair remains the lowest cost, lowest fare airline in Europe. We're number 1 for traffic, number 1 for coverage, number 1 for customer service. Our year-end profits have grown 10% as we have maintained a 20% net margin despite the costly impact of the September 2017 pilot rostering failure.
The key underlying, I think, strength of our model is we have 210 Boeing MAX aircraft on order, which will lower our costs as we grow 200 million passengers by FY 2024. Last year, we reduced our average fare by 3% to €39. It's significantly lower than all of our EU airline competitors, although we don't have their updated fares yet. In terms of costs, our average cost per passenger ex fuel is €27. It is materially lower than every other airline, from Wizz to EasyJet, up to Eurowings. In fact, the gap between us and everybody else is widening as those airlines see their unit cost rise at a faster rate than Ryanair. We remain number 1 for coverage with 86 bases spread across 37 countries.
This year, we expect to grow from 130 to 139 million passengers per annum as we establish number 1 or number 2 market share across most of the major European markets. Neil, do you want to take us through the results?
Thanks, Michael. Yes, a strong year in FY 2018. We saw our guests increase by 9% to 130 million customers at load factors industry-leading 95%. Average fare was down 3% in the year. However, ancillaries were extremely strong. We saw good growth and revenue as a result was up 8% to just over €7 billion. Profit was up 10% to EUR 1.45 billion in the year with a net margin of 20%. Our buybacks have helped our earnings per share, which increased by 15%. Our balance sheet, which is a BBB+ rated balance sheet, is one of the strongest in the sector. We've had a lot of equity built up in the assets. In the years just past, we generated over EUR 2 billion from operations.
This funded EUR 1.5 billion of aircraft CapEx and EUR 830 million of share buybacks, yet we still ended up with a net debt position which was broadly flat year-on-year. One of the key advantages of the strong cash generation in the business is that we've been able to reward our shareholders over the last decade with returns of just over EUR 6 billion. Michael, back to you.
Okay, thank you. In terms of current events, we continue to grow strongly in Europe's bigger markets, Germany, U.K., Spain, Italy and Central Europe. Ryanair Labs and our investment in Ryanair Labs, which continues to pay significant dividends. We have a record of 1 billion visits to the ryanair.com websites and mobile platforms last year, it is driving improved performance in ancillary sales. We are facing two major, well, fleet cost wins this year on pay, about up EUR 200 million. Fuel, we expect the fuel bill to rise by about EUR 400 million, even with our successful hedging policy. There will also be continued growth in 261 costs. On union recognition, we've made significant progress over the last six months. There's more to be done, we're working through a process of meetings, negotiations with both pilot and cabin crew unions across most of the major European countries.
We've launched a radical environmental policy under which Ryanair commits to industry-leading, in fact, revolutionary targets, not least of which is to be plastic-free within five years. We remain cautious on Brexit. Yes, there's a transition deal in place till December 2020, we have to put in place, I think, protections for our shareholders and our business in the event of a hard Brexit. We are developing additional airlines, Ryanair Sun, the successful, profitable Polish charter subsidiary, and Laudamotion, which we hope, working with Niki Lauda and his team, to make it Austria's number one low-fares airline. We are on the cusp, I think, of a very exciting five-year period of growth and profitability as we take delivery of over 200 Gamechangers. Just to touch briefly on labs. It is driving, as Neil and I have said, significant increases in penetration.
The spend per passenger is up 4% in the last year. We're on track to deliver 30% of total revenues through ancillaries a year ahead of our five-year target. Just to give you a sample, the plus products, which are the premium products, have now grown in the last year from 3% in March 2017 to 10% of customers. Allocated seating has moved from 23% of passengers to 50% of passengers. Priority boarding, which this time last year accounted for just 4% of customers, now 20% of our passengers are choosing the priority boarding service. I think it's important while next year we face a 6% increase in our ex-fuel unit cost to put that in context against our competitors.
Over the last eight years, or the last seven years, we've seen, even allowing for this year's 6% increase in ex-fuel unit costs, our unit costs per passenger are down. During that period, most of our competitors, in this case we've used the example of EasyJet, have delivered significant rises in their unit costs. In fact, their unit costs continue to rise inexorably on a yearly basis because they're unable to manage unit costs, which is why they're unable to compete with Ryanair in those markets, the many markets where we compete with them. To touch briefly on union. We have made and entered our first two recognition agreements with BALPA in the U.K. and ANPAC in Italy. These two markets alone represent over 45% of pilots.
Over the last six months, more than 90% of our pilots have voted on and accepted 20% pay increases, which is key, I think, in a tightening market for pilots, that we are not just competitive on pilot pay. In fact, we're about 20% ahead of our low-cost 737 competitors on pilot pay, and we're seeing a significant surge in pilot applications to us, both experienced pilots and new pilots. We continue our active engagement with other unions. We are in advanced discussions with pilots unions in Spain, in Germany. We are making less progress here in Ireland, mainly because the unions take months to reply to our letters, but we continue through that process. The cabin crew recognition process is underway again with significant progress made in major markets, less progress, but continuing discussions underway in smaller markets.
I think certainly one of the opportunities that arises out of this union recognition process has been the restart of our negotiations with airports in France and in Scandinavia, where previously we had avoided establishing bases because of our antipathy to union recognition. Now that we have union recognition, there's nothing to stop us opening bases in those countries, and those base negotiations have already begun. This doesn't mean that we won't face other strikes, and we can't rule out strikes during the summer period. If there are, we will take them, as we have in Germany at Christmas when the German pilots went on strike, and in Portugal at Easter when the cabin crew went on strike.
In both cases, the strikes were poorly supported, mainly because the unions were unable to communicate either to us or to our people what exactly it was they were calling the strike over when we're engaged in active discussions with them. Being unionized means we will have occasional strikes. If for some reason the demands from the unions are unreasonable, then we'll take the strikes, and we will put up with them. On environmental policy with Ryanair, we are already Europe's greenest cleanest airline, but it commits us to moving further in that direction. We expect to be plastic-free in five years. The new aircraft will lower our noise emissions and our fuel consumption. In January, we introduced a voluntary offset scheme for customers, which has been very successful and will lead to multimillion EUR donations.
We're giving all those funds to environmental charities over the coming years as we are also committed to the IATA 2050 target for CO2 emissions. Brexit, as I said, we are cautiously optimistic that there will be a transition period which will postpone it until December 2020, but we must continue to manage the business for a hard Brexit. Again, we'll have proposals on that which will essentially involve limiting or restricting all voting entitlements of non-EU shareholders, in the event of a hard Brexit. In terms of new AOCs, Ryanair Sun, which is the Polish charter airline with 5 aircraft out of 18, it will be profitable from year one, and it is operating and trading successfully. Laudamotion will be a bit more complicated. At the moment, we have a 24.9% stake. We have an agreement with Niki Lauda to take that to a 75% stake.
The first summer's trading in Laudamotion will be very difficult, partly because Laudamotion has committed to entering and leasing 9, it was originally supposed to be 12, but Lufthansa have failed to deliver 3 of those aircraft. The 9 that they have delivered will be very expensive and are if anything excessively expensive leases. Laudamotion's committed to those for a two-year period, so it is likely to lose, and that forms the main basis of the EUR 100 million startup cost.
It, through the summer of 2018, will operate with about 19 aircraft, 9 of which are expensive Airbus leases from Lufthansa, where Ryanair's providing them with wet lease aircraft for 10 of our Boeing 737s, and we would hope to replace those with Airbus aircraft over the next 12 months, so that by summer 2019, we'd expect Laudamotion to be operating a fleet of 20-plus aircraft, all of which will be Airbus. Its rate and pace of growth will be limited only by our ability to source additional low-cost Airbus aircraft over the next year or 2. In the U.K., we're actively working through the AOC application with the U.K. CAA, and we expect to have a U.K. AOC issued to us before the end of 2018. In terms of the MAX Gamechanger, we have 210 orders for this aircraft, 135 firm, 75 options.
The first 5 deliveries will come to us in the spring of 2019. In fact, it is in Q1, April through June of FY 2020. This aircraft has 4% more seats, a minimum of 16% fuel savings, which will be key, particularly as oil rises to about $80 per barrel. It also produces 40% lower noise emissions, and it will be one of the key features which will enable us to drive significant unit cost savings over the period FY 2020 to FY 2024. We also, in the last 12 months, have successfully negotiated and completed a 10-year engine maintenance contract with CFM, which will deliver us meaningful savings each year for the next 10 years. The focus on cost reduction continues, and the focus on sensible low-cost CapEx continues. Neil, guidance next year?
Just to give you guidance next year, our low-fare, low-cost policy will see us grow traffic by 7% to 139 million guests. Average fares, we believe, and we have very limited visibility at this time and close to the summer bookings and no visibility into H2, but we're guiding average fares broadly flat on a full-year basis. Ancillaries will continue to perform strongly as we move closer to our five-year target of 30% of total revenues a little bit ahead of time. The gains from ancillaries will not be enough to offset the large increases in costs which are coming this year. Unit costs will be up 9%, including fuel. Our fuel bill will be up at least EUR 400 million when we add in volume for the year.
When we strip out fuel, we see our unit costs up 6% this year, big elements of that being the EUR 200 million increase in staff costs, half of those, and half for annualization of staff deals that were agreed in the second half of last year for pilots and cabin crew. On that basis, profit after tax, we believe, will be in a range of EUR 1.25 billion-EUR 1.35 billion. This, of course, depends on close-in bookings, normal levels of ATC disruptions, and the absence of security events over the course of the year.
Well done. Thanks, Neil. With that, we will now hand over to Stephen Furlong of Davy, who will guide us through a Q&A session.
Okay. Thanks, Michael.
Thanks, Neil. Maybe can we talk about revenue? You reported a 3% drop in average fares and a 9% increase in traffic in FY 2018. Do you see that continuing with the trends there?
Yeah, we would expect with being a low-fare, low-cost airline that we see the traffic continuing to rise next year as we take on more aircraft. We're looking at a 7% increase in passengers to 139 million. We have very limited visibility on fares at this point in time. We're cautiously guiding fares flat on a full-year basis.
Where do you see the booking curve compared to last year?
We're about 1% ahead where we would have been at the same time last year. We're well-booked into the summer and some bookings into winter, not a huge amount at this stage.
Mm-hmm. In terms of ancillaries, they were up 13% in FY 2018. Strong performance. Do you see that continuing?
We do. We expect in the next year our ancillaries will continue to outperform the growth in traffic. It's hard to be accurate what the percentage will be. I think it will be something similar to last year. We're continuing to see significant customer conversion into these services that we're making easier for them to adapt, particularly on the mobile app, the priority boarding, the reserve seating, and the baggage fees.
Okay. If you could talk about maybe just about ancillaries in more detail, and then labs and also growth. In terms of myRyanair, how many members have you got now?
We're up to 41 million members at year-end. We expect that to continue to grow. It has jumped from 25 million to 41 million in the space of the last 12 months, and we expect that probably to rise to about 50 million over the next year. I think a stunning number is the fact that we've had 1 billion individual visits coming to the Ryanair website and the mobile app over the last 12 months, which indicates the scale of and success of the ryanair.com platform.
Even in the last 12 months, we've seen that increase up to 43 million. It is growing rapidly.
Okay. How is Ryanair Rooms developing?
The volumes are strong. It comes off a low base. The conversions have jumped appreciably in the last six months as we've launched two things. One, we have more hotel supply and more hotel inventory on the website. We're retailing it a lot more aggressively now across the website and the mobile app. The key bit is the travel credits. We're giving customers back essentially all of the commission. You book a room on a hotel on Ryanair Rooms, whether you're a Ryanair customer or not, we're giving you back essentially 10% commission, in the form of travel credits, which you can use then to travel again on Ryanair within the next six months. We would expect that hotels will grow strongly, but you won't see it in the revenue or yield line at the moment.
It's about conversion first. We'll begin to monetize it when we build the platform.
Okay. How is the two cabin bag policy working?
It's actually going very well, Stephen. It's been very well received by our guests, something that they actually wanted. It has improved the boarding process. It's having a positive impact on our on-time performance, which is something that we're very focused on this year.
It is creating a handling issue, particularly at peak periods, bank holiday weekends, summer peak periods. There are many flights where we're now having to put 100, 120 gate bags into free of charge into the hold. If that continues to build, it's something we may have to look at again. There is no doubt, both the feedback from the cabin crew and from customers is that nobody is struggling to find space on board in the hat bins or under the seats when they board the aircraft, so that's good.
In terms of generally growth opportunities for the year, where do you see that?
growth is going to continue all across Europe, but the key growth areas this summer will be the Big Four markets. Again, those are Germany, Italy, Spain, and the U.K. We continue to grow Central and Eastern Europe as well and add on, as we've been doing over the years, a number of new markets. We've now got the likes of Jordan, Ukraine, Turkey, which we're flying to from Dublin, and Bosnia and Herzegovina. There's plenty of choice, plenty of scope over the next number of months.
What about the Always Getting Better initiatives? It's like, I think year four of that. Can you tell me how that's developing?
I think we've rolled out 2018 series of initiatives, most of which are featured around the second bag, commitments on improving punctuality, et cetera. Very well received. I think it translates into the fact that we're now operating with industry record load factors of 95% and very positive and improving customer feedback.
In terms of Ryanair Labs, investors ask about how is that developing. Do you have the resources there? Maybe you can just touch on that please.
Yeah, Ryanair Labs is well bedded down at this stage. We've been treating very well the various labs, one here in Dublin, one in Wroclaw in Poland, and the latest one in Madrid. We've probably just under 600 people employed in those labs, highly qualified digital and IT professionals who are delivering, as we saw on the ancillary side of things last year, and we have big plans for the coming year as well.
Really the acid test of that is the conversion or the growth in ancillary revenues. The fact that this year, despite having probably higher ancillary revenues than any other airline, the spend per passenger has increased by 4% in a year when traffic grew by 9%. It's a very impressive performance.
Okay. In terms of the flight connections, could you just give an update on that, both South Connect or with other airlines?
Michael, do you want to?
The South Connect product is doing very well. It's focused around three of our bigger hubs at the moment, Bergamo, Rome, and Porto. We're seeing double-digit numbers of passengers at those bases now connecting across Ryanair flights. The partnership with Air Europa, the numbers are tiny. With the range of services that Air Europa offers and the only connection is through Madrid is limited. I think the acid test of that connecting service will be when we roll out the deal or the agreement with Aer Lingus. The agreement has now been completed. We and they are finalizing the IT or getting the computers to talk to each other, and we expect to roll that out and make it available to customers before the end of the calendar year. Really for summer of 2019.
I think then given the scale of Aer Lingus' long-haul services out of Dublin and our short-haul services in Dublin, we should see material numbers of passengers connecting. I warn, it's not going to add to our load factor. We're at 95% load factor. Really in Dublin, where we have our welcome Aer Lingus guests connecting onto Ryanair short-haul services, they're simply displacing what would otherwise be Ryanair point-to-point customers.
Okay. You touched on it earlier, on-time performance was a bit disappointing. I was surprised.
Yeah. It's a real challenge. This year, for example, we've taken a number of measures. We've changed the boarding procedures. The free gate bags means we're eliminating those delays that were being self-inflicted or caused by ourselves. Yet we continue to struggle, not just with the frequency of air traffic control strikes, which the French have been on strike each of the last five weekends. A recurring problem now has been what the ATC euphemistically call capacity restrictions, which is basically ATC staff not showing up to work on Saturdays and Sundays in the U.K., in Germany, in Belgium and in Italy. This is a very badly managed service, particularly given the cost they're charging. It's something that we at A4E, together with the European Commission, continue to campaign for action on. Something has to be done.
The Germans open up a new ATC control center in Karlsruhe Baden this year, and yet the staffing is still refusing to move from Munich. You have an empty site in Karlsruhe, fully staffed, and yet the staff are down in Munich. I mean, it's a shambles that needs more exposure.
Okay. Can I ask a few questions on cost?
Yes, absolutely.
Just on staff cost, there was a 17% increase in staff cost in FY 2018. Is that entirely due to pilot pay?
Pilot and cabin crew pay. We went around in response to the rostering problems last September, I think partly which were due to there being a tightening of the market, particularly for experienced pilots. We have committed that we will maintain or be 20% ahead, materially ahead of our 737 competitors in Europe. That pay increase has gone down very well with our pilots and with the cabin crew. It has, I think in many ways, meant there's been very little industrial disruption despite as we work our way through the union recognition discussions, and we expect that to continue. There won't be another meaningful jump in, I think, pilot pay or cabin crew pay over the next year or two. 20% is a really big increase.
Therefore, as we've said, we've set our EUR 200 million as the cost increase in the next 12 months, about half of that is the underlying jump in pilot pay and the rest is additional headcount as we begin to spool up for the MAX 200s.
Okay.
Can I just add to that as well, Michael? In the last year, we would've seen our flight hours increase by 10%, which drove some of that figure. We'd award our non-flight personnel a 2% pay increase, I think that's at the start of the year as well. That drove the numbers along as well as the pilot pay increases.
I see as well that the marketing and distribution, other costs, that jumped 27%.
Yeah. The big element of that, Stephen, was the EUR 25 million one-off for the EU 261 rights of care following our pilot rostering issues last September. If we look at the other elements of it, our marketing bill was broadly flat year-on-year, indeed our distribution costs, which are fairly onboard spend, rose at a slower rate than the onboard sales. It's primarily down to the EU 261 EUR 25 million one-off.
The rental line fell 4%.
Yeah, which is less leased aircraft in the fleet. That's what's driving that.
Just to go back to the guidance in terms of the increase in ex-fuel cost by 6%, some of that I guess is staff cost maybe. Is there other components to it?
Well, I believe EU 261, while it'll be down on an absolute basis, it continues to be a cost that's rising for ourselves and all airlines as more events become EU 261-able with compensation for passengers. Maintenance will be marginally up as we have an aging fleet and the MAX starting to arrive next year, so you need a few more checks on that. The key driver is the EUR 200 million increase in staffing next year.
Could you just talk about fuel hedging? Have you done any fuel hedging?
Yeah. We're well hedged, Stephen, for the current financial year. We're now up to 90% fuel hedging, which is over $580 a metric ton. Indeed, as we look a little bit further out, while we don't have any commodity in place, we do have a good element of our currency in place for FY 2020, about 50% at 125 on the euro dollar.
Okay. In terms of the unions, how are the talks progressing?
Reasonably well. As we've already stated, we signed our first two union recognition agreements with the pilot unions in the U.K. and in Italy. We expect to add a number of more additional recognition agreements, most likely in Spain and Germany in the next number of months. The cabin crew discussions are progressing very well. In some cases, we're dealing with country by country anomalies, but I think we're working our way through that. We would expect to sign our first cabin crew recognition agreements in the next, I would say, month or two as well.
Okay. Do you expect any disruptions or strikes or pickets or anything?
We're not expecting it. As a poor investor, we shouldn't rule them out either. The good thing about this, I think the key thing about the recognition discussions at the moment is we're not essentially talking about pay. Even the unions accept that Ryanair's pay both for pilots and cabin crew now is ahead of industry. In fact, in many cases, they're ahead of their unionized competitors in those other countries. What we're talking about now is the anomalies of Portuguese maternity leave, which actually is inferior to Irish maternity leave. The Portuguese union wants, for example, Portuguese maternity leave, but the cabin crew wants Irish maternity leave. I think those negotiations will continue. There may well be some other disruptions just because somebody wants to, a bit like the somewhat mismanaged or misguided Portuguese cabin crew strikes at Easter.
They went on strike because they could, not because they were actually looking for anything. That's why the strikes were essentially unsuccessful. I think what's important here is we don't expect there to be strikes, particularly where our pay is competitive, where we're hiring. We shouldn't rule it out. If someone's going to be unreasonable, somebody wants to question or undermine the model, then We'll have a strike. The obvious one is in some countries, for example, in Portugal, the Portuguese cabin crew are insisting that TAP cabin crew involve themselves in these negotiations. We're not having competitor employees, whether it's TAP cabin crew or Aer Lingus pilots, will not be involved in negotiations between this company and our people and their unions.
If they want to go on strike over the right of competitor employees to participate in those discussions, they can strike all day and every day. We're not going to allow it. I think it's a breach of competition law anyway. Equally, we wouldn't expect our pilots or cabin crew to be involved in Aer Lingus pay negotiations or TAP pay negotiations. I think the strike, the important thing is it's not about the money. The money is good. They accept the money is very much better than the competition. That's why I think we're not going to see any return to the sort of staffing or rostering crisis we had last September.
Thank you. A hot topic I think has been this talk of shortage of pilots in Europe or globally, actually. Maybe you could just comment on it.
Yeah. There's certainly a tightening in the market for pilots in the last 12 months. Most of that is because of uncontrolled or madcap expansion by loss-making airlines in Europe, most notably Norwegian, who are operating an unsustainable model. The Chinese airlines are clearly offering very significant pay, but China's not the most attractive country to live in from a lifestyle point of view. We do not have a difficulty recruiting or attracting pilots. The cause of our rostering problem last September was this nine-month leave year, crossover year, which we don't have this year. This year, we require we'll have another over 1,000 pilots.
We are addressing certainly, I think if there's going to be a temporary shortage of pilots, you'll see it affect more the regional airlines and the smaller jet operators who, frankly, pilots will move from there to the larger operators like Ryanair, like EasyJet and others. Having said that, we have now ordered three more simulators which will be delivered to us this winter. That will increase our training capacity by about 50%. We'll move from seven to 10 full simulators. We have reduced the bonding cost for direct entry pilots from, I think, EUR 30,000 to EUR 5,000. It's now become much cheaper and easier for pilots to join us and get trained within Ryanair. We have addressed, I think one of the key criticisms we faced last year from our pilot body was they were all in bases they didn't want to be in.
We have actually significantly changed the way we allow pilots to opt for bases and that we have rebased more than 900 pilots over the last 12 months. Some of our growth going forward will be driven by where pilots want to work, because in actual fact, in a lot of cases, we can base the aircraft at either end of the route. If it's more convenient or from a lifestyle point of view, pilots want to live in one location, we can actually base more aircraft at those locations.
In terms of opportunities elsewhere, like France or Scandi, is that somewhere you've talked about?
Yes. We have started the negotiations with those unions. You've got to be careful. While France is of interest to us, I think our focus on bases in France will be at regional French airports. We frankly have very little interest in having a base being based in Paris, where frankly, slots aren't available. The eight airports of Paris, the airports are extremely expensive. There are huge growth opportunities at the regional French airports where frankly, neither Air France nor EasyJet, who tend to focus on Paris, are delivering any growth at all. In Scandinavia, our focus would largely be on Copenhagen and in Denmark. We would not wish to expand in Sweden or in Norway, where the governments are levying on huge environmental taxes, which is extraordinary in a country like Norway, which benefits from being a big oil exporter. Nevertheless, that's what they're doing.
If you tax air travel, you penalize growth. Denmark, which has not been taxing it, has committed not to levy taxes on air travel. I think it is likely in the next 12 months that you'll see us open up a base or reopen the base in Copenhagen with working hand in with the unions, where previously we closed the base two years ago because of unionization.
Good. Thank you. Can we ask about or talk about consolidation?
Yeah.
Europe is a lot less consolidated still compared to the U.S. Obviously, we've had the Monarch, Air Berlin bankruptcies. Do you think that's going to help the capacity environment in FY 2019?
Can you take that?
We've seen most of that being backfilled at this point in time. There's a slight offset where we're seeing some capacity come back into Egypt and Turkey, but the Monarch, Air Berlin capacity has been fully taken up at this time. I wouldn't expect anything in FY 2019. Maybe beyond if we see some other financially challenged airlines, and we've talked about a couple here already this morning. If we see them go out of business, that would take some irrational capacity out, which would be good for the industry.
We are seeing the beginning of a slight move of excess charter capacity back out of Spain and Portugal towards the Eastern Mediterranean. Both countries have faced security challenges in the last two or three years, like Egypt, like Turkey, beginning to come back. Again, I think that would be more the future of summer 2019 rather than summer 2018.
Would you say you expect further consolidation, more slow burn, or it depends on the oil price?
As we said in the statement, we don't see that there's going to be any. There's above-market GR capacity growth taking place this summer 2018. I think the combination of two factors, one, oil at $80 a barrel and the recovery of those markets like Turkey and Egypt, I think we'll see much slower capacity growth or maybe below-market capacity growth for summer 2019. I'd be much more optimistic about summer 2019. Summer 2018, no. I think as we said in the statement, there's above-average capacity growth. When you look at the German market, for example, EasyJet has taken over the slots in Berlin Tegel. They lost a lot of domestic routes in a market where Eurowings and Lufthansa controls 97% of the market. They've responded by increasing German domestic capacity as well.
The German market in terms of traffic is very strong, but in terms of prices and yields is weak at the moment.
How do you think the structure of Ryanair is going to develop over time?
I see us moving to a similar structure as not dissimilar to what IAG have at the moment. We have obviously one huge airline, Ryanair DAC under Ryanair Holdings. In the next two or three years, you will see Ryanair Sun and Laudamotion grow to be much more meaningful airlines in their own right. With fleets of maybe 50, possibly even 100 aircraft over the next five years, either in Ryanair Sun or in Laudamotion, and maybe we might add another one or two subsidiary airlines to that. There's undoubtedly, in my view, there's going to be further M&A opportunities. Not that we would want to bid for a Norwegian or a Lufthansa, but that the competition remedies that we, the EC, anybody who wishes to acquire those airlines will have to engage in will throw up other opportunities.
What is your long-term plan for Laudamotion?
I think the long-term plan for Laudamotion is that Laudamotion has three key attributes. Firstly, it has an Austrian AOC, which is of interest to us, and we can fly charters directly from Austria to outside the EU. Secondly, it's an Airbus airline, and we have wanted to have an Airbus airline within the group for a number of years, mainly to give us credibility with Airbus, so that we can go and negotiate or look at Airbus aircraft. The third is it has a chunk of slots at otherwise congested airports that we wouldn't be able to enter, like Berlin Tegel, Düsseldorf, Stuttgart, and Palma de Mallorca. We want to see Laudamotion grow as an Austrian low-fares airline.
Over the next five years, I would be very disappointed if it doesn't grow from a current Airbus fleet of 10 or nine to 50 aircraft and begin to challenge Austrian Airlines to become the number one Austrian airline. It will largely operate as a low-cost Austrian-based low-fares airline serving Austria, the German, and Spanish markets.
Thanks. Justin, can you talk about your plan for investing for growth over the next six years? You're going to be a 600 aircraft fleet. Do you think the structure of the business is ready for the 600 aircraft? It's almost like, what's your vision for the next five years?
I think we've done a lot of work and a lot of time and work over the last six months, in fact, spooling up for the next five years of growth. We're taking on a new aircraft type, which is the MAX 200s. We have certainly widened, if you look at the rostering problems of September 2017, we've almost completely rebuilt the operations management. We brought Peter Bellew back from Malaysia Airlines. We have hired new heads of engineering and deputy heads within engineering, brought in a lot more experience. We have significantly up-weighted not just the Ryanair Labs, but also we're looking at changing the IT systems within operations to enable us to spool up to 200 million passengers a year. There's been heavy investment in the customer service department as well. We now have a specific EU261 group based in Madrid.
That we are, if you like, we are putting in now over the next 12 months, we're putting in all the costs that we will need to be able to grow the business to 200 million passengers.
Yeah. On top of that, Michael, we've got huge investment in simulators, three simulators on the way, three this year, which will double our training capacity. We've got the low-cost bonds for the pilots, which means we're getting a lot more highly qualified cadets and good quality cadets coming through. We're spooling out a number of new hangars as well. We've got a new hangar in Madrid, which we recently opened, with a new two-bay hangar coming in Seville later on this year, and we're adding more capacity in the likes of Bergamo and Milan and in Stansted. Big capital expenditure as well as OpEx in the business to make sure we're ready for 600 aircraft.
Thanks, Neil. Can we talk about Brexit?
Is there any further details or update in terms of the ownership issue or traffic rights?
No, there isn't. Brexit continues to be a fall-to-me decision. Everybody's waiting for the British government to make decisions and tell the European Union what they want in terms of the customs union. I think the logical expectation is that everybody will agree to the 18-month transition period out to December 2020, under which basically the EU, Britain will still pay, will still comply, will still obey. I think it's sensible we have to have in place procedures, or at least the board has to put in place the procedures in the event that there's a hard Brexit. There's no doubt that in a hard Brexit, certainly the French and German interests are pushing hard on strict interpretation of the ownership rules. That is likely that our U.K. shareholders will then be treated as non-EU shareholders.
That will take us into a small majority ownership by non-EU shareholders, and we either have to force those to sell on some kind of pro-rata basis, or we disenfranchise them from all voting. We have had intensive discussions with both the EU authorities and the Irish authorities on disenfranchising all non-EU shareholders. I think that's probably the way we will go.
Do you see is there any update in terms of the U.K. AOC?
Yes. We're making good progress with the CAA. We expect to have the U.K. AOC issued by the end of this year. We would need to have a U.K. AOC in place only so that we can operate the three U.K. domestic routes we presently operate. It's a tiny part of the overall business, but we would still have to have a structure under which it would have to be majority U.K.-owned. We're still working our way through that process.
Okay. I think maybe we could just talk about the balance sheet.
Sure, Stephen.
What are the key strengths? I mean, you're obviously triple B plus rated, so.
Absolutely, S&P and Fitch ratings. One of the key strengths is the aircraft themselves. We've got 400 owned aircraft on the balance sheet at this stage. The vast majority of those aircraft have got a massive amount of equity built up in them. We bought them at low prices, and we put them on at the price we bought them at. If you look at the financing as well, over half our aircraft are unencumbered. Most of those are the newer aircraft we've taken in since 2013. We've got EUR 3.7 billion of gross cash, which gives us massive firepower. The business is hugely cash generative, which is one of the reasons why last year we had EUR 1.5 billion on CapEx and EUR 800 million on distributions, and we still kept a broadly flat net debt position. It's a very strong balance sheet, Stephen.
How is the buyback progressing?
Going well. We're about halfway through it at this stage, we're well on track to finish it by the October deadline.
One of the features of the buyback is that the average share price is always under EUR 16. I think one of the key things which some of you don't emphasize enough is the EPS growth in the last 12 months, largely in part thanks to the 10% increase in profitability. We're delivering a 15% increase in EPS because of the continued success of the share buyback program.
Just in terms of the aircraft, you talked about the MAX as the game changer aircraft. When is it going to arrive, the MAX 200?
First is due in the spring of next year, between about April of next year personally. I mean, it's a phenomenal aircraft. 4% more seat capacity with 197 seats to 189, 16% fuel efficiency, and 40% less noise. We get more opportunities to cross-sell on the ancillaries, and it'll help bring unit costs as we spread the cost over more passengers we provide in this aircraft at a very good level.
Have you hedged the MAX?
Yeah. On the dollar exposure, we've had that done now for a while. We've got 100% of that hedged at an average rate of 124 over the delivery program between FY 2020 and FY 2024.
In terms of financing that, are you financing it from cash?
Well, the business is very cash generative at the moment, we've been buying aircraft out of cash for the last couple of years. The bond markets still remain available to us really by our strong balance sheet and BBB+ rating. We can and may go back at some stage to the bond markets. Leasing has been less attractive just because we've been able to finance ourselves cheaper than the leasing companies can. If the lessor is willing to come to me with a very attractive pricing, we'd take it up.
Laudamotion is an Airbus operator. Are you signaling that you would consider buying Airbus aircraft?
Absolutely, if the price is right. By the way, we've always signaled that. The difficulty I think has been in the relationship with Airbus over many years, since they don't believe that we would buy an Airbus aircraft. They think Boeing will always beat whatever it is that they will bid. We've explained to them, "No, if you come up with a cheaper price than Boeing, we'll buy Airbus." That's very much the objective of the investment in Laudamotion. We're talking directly to Airbus about an additional aircraft order. The challenge for Airbus is at the moment, the order book is full. They have engine difficulties with some of the current deliveries on the NEOs. The order book is full out to 2020, 2021. We are in active discussions with them for deliveries after that date. We want to grow Laudamotion between now and 2021.
I think we're looking at the secondhand market. We're looking at other lease alternatives. If we don't, we're not wedded to it. Ultimately, if we don't and aren't able to find sufficient volumes of low-cost Airbus aircraft, we wouldn't rule out allocating some of our Boeing deliveries to Laudamotion over the period 2022 to 2025. Clearly, our preferred alternative would be to source up to 50 additional Airbus aircraft. Who's to say that won't grow from 50 to 100 aircraft? We would like to see within the Ryanair Holdings group have a significant investment or partnership with Airbus and a kind of like a duty to build on the partnership with both.
What's your view on the bigger gauge aircraft like the Boeing, the MAX 10 or the A321?
I think we're very keen on both aircraft, as long as the price is right.
Yeah.
It makes logical sense to operate more seats. It reduces your unit cost. It does also reduce the yields. It would give us also more opportunities for ancillary sales to more passengers on a per flight basis. Far too much excitement is generated by just bringing newer, bigger aircraft, and too many airlines are inclined to run out and just order them regardless of the price. If it results in an increase in your cost per seat, there's no sense in buying new or bigger aircraft. If, as should happen, you can source these bigger aircraft and it reduces your cost or the airline's cost per seat, frankly, we'd be very keen to buy either the MAX 10s or the A321s.
Can I just ask, is Ryanair ready for GDPR or is this a hot topic right now?
It's something we've been working on, Stephen, for the last couple of years, we're ready to go down that route.
You might maybe just go through in terms of the guidance range again for FY 2019, $1.25 billion to $1.35 billion net profit. What are the components again? Thank you.
As Michael said in the PR this morning, we're on the pessimistic side of cautious when it comes to guidance this year. We've got very limited visibility on our average fares. We would expect fares to be broadly flat on a full year basis as we deliver a 7% increase in traffic to 139 million customers. Ancillaries will continue to perform well, having had a good year last year, and we're well on track for our 30% of total revenues by 2020 as we flagged. It's not going to be enough, Stephen, to offset the increase in costs. Our costs are rising by 9% this year, which includes a $400 million headwind on fuel when adjusted for additional volumes. Yes, we're well hedged at 90%, but at levels that are higher than last year.
When we strip out the fuel, we've got about a 6% ex-fuel increase in unit costs, most of which is down to an increase to payroll, $200 million. $100 million is the annualization of the pilot and cabin crew pay increases, which we put in place in the second half of last year, and then about 50% for growth. Profit after tax, as I said, in a range of $1.25 billion-$1.35 billion in the next year.
Okay. Thanks, Neil. Thanks, Michael.
Thanks, Stephen.
Okay. Thanks, Stephen.