Earnings Call: Q3 2018

Feb 5, 2018

Hello, and welcome to the Ryanair Q3 FY 2018 Results Call. Throughout the call, all participants will be in listen only mode and afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I am pleased to present CEO, Michael O'Leary. Please begin your meeting. Okay. Good morning, ladies and gentlemen. Welcome to the Ryanair Q3 conference call, you'll have seen this morning that we released the press release, the slide presentation and the MD and A together with a video of myself and Neil. It's on the ryanair.com website and provides all the details you need. So we would refer you there for that. I'm joined here by the entire management team. Neil Thoreman joins us from London, where he's doing the Q3 financial PR. Just a couple of quick themes. We had a reasonably successful Q3. Remember, this was the quarter that suffered most of the impact of the pilot rostering failure in September. And therefore, we think it was a credible performance to deliver a 12% rise in the Q3 profit to €106,000,000 Average fares fell 4 percentage, just €32 per customer. And it's a theme of Rainer that we keep cutting fares, Lowering fares, delivering strong growth and improving load factors. Following the I think, again, we focus this is the quarter that took most of the hit of The pilot rostering failure in September and the painful decision to ground 25 aircraft through the winter schedule November through to March, But that has ensured the punctuality of the operation has returned to our normal 90% average. We're pleased that we've successfully concluded our first recognition agreement with BAUFA in the UK. That is a milestone because it is by far and away our largest market and accounts for over 25% of our traffic and over 25% of our pilots are based there in the UK. It is by far and away the largest market we have. And I think it's a reflection of our ability to change the model, enter into union recognition and do so without disrupting the Growth or the operations or our growth. As we've said over the last number of months, union recognition may add some complexity to the business And it may cause short term disruptions and some negative union PR, but it does not alter our cost leadership in European Aviation are all for our plan to grow to 200,000,000 passengers per annum by March 2024. Again, the key theme of this morning's conference call will be our unit cost discipline. In Q3, unit cost fell 1%. Ex fuel unit costs increased by 3%, but primarily due to the higher staff and the one off U261 costs arising from the September rostrum failure And our decision to cancel flights in September October. Our cost advantage on other nonfuel cost lines is significantly better than our competitors across Europe and will continue to improve over the coming years, particularly as we take delivery of 210 MAX 200 aircraft from April 2019 onwards. These game changers have 4% more seat capacity and are at least 16% more fuel efficient and will materially will improve the cost base for the better. Our balance sheet remains very strong and having generated over $1,000,000,000 in net cash from operating activities in the 1st 9 months of the year, we spent more than $1,000,000,000 on CapEx, dollars 639,000,000 on share buybacks and repaid over $300,000,000 of debt. In light of the continuing reasonably healthy trading, the Board has approved another 750,000,000 share buyback of ordinary shares, which will start in September and subject to market conditions should be completed sometime at the end of October 2018. Ancillary revenue continues to perform well Across most of the areas, we are stimulating more conversion customer conversion is improving, and we would expect that to continue. Brexit remains a significant worry. We believe the UK government continues to underestimate the likelihood of flight disruptions to and from the UK Beyond April of April 2019, and this issue will hold into view, particularly for the airlines, Sometime in around September 2018. We need more clarity. Julius will address some of the issues on Brexit. And we do hope to see a transitional agreement, which the EU has proposed being accepted by the UK, but it's a matter of all, the UK will are to accept it if we're to continue uninterrupted at least for a year or 2 after April 2019. In terms of outlook, Again, as we finalize union discussions in other jurisdictions along similar lines to those agreed in the UK, we expect some localized disruptions And adverse PR, so investors should be prepared for same. In certain jurisdictions, particularly those jurisdictions that account for a Tiny proportion of our pilots, we expect that the union to represent competitor airlines, We want to test our commitment to either our low cost or our high pay, high productivity models, particularly as we run up to Easter. And so we're expecting to have to face down The threat to these disruptions around Easter, and if we have to, we will. With that said, we expect the full year traffic to grow 8% to to $130,000,000 up $1,000,000 from the $129,000,000 previously guided. We expect full year 2018 fares will fall by at least 3% as we continue to lower fares. Ancillary spend per customer should rise by about 2% for the full year. Unit costs, Which were adversely impacted by the $25,000,000 nonrecurring EU261 hit in Q2 and $45,000,000 of additional staff costs in H2. While oil prices have risen in the second half of the year, we still expect FY 2018 unit cost to be down 2%. Accordingly, we're maintaining our full year guidance of Profit after tax within the previously set out range of $1,400,000,000 to $1,450,000,000 for the full year, But this guidance is heavily dependent upon close in Easter bookings and the extent of localized disruptions in the run up to the Easter period. We would, however, caution at this point in time for next year, I am slightly somewhat concerned by the degree of irrational exuberance there appears to be among and analysts community about rising fares into summer 2018 or our FY 2019. We believe there are very significant cost headwinds out there. Particularly, we expect to see the fuel bill increased by about $300,000,000 in FY 2019. There will be a full year impact on labor of about $100,000,000 on staff costs, Mainly as a result of the 20 percent pilot pay increases, those increases are being progressively rolled out to our Pilot bases, we now have a majority of the 87 bases across Europe have voted in favor of them. And even the 35% of Dublin pilots who have been blocked from voting on this pay increase by the unions. We wrote to them last week individually offering the pay increase and we have been received a significant number of yeses, our people voting themselves for the individually for those pay increases over the weekend. Nevertheless, we think we will confine the cost increase to an additional $100,000,000 over the full year. The lack of clarity on Brexit will also be a concern through the back end of summer 2018. We think there's going to be some serious worries, Particularly as we don't think there's going to be any early clarity from the British with the given the political situation there. So, I would be very cautious for FY 2019. I do not share the kind of exuberance that others that fares will simply rise to cover higher fuel. Historically, there tends to be a lag effect of about 12 months with fares rising usually about 12 months after the impact of higher oil costs. And I think the market should be much more pessimistic than it appears to have been over the last number of months. With that, Neil, is there anything you want to add to that before we open up Q and A. No, Mark, I think you covered off most of it there. The buyback starting off probably sometime this week, it's an ordinary share buyback We'll be using a VWAP to get that in place over the next number of months. Costs still in very good shape. And guidance, as Michael said, retained $1,400,000,000 to $1,450,000,000 Okay. We'll open up to Q and A, but please don't ask us for more color on summer 2018 fairs. We don't have it. We have very limited visibility, And we're not going to get into too much detail on the union discussions on the conference call. We will have an analyst session here tomorrow in Dublin where In the confidentiality of room, we will share with you more insights on where we're going with that and the progress significant progress that's been made. So with that, let's open up to Q and A, please. Thank you. Will be available. And the first question is from the line of Jared Kassel from UBS. Please go ahead. Your line is open. Hello, good morning. Jared, hi. Hi. 3, if I may. You've increased the 2018 traffic guidance. You've left 2019 as it is. So, Just a bit of color in terms of your thinking of the profile of the growth to get to the 200,000,000 Secondly, just looking at ex fuel unit costs, I mean, do you still think over the medium term after this kind of staff hunt, We can expect extra unit cost being flat or even down still, let's say, over the next 3 years. And then Lastly, you talked about the opportunity potentially in France and Scandinavia. So maybe if you can just give an update in terms of some of your thinking there in terms of bases? Okay. Let me take the first of those. At the moment, we're guiding $138,000,000 for FY 2019. As we said in the statement this morning, we haven't yet finalized the budget. We think that will be the base case. The original projection to get to $200,000,000 was $140,000,000 in 2019 and I think we'll be somewhere in between that around 280,000,000 maybe to 138,000,000, 139,000,000 passengers. We're likely to get to $140,000,000 in 2019. Excluding unit cost, we think over the next 2 to 3 years, particularly as we take in a significant amount of the MAX Aircraft, we will in 3 years time, we will have 100 MAX aircraft in the fleet. We think that will help us to significantly moderate Unit cost increases, and I would expect them I think being down is unrealistic, but I would expect them to be flat with the benefit of The new maintenance contract we've done with CFM on the 800s and also the impact of more and more MAX aircraft coming through. We think the MAX will deliver A very significant unit cost advantage over our competitors in Europe and France and Scandinavia. Maybe, David, do you want to just give A flavor of your initial discussions with the French and Scandinavian airports on possible basis? Sure. I mean the candidates for French basis speak for themselves largely. I don't have to go through a list, but we've met with all of them, and all of them are keen, And all of them should deliver lower costs should we open there. Scandinavia is very much a white spot on our map where we've less than 5% market share in Most of the major markets in Norway and Finland, specifically, and less than 10% in Sweden and Denmark. Again, they present Opportunities locally, in particular, a lot of high frequency, high cost routes, a lot of domestic routes, North to South within the various Scandinavian countries available to us. What isn't available to us is sufficient aircraft supply all of that demand. So it puts us in a strong position in terms of negotiating superior airport deals, and that's the beginning. That may well lead to some significant churn at existing bases as well as we try to source more aircraft for New base developments in France and Scandinavia. Might also be helpful just to hear briefly from Eddie Wilson, Chief People Officer, who have been on the had held the 1st initial meeting with the French pilot unions in Paris in recent weeks. Eddie? Yes. I spoke to the French unions and due to speak with the Danish unions in the next number in the next two weeks. And their view is that Once they are like they once we're sort of compliant with the local common labor agreements there, they have no difficulty. We're not under any compulsion to talk to them in advance because there are some relaxation of the labor laws in with the Macron initiatives. So Again, they were delighted to see us and to see whether we could open some bases for The number of French unemployed pilots, so we're there's a lot of growth potential there. Okay. Thanks, Jard. Next question, please. Thanks. And next question comes from the line of Samik Sood from Raymond James. Please go ahead. Your line is open. Will be open. Savantia Sinha from Raymond James. Please go ahead. Your line is open. Hey, thanks. Sorry, I got caught up there. Just three questions for me. First on the U. K. OSC, just wondering if that would just be all kind of U. K.-based aircraft that will be included in that and if that has any implications on kind of the Irish contract applying to the employees there. On the second one, just to actually one more clarification on the kind of the fair outlook. I'm not asking for what you think it is, But just kind of the general caution here is, is that because you're not seeing any capacity adjustments to higher fuel? Can I understand why fares were down this year, But with fuel is going higher? I'm just kind of wondering if that's what's causing the caution there. And then the kind of the final one is on the ancillary revenue and came in above your expectations. It seems pretty broad based, but any kind of early thoughts on what we should expect as we kind of head into fiscal year 2019 on the ancillary revenue front? Okay. Let me take those. The U. K. AOC won't have any impact on U. K. Employees, unusually because double tax between Ireland and the U. K, all of our U. K.-based employees, pilots in Cameco are already on U. K. Contracts and are paying their tax in the U. K. It's in the other European jurisdictions we want to move to that model. And there's certainly a demand from the unions for more local kind of tax. Say, for example, in Italy or in Spain, they'll be paying their taxes in Italy and Spain, whereas currently Irish legislation requires us Because they're flying on Irish registered aircraft to pay their taxes here in Ireland, that's something that needs to be resolved. I think the caution on fares is more What we've seen as I would describe is irrational exuberance in the last number of weeks months from competitor airlines. There has undoubtedly been a some of them have benefited from the fact that we've grounded 25 aircraft during the winter period. As I've also seen, obviously, Monash capacity taken out, some Air Berlin capacity taken out. But ultimately, we don't see there being that Significant uptick on fares continuing through into calendar Q2 and Q3 of 2018. We think we should continue to be very conservative on pricing during that period. We will be adding significant capacity ourselves anyway. And we also think there's a lot of still some loss making capacity, I would point to Norwegian out there around the piece. So there are undoubtedly the fares. I I think the big challenge for the airlines this year is that oil prices, spot oil is up at $70 a barrel. This time last year, it was under $40 a Weiner is reasonably well hedged against that, but a lot of our competitors who don't have a balance sheet are not well hedged against those kind of price increases. I do believe that there will be an upward pressure on pricing, but that upward pressure on pricing tends to lag The fuel increases by about 12 months. So I think you're more likely to see that yield environment moving towards Calendar 2019 rather than calendar 2018, and I think those who are promising significant price increases through calendar 2018 will be disappointed. On ancillary revenues, again, we haven't finalized the budget for FY 2019. It's a bit early yet, although I think you can see in our current numbers that we're continuing. The combination of labs and what we're doing through the ancillaries and Kenny on the commercial side, we're certainly seeing improvements in customer conversion across Most of those ancillary items. And I wouldn't want to get into any more detail other than that at the moment. All right. Next question, please. And next question comes from the line of Stephen Furlong with Bank of America Merrill Lynch. Please go ahead. Your line is open. Hi, guys. So can I just ask about ancillaries firstly? Just maybe talk about the change in terms of the priority boarding and how that's working In terms of the turnaround times for the aircraft and maybe talk a bit about Rhino Rooms, which I know you're now aggressively marketing. And then just one for Neil on the CapEx. Just talk about again what he sees as the maintenance CapEx there as well as the overall CapEx, that'd be great. Thank you. Okay. Thank you, Dean. Ancillaries, let me give you more color on that tomorrow. Yes, we have the Analyst Day here in Dublin tomorrow. I think that's a more appropriate Before I'm going to say to give you a bit more detail on ancillaries, Kenny will be and John Hurley will both be making presentations on those of that. It's really not for this call this morning. Need maintenance CapEx? Yes. You're looking at about $300,000,000 Stephen this year and next year. Okay. Thanks, Stephen. Next question, please. And next question comes from the line of Neil from Credit Suisse. Please go ahead. Your line is open. Okay. Next question, please. Joined. And next question is from Mark Simpson from Goodbody. Please go ahead. Your line is open. Hi, Mark. Can you hear me? Yes. Yes. Hi. Okay. Just the usual couple. Ancillary, I just want to clarify your guidance for FY 2018 suggest that Q4 answers for packs would be down 1% year on year. That doesn't look like trends. I'm just wondering if that's are cautious or whether it's a specific issue in the current quarter. Going forward with the 10% Voucher, so back on Ron, everyone bookings. I'm assuming that will be seen in yield dilution, might be small depending on conversion rates. But The booking on the revenue is on the ancillary line and the discount is yield dilution. I'm assuming that's the way to look at it. And then finally, on the labor front, you've obviously given us the $100,000,000 reflected increased cost due to pay rises. But looking forward, What would be a sensible number to think about of additional labor inflation with potential changes to terms and conditions? Okay. No, on the ancillaries, yes, we are cautious, but we're taking the money back on the rooms We'll be coming out the ancillary budget. It is the therefore, the revenue from or the contribution from hotels As we build Ryanair rooms within ancillaries will fall to effectively 0. And that would become an increasing line are increasing some within ancillaries, particularly as the travel credit seems to be working very well in the 4 countries in which we have. We will extend that offer to other countries over the coming weeks. And again, as I said, we'll deal with that in more detail tomorrow. Labor, for the moment, the additional cost increase will be about 100,000,000 We haven't yet finalized the budget for next year, and I don't want to we're not going to go into a number on that on this on the call. Tomorrow, we'll give you a bit more color on tomorrow's meeting. Next question, please. The next question is from the line of James Hollins from HSBC. Please go ahead. Your line is open. Good morning. Can you hear me? Yes, go ahead. Yes. Sorry, this is going to be a bit funny. A few for me. Could you just let us know just what portion of this year's €45,000,000 of additional pilots costs were in Q3. The second one is, you seem It's certain there might be some strikes coming up. Have you actually been informed by anyone or any of the unions that there is a strike coming? And then finally, on Germany, So wondering if you could quantify the December strike impact and also your progress in Frankfurt through your 1st winter season and are you Accelerating growth elsewhere in Germany, because of where Berlin. Thanks. Okay. No, I wouldn't be able to break down The portion of the €45,000,000 in Q3, obviously, it was slightly less in Q3. Most of the agreements with the pilots are the majority, in particular, we had, For example, 9 of the 15 UK bases were agreed for and were paid in November, December, but 6 including the biggest suspense that was agreed only January. So there's a split between the 2, but it's not material to either Q3 or the Q4 numbers. We have not said, by the way, we're certain there's going to be strikes. I said what we've said is you should expect disruptions, which may be adverse PR and which It should be counterbalanced also by more agreements. I mean, we expect we're very close, I think, to another national agreement. We would hope to have another one done before the end of February In one of the bigger countries. That does not mean but I think some of the analysts have really Been remarkably distracted by the occasional press release from a union somewhere. They need to grow up a little bit. Unions engaged in adverse PR. We just get on with the business. I'll give you the example. The German strike impact was 0. They had a 3 hour strike on the 22nd December. What was remarkable about that is they were striking for union recognition when we'd already conceded union recognition on the 15th December. But some of these people just want to have be disruptive for the sake of being disruptive. What has been strange about the German market is that we haven't heard back from having met the unions in December and early January in fierce Pressure on the union side. We haven't heard back from them for what about 4 or 5 weeks now. In fact, we're writing to them going, well, you haven't come back to us yet with your proposals. Where is your proposals? What are you doing? I would also give you the example of the union here in Ireland, where we sent them a signed recognition agreement on the 3rd January, and we still haven't heard back And all they've been trying to do here in Dublin is to block or there's about 35% of the Dublin pilots have not yet received the pay increase, and we asked the union twice to arrange a vote of those pilots, and twice they refused to arrange a vote. So we've now offered it directly to the Dublin Gold, 35% of Dublin Pilots, and we believe there will be a very substantial take up Of that pay increase. Again, some of the unions are engaged in a bit of misinformation. The Aer Lingus Pilots Union here in Ireland are promising Don't vote for this pay increase because we get it backdated to November, September, whenever it was last year. There will be no backdating of this pay increase In any base, we have not we have now had about 47, 48 of our 87 bases have now accepted the pay increases At various different stages in November, December, January and or February, and it would be unfair on those bases who actually got off their arches and voted for the pay increases To suddenly get backdated for some of the base. So we have been absolutely clear. And if somebody wants to go on strike, Whether it's in Dublin or somewhere else, overall refusal to backdate pay increases that they haven't voted for, they can go on strike. I'm not sure there will be strikes yet. I think there will be threats The disruptions, I think somebody though will clearly if you look at the EastJet experience where they're usually sort of here landed with a Strike notice by somebody in Easter week or during the peak summer months, we will undoubtedly receive some of those and we will say, fine, off you go, strike away. We are not going to be rolling over to unions who decide they're going to or to some of our pilots who think they're going to disrupt our operations either in Easter week or in the summer peak. And in some cases, I think one of the things have been dealing with unions. And I think we have demonstrated quite a degree of speed and flexibility in our dealings with the unions, But they all also have to understand that we will take strikes. We will not roll over because of the threat of disruptions. And then I think you get to a I look at IAG and what Willie has done with IAG in recent years. I mean and to a certain extent, Karsten in Lufthansa, I'm amazed at the extent to which some analysts are distracted by the threat of strikes in Ryanair, where Lufthansa has had 17 pilot strikes in the last 2 years and IAG has had probably a similar number. If you're dealing with unions, strike threats are pretty frequent. Actual strikes and actual walkouts tend to be a lot less frequent because people don't want to lose out on money, which is what will happen when they do. But I think so. We're trying to educate both the analyst community and our own shareholders. You should expect some strikes and you should expect us to face down Either some disruptions or some strikes. Next question, please. And next question is from the line of Damian Brewer from RBC. Please go ahead. Your line is open. Thank you. If I can give you the questions. First of all, just in the prepared presentation earlier this morning, you talked about 1st officer Recruitment and retention. Could you also give us a bit more elaboration on what the situation is with experienced captains? What the turnover retention and recruitment looks like there? Secondly, on the CFM deal, could you be clear or elaborate if there's been any financial impact in this reported quarter Or if in Q4 or thereafter, there will be one beyond savings impact, and in particular, if there's any balance sheet or cash flow items we need to watch for. Also just because it's in vogue at the moment, could you just give us a feel about how your average net debt has trended through the quarter rather than just the year end? And where that leaves you in terms of contingencies if the major 737 operator got into trouble later this autumn? Do you have the balance sheet capacity And I guess a very final cheeky one. We're seeing the CAA in the UK sounding off in the press again about allocated seating. Last time they did this on the EU261 Monarch went bust the next week. Should we be thinking of any contingencies of the UK airline running into trouble next week again? Thank you. I couldn't agree more with you on the last one. We can't wait To see how the CAA defines what a group is, I understand they've done some surveys, given that we sell our fleet to in on an individual basis, individual passengers, The idea and we understand their survey excludes families, of course, because we allow families with children. The children get free of charge allocated seating. Like it seems to be regulatory, ADSC added in its extremists. We're now going to tell airlines how to allocate their seats. We hope they'll include the British Airways business class and first class offerings in that as well in that analysis. Average debt, how it moves through the quarter, Frankly, and with the greatest respect, it's none of your business. We give you the quarter end numbers. Suffice I'd say that we have a very small minuscule net debt position and a very large and substantial cash position, and we would use that if necessary, if the appropriate opportunity arose. The CFM deal will have effectively no impact on the had no impact on Q3, will have miniscule on Q4. Going forward, it will have a significant annualized effect over a 10 year period, but that's about as much information as we give it to you. And then Peter, we want to touch briefly on FO recruitment, retention and experience or captains recruitment and retention. Damian, it's Peter Beaulieu. We'd be able to ratio of 5.3 captains and first officers per aircraft for the start of the summer season. We only need 4.7 ratio Actually to run the schedule, and that's even with our 5 on, 4 days off pilot roster. So we're in good shape right now. We're having no problems hiring experienced captains. We're having a number of people applying to us from the failed carriers and also a lot of people want to return from the Gulf carriers Back to Europe. So that's going well. And we're building additional training capacity. And as Dan said, we've been exited 3 simulators by the end of the year, And we're hiring internally another 100 senior trainers. So we'll be building up the capacity to more than recruit and train The number of people we'll have as we grow to 600 aircraft over the next couple of years. Good. Thanks, Peter. Next question, please. Next question is from the line of Neil Glynn from Credit Suisse. Please go ahead. Your line is open. Neil, hi. Neil, sorry, you're having problems with your lines. Sorry, go ahead. Sorry, I was on mute. If I could ask 3 quick ones, please. The first one, credit card fees were outlawed in the UK from the 13th January on I know you've seen it in markets such as Italy before, but just interested are you seeing any effect from that? And second question, you mentioned new base opportunities and significant churn. Just interested, will regions such as Eastern Europe, for example, Make it more difficult to justify existing scale with higher staff costs. Will that be influential in any churn decisions? And then finally, with respect to the UK ALC, obviously, a higher tax rate in the UK than in Ireland. Just interested, will that have a structural uplift on your effective tax rate on the business as a whole? Okay. I'll start with the last one. First, UK AOC would be relatively small to the extent we have a UK AOC. We would expect to be using it largely for the UK domestic Groups which are a small in scale and not particularly profitable, not loss making either. So we don't think it have any effect on our Group effective tax rates. New based opportunities, no, we see the new based opportunities largely at those countries where We have avoided in recent years because of the threat of unionization. So we think that new base opportunities arise in France and in Scandinavia. Eastern Europe will continue to be a focus of very significant growth for us. We see, a, it's an area where and it is an area where we have Lower kind of fast costs and more efficient staffing. I mean, the only competition for us in Eastern Europe at the moment is Wizz Air And a couple of lower smaller incumbents who are significantly higher priced and higher cost than us. They keep having this idea that by 20 'twenty three, they'll have some magical potion that will have them given a lower unit cost than us. But frankly, as we expand in Eastern Europe, we see them withdraw most recently in Prague, Where they've now closed the base and continue to move further east or to avoid, we think, competition with us. Poland will be the one market where we have kind of so to so competition with them and we continue to grow faster than them in the Polish market with a larger market share. And finally, credit card fees are outlawed. No, you'll see no impact on our numbers or our operation. Great. Thank you. Next question, please. And next question is from Anand Dede from Deutsche Bank. Your line is open. And how are you? I guess we'll do them tomorrow. I was just wondering, at the sort of board level, Have you guys got a view on if the frac carriers are moving to fully dynamic pricing, which it seems that they are? Does that impact you if at the lower end of the booking sort of profile, they actually reduce prices? Therefore, you may need to actually Do a bit more on price to get the loads that you've been achieving? No. I mean, I look at Board level, the legacy carriers, we see really not that much competition. There's certainly very little price competition The legacy carriers, all of the developments we've seen in recent weeks, particularly as Lufthansa has acquired their Berlin is a significant uplift in pricing, Particularly at the lower end in the German market, Alitalia seems to be less price competitive. I mean, what drives most of our We price against ourselves in effect is that we're taking 50 new aircraft this year. We're adding a lot of new routes. We have raised load factors from 90 94% to 94%, and we're continuing to grow very strongly in lots of markets. And I think it's also important, particularly for things like the CAA Investing our CAE Manalas, what they do, a survey that was referred to over the weekend. I mean, what's missing from this survey is, Yes, we've changed the way that we are allocating seats, but that's a customer choice. People who want to pay for a particular seat should be free to do so. What shouldn't be lost in that analysis is actually that Ryanair continues to cost underlying airfares as we have in each of the last 3 years. So we are materially lowering the cost of air travel, while the CA is running around doing kind of bizarre surveys into The freedom of people to choose the services they wish to choose and wish to pay for and also the freedom of those people who don't wish to pay for an allocated seat, Who are free or who choose a randomly allocated seat to be received randomly allocated seats entirely free of charge. But the underlying package and the underlying yield is falling And we expect will continue to fall. And that ultimately is the biggest weapon we have against every other competitor in Europe. We've seen all sorts of rubbish analysis Since last September when, mea culpa, we had a major rostering fuck up, which we have now fixed. But Yes. Either the ECJ or the MAM case, unionization will blow up Ryanair's labor costs. I mean, Our labor costs are a tiny fraction of our unit cost advantage over every other airline in Europe. And we continue, if anything, the gap All of the airlines in Europe are suffering a degree of labor cost inflation. There is a tightening in the market for We have no shortage of recruits. We've hired over 1100 pilots in the calendar 2017. I expect to do a similar number again this year. The question for us is, as some of the flakier competitors who couldn't make money when oil was Under $40 a barrel last year is how long they survive when oil is at $70 a barrel and they are will lose even more money and are frantically Selling off what limited assets they have to provide the cash for them to continue to operate. Or one of the other competitors In recent weeks, has raised a bond for, I think, about $35,000,000 or $40,000,000 paying a coupon of about 7 point for 8.5 percent on a $35,000,000 bond. I mean $35,000,000 here would be chump change in Ryanair's operation. We raised bonds for $850,000,000 and paid unsecured for 8 years at a rate of 1.15%. So I think there will continue to be change. There will continue to be failures. The question is when those failures will arise. But No, we don't see any impact or the threat of legacy airlines becoming more, What is it? More sophisticated in dynamic pricing that will lead to lower prices. Every bone in every competitor's The airline competitor body, Lufthansa IAG is all about how do we shift the customer forever increasing airfares, how do we drive up prices, How can we buy up all the competition in the German market, particularly the German domestic market, not so that we can lower fares, so that we can raise fares and gouge the consumer. And yes, you're right, that is opening up more room opportunities for us in Germany. Could I ask then a slightly Different twist on it. So if we think that in whatever 2, 3 years' time, all of the legacies are fully dynamic, They're fully unbundled. Then every They won't sorry, look, Anna, they won't be, but we deal with the quality of But isn't this a positive? Because actually then Everyone can see a totally unbundled price and the price transparency, there's an argument that prices become less transparent, arguably they become more learn. So actually people realize even more that the lowest cost seat is the way forward. But there's no evidence among the legacies. So look, Kansas pricing, If anything, they're going the other way. There's more business class pricing. There's more sort of premium economy class pricing. There's absolutely no movement there towards transparency. And nor should there be because the reality is if you're BA in London, you have that market by the ball, so you price the shit out of it. As exactly what Lufthansa do in Munich and in Berlin, they will never move towards more price transparency. They always want less. The reality is if I'm connecting with BA through Heathrow and I originate anywhere outside of London, I will get a price that's a fraction Of the non transparent pricing that's imposed by BA on passengers originating in the London market. The same happens in Germany. The same is in France. In KLM's pricing is completely nontransparent, but hugely supported by, frankly, anti consumer policies by the Dutch government The supposition in your question is that there's more price transparency Some of these guys are more sophisticated is not true, not accurate. We are the only people who continue to be engaged in absolute price transparency, Admittedly, by disintermediating services that were previously assumed to be free, such as the check-in bag or the allocated seat, While still allowing passengers who don't want to pay for check-in bag, you can still bring 2 free carry on bags on board the aircraft. 1 of them may go and behold if you don't want to pay for Priority boarding, that's entirely you're right. And if you're you don't want to pay for an allocated seating, we have lots of random available seats. But as the amount of reserve seating rises, there is less random there's less availability of random seating For individual customers. Yes. Next question, Andy. Thanks so much. Look, we can have that we can theorize in more detail Tomorrow's meeting. I'm not sure it's helpful on this call to be doing it here. Yes, sure. Cheers. Thanks, Ann. See you tomorrow. Next question, please. Next question is a follow-up from the line of Mark Simpson from Deutsche Bank. Please go ahead. Your line is open. Yes. Hi. Thanks for taking subsequent questions. Just 2. Neil, just on the tax rate, 6.5% in Q3, Is that a timing issue? Or is that It is. I mean, if you look at the tax rate on the 9 months, it's 10.3% against 10.8% last year. So we'll be down a little bit on a fuzzier basis, but it's a timing thing. Fine. Okay. And then Michael, you said early on the call, you said that you were not saying there would be strike, but in your video Q and A, you said that it's inevitable. So I'm just wondering which one we should take. I think disruptions are inevitable. I just aren't sure that I would say there would definitely be strikes, But you should be prepared for us being threatened with strikes. And I think particularly some of these unions will be trying to lie there or do something around Easter week, yes, and we are geared up for that and ready for it. And one of the areas where we suffer, If there is repeated or unwarranted disruptions like that, again, that would also be factored into the kind of churn that we would be considering here from a commercial point of view. We may reduce aircraft at certain basis where There has been if there is repeated interference, it's much the same way we did when we originally opened in Copenhagen 2 years ago with We had 3 aircraft based in Copenhagen. The SAS unions were then blocking our aircraft or blockading our aircraft. We simply flipped the aircraft out of Copenhagen. We're now The 3rd largest airline in Copenhagen, but with no base there. Now we will now go back in and have discussions with the Danish unions. I believe we'll reach an accommodation with days unions pretty quickly. And that will, I think, again, Enhance our ability to grow our growth prospects in some of the Scandinavian airports and in Denmark. But there are undoubtedly and I would Yes. For example, we have in Dublin, we have Aer Lingus pilots actively interfering in the discussions we are having with our own pilots and with the force of IAPA union, it's not generally in the best interest of our pilots since they have denied them a pay increase now for almost 2 months. And we have now the crazy situation that the union instead of securing a 20% pay increase for some of our Dublin pilots, we're having to write them directly to offer them the right to accept a 20% pay increase in the February payroll, having lost out on that increase in January December. Now I think that's inevitable that When you have that kind of mindless interference by people who are promoting an Aer Lingus agenda rather than a RHINO agenda, It will lead to some disruption somewhere. So, I'm it's not that I think we are definitely going to face strikes, But I want our investors and analysts to be, look, grow up. There is going to be some disruptions here. Look at some of our competitors, whether it's IAG or And they've had lots of strikes in Rhema. Now, it's really with strikes. Okay. But they would necessarily be the example I would like to compare us to. But There will be some disruption somewhere. And if that strikes, it will be strikes where people want to challenge either our efficiency or our low costs. The pay increase is 20%. It's not going to be 21%. It's not going to be 25%. It's going to be 20%, and that's it. And so some of you in the modeling will forecast that labor will rise by an additional $170,000,000 $240,000,000 I think $100,000,000 is a reasonable figure. And the fact that the UK pilots have themselves voted for that pay increase now, I think gives us a fair degree of confidence that it will continue to be the formula that we It's most likely that we will use the next year's budget. That's great. Yes, I appreciate that. Thank you. Thanks, Mark. Next question, please. Next question is another follow-up from Jared Katz from UBS. Please go ahead. Your line is open. Thanks. Good morning, Jared. Yes, just Two others quickly. Can you just remind us what the benefit from Easter was in April time? And then secondly, I mean, when you've engaged with your staff, what do they feel that the union can bring that they're not achieving now? Or is that a question for tomorrow, Michael? I suspect that's more a question for tomorrow. We gave you more color with tomorrow. And I think what a lot of our staff are discovering now is it's a bit like somebody else's grass Greener, it would all be so much better if we only had unions in here. Well, now you have unions. And the unions, for example, in Dublin have blocked Your pay increase, not for now for 3 months. We have the bizarre situation that 65% of the Dublin pilots have received a 20% day pay increase during the month of November, December January, And there's 35% of them sitting there going, what the hell, where's our pay increase? Well, you're going to have to go and get it or vote for us. But I would not want that to be a negative or confrontational message. We have had very positive discussions with the British Union, Who have moved remarkably quickly, we are making significant progress in countries like Portugal, Italy And in countries like France, where I never thought we'd make any progress, although admittedly, we don't have any basis there yet. But so I think we're making significant progress there. Easter, don't get distracted by it. I mean, I wouldn't want to break out what we think Easter would be, but there is absolutely no doubt that Easter, the first half of Easter traffic will have An impact on yields in Q4 a positive impact in yields in Q4 and a negative impact on yields in Q1 compared to last prior year Caparvo when Easter was around the 15th April and all of that travel was in Easter. I wouldn't want to put a figure on it. Next question, please. There currently no questions registered. So I'll hand the call back to the speaker. Please go ahead. Okay. Just before we finish, I'll just ask Julius to give you an update on Brexit and then we wrap it up and we'll do look forward to meeting certainly the Analyst here in Dublin tomorrow where we're having an analyst briefing session with all of the senior management team. Julius, might you just give us the latest development there on Brexit, please? Okay. Last week, there was a fairly significant development in Brussels and that the EU Council has agreed to offer to the U. K. To maintain the existing rules for aviation for the transition phase. So the phase between April 2019 and the end of 2020. We think that the UK will ultimately accept it despite some mixed messages coming out of the UK government last week. And this will be a useful precedent. This will be an acceptance by the UK rules effectively being set without them in the rule And a continuation of status quo, both in terms of traffic rights and in terms of ownership and control. Post transition then, So from January 2021, the EU Negotiating Task Force also last week identified 3 potential types of aviation agreements. Type 1 effectively is a continuation of status quo and then Type 2 and 3 are progressively more restrictive. Type 1 would obviously be our preferred option, and it would be so for all progressive airlines in Europe. But it does cross against the U. K. Red lines. And the EU task force has itself described Type 1 as unachievable. Now I would tie it back to the agreement on the transition phase. I think that if the U. K. Accepts the continuation of status quo for the transition phase, then it will be a use are confident for the post transition phase period. But we won't know for sure for many months, I believe, that this issue will be decided late in the negotiations. Just in terms of what we are doing on this front, so as you know, we have applied for the UK AOC Back in December, and that process will last another 6 months or so, we believe. We also have, over the last few months been busily working on a plan to protect our license against the hard Brexit, during which The rules on ownership and control might change. So we have a fairly ambitious plan in place, and we will be are announcing details of it later this year at some point between 6 9 months from now. Okay. Thanks, Judith. With that, we'll wind up the call. Thank you very much, everybody, for participating. To the analysts, we're looking forward to meeting you here in Dublin tomorrow where we can have a A slightly more open conversation than we can on the conference call here. And if I have a passing message for you is that The strength of this morning's Q3 numbers is that we can oversee a management hookup on the rosters like we did last September and still deliver growth in traffic and profits, still deliver exceptional unit cost performance. So the model is robust and we continue to deliver as we grow 2 100,000,000 passengers opened between now and 2024. The share buyback, we think, is opportune. It is the sensible use of our spare cash. We'll roll that out over the next 6 months. And in the meantime, Eddie and Peter will continue their dialogue and negotiations with both pilot unions And some and cabin crew unions across Europe, and we look forward to bringing you up to date on those developments. But be assured that where some silly people decide they want to challenge either our cost base or our operational efficiency. We will face down those disruptions, and if necessary, We will move aircraft out of those bases and there will be job losses in those bases where those that kind of challenges to the models take place. Okay. Thank you very much, everybody. We'll see you tomorrow. Bye bye. And this now concludes the conference call. Thank you all for attending. You may now disconnect your lines.