Earnings Call: Q2 2018

Oct 31, 2017

Hello, and welcome to the Ryanair H1 FY 'eighteen Results Call. Throughout the call, all participants will be in a listen only mode and afterwards, there will be a day. Okay. Thank you. Good morning, ladies and gentlemen. Welcome to the Ryanair H1 conference call. As you have seen this morning on the ryanair.com website, we published a question. The H1 press release, the MD and A and the comprehensive Q and A section as well. I invite you all to look at those. So we can allocate more time for Q and A. I propose just to do opening remarks rather than reading you through the press release. A I think we've gone through another successful half year. Average fares fell 5%, but that delivered an 11% growth in traffic and an 11 10% increase in profitability. This is mainly due to a 5% fall in ex fuel unit costs, and it demonstrates yet again the robust nature of the Ryanair model. In the half year, we opened up 3 new bases and 80 new routes. We took delivery of 35 new Boeing 737s. Ancillary revenues grew by 14 Customer spend rose by 2% and the half one unit cost fell 5% excluding fuel. Excluding Unibus Flask, it would have fallen 2% without the EU261 provision in September. Balance sheet remains very strong. We generated over $900,000,000 of excess cash in the half year. We use that for net CapEx of €675,000,000 share buybacks of €640,000,000 Accordingly, net debt rose slightly to 6 €100,000,000 at the half year, and we plan to reduce that to 0 at the end of the full year. This is a business that continues to execute. We continue to roll out customer initiatives. Ryanair dot a Commerce becomes the world's largest search engine. Now we expect we're over 30,000,000 members in My Ryanair in September. We expect that to grow to 40,000,000 by March. Over half our customers now choose their preferred seat on board and the club fair is now a conference that all specs are sold. The new flight connections project at Rome, Puemacino and Milan Bergamo are working well. And our hotels inventory now exceed 200 and 50,000 hotels worldwide with over 7,500,000 rooms. I think the key trend in the half year has been the accelerated a progress towards consolidation in Europe. Monarch Airlines had 5,000,000 passengers in the U. K, Armenia to UKP Airport and Bangkok in September. It was followed by Air Berlin with about 29,000,000 passengers in Germany in October and Alitalia with 24,000,000 passengers remains in bankruptcy. There are other financially troubled EU airlines, so we will believe all of them, some as soon as this winter, others within the next 12 to 18 months, particularly as oil price to tick back up towards the Brent's spot at $60 a barrel. These trends, particularly where they allow high fare airlines, the And SBA and Air France to acquire local competitors and constrained capacity and raise prices can only be good for Ryanair's traffic growth and our yield Over the next few years as our fleet flies 600 aircraft. We remain concerned about the development in Brexit or the lack of development in Brexit. A The deal between the U. K. Or U. K. EU bilateral is being held up while the divorce talks drag on. And we worry that time is running short for the U. K. To develop this bilateral solution. We worry the U. K. Government continues to underestimate the likelihood of such Our flight disruptions from April 2019, an outcome that was specifically highlighted by Air France's CEO in an interview with the Observer as recently as 2 weeks ago. These results cover the 6 month period where we suffered a material rostering failure in September. We are not short of crews nor are we short of pilots. We have more than sufficient pilots. But due to very bad planning of an excessive winter leave in October, November December, as we cut across or do a 9 month transition period on pilot leave to get to a new calendar year from January to a In December 2018, we created a shortage that impacted our punctuality in the 1st 2 weeks of September. We took some very tough and very painful a We canceled 50 flights a day out of or less than 2% of our flights over the 6 weeks of September October. And then by grounding 25 aircraft for the remainder of the winter period, November through March, to correct that problem. It has now corrected itself. Punctuality has now been restored. There have been no more cancellations since the end of September. And our punctuality in as recently as this a Again, I was over 90% on all 3 days of the Busy Bank holiday weekend. However, we did disrupt a lot of passengers. We did suffer reputational damage. And we are working hard both with our passengers through low payer initiatives, offering those passengers who were disrupted Travel vouchers were taken use in October, and we have taken a $25,000,000 hit on EU261 costs, re accommodating providing the compensation and meeting their reasonable disruption costs. All of those charges have been taken in September. A This experience has also, I think, highlighted the need for us to improve pilot payment in Ryanair. We are competitive with Jet 2 in Norwegian, but we should be a And that's why we're rolling out significant pay increases of up to €22,000 for captains, €11,000 for first officers. And that's being those deals are being considered on a base by base basis at the moment. We now have over 15 of the bases have accepted those increases. A number of the bases, most notably, Stanson, have turned down those increases, but we continue to engage with the ERCs at those airports. A It's important that they understand that there will be another or better offer. But if they and as is their right under the collective bargaining process within Ryanair, they're perfectly pleased, a They've turned down the pay increases, and they'll remain on their existing 5 year pay deals for the next number of years since Stansted deal runs out to 2020. We have also addressed the management within the Roxburgh and operations area, where there'll be new operations management. Peter Beaulieu will shortly return from his CEO of Malaysia Airlines. He becomes our new Chief Operating Officer from the 1st December. Having said that, a I also want to thank our people who have performed heroically in recent weeks, pilots offering to work their days off as a cabin crew. And our operations and engineering people have done a great job in keeping the operation going while we fixed the screw up we had within the Rostering division. A There's undoubtedly this update that's been used by competitor pilot unions as an opportunity to a Generate some negative ER for Ryanair. It has happened in the past. It will happen again. All it is is CR. We continue to be an excellent employer of pilots. We pay more than the competition. Our pilots will enjoy the best rosters in the business with the most rapid promotions and the newest aircraft, a And that is demonstrated by the flood of applications we have had in recent months, full PROM, Monarch pilots who were made redundant, Berlin pilots who were being made redundant And also, pilots from Norwegian and Jet 2 who want to share in the pay increases that our people None of this should take away from the fact that, yes, we had grew up in one area of the management in September. We have addressed it. We have fixed it. But the underlying business continues to execute and continues to execute very well. Having grown the H1 traffic by 11%, The grounding of 25 aircraft in the H2 means growth will flow to about 4%. As a result, full year traffic will flow from 131,000,000 passengers to 100 and 9,000,000 customers this year. We are 2% better booked at this time than we were this time last year. Our load factors are currently 97%, But those bookings are at slightly lower fare. However, we expect that the full year 'eighteen hair fairs will fall by between 4% to 6%, which is slightly better than the previous guidance of minus 5% to minus 7%. Ancillary spend for the full year should rise by about 1% this year. Next, your unit cost will be adversely affected by the $25,000,000 in nonrecurring EU261 costs in September And up to $45,000,000 of additional pilot costs, higher pay if it's accepted by our pilots, some additional recruitment and training costs, the exceptional recruitment and training costs taken in H2 That arise as we fix the September rostering failure. Accordingly, we now expect full year unit costs to fall by about 2% this year. Fuel unit costs will rise 3%. Based on the above and with the usual caveat on limited H2 visibility, we saw no reason to alter our full year profit after excess tax guidance, which remains in a region of €1,400,000,000 to €1,450,000,000 I think that's a very credible performance. We'll continue to deliver record profitability this year a €75,000,000 hit on EU261 costs and additional pilot costs in the second half of the year. A And with that, I'm going to ask Neil Doran to add a couple of comments and maybe just on the full year guidance. Neil? Yes. Thank you, Michael. So as Michael already said, very the first half of the year was a profit of 11%, average fare down 5% as previously guided. There's a Q2 curve down 9%, as we indicated, following a strong Q1. We've been in a customer of 11% a question. In good shape despite the 2,500 and 1 off nonreferring EU261. But we saw cost down 5%, excluded. Including fuel, broadly flat on an ex fuel basis and down 2% if we exclude the $25,000,000 The balance sheet finished the quarter in a net Yes. Additional $600,000,000 This was after $675,000,000 of capital expenditure. We believe we'll have about $1,500,000,000 of capital expenditure on a full year basis this year. We also finished our 600,000,000 share buyback at the end of September, bringing distribution of 639,000,000 in the current financial year. And our plan is now to manage down the net debt position for broadly flat net cash net debt position by year end. On the guidance a While we saw our costs increase by £70,000,000 on the back of the EU261, 25,000,000 action. Payments and the $45,000,000 additional investment in pilots is subject to all bases accepting the deal as it has been offset by the improved ancillary performance with a 2% increase in ancillary spend per passenger in the first half of the year. Based on that, we're now guiding ancillaries up approximately 1% on a full year basis. This is ahead of the broadly flat As we've guided before, and based on the better visibility that we now have compared to last May when we came out with the full year numbers, we're guiding thirds down minus 4% to minus 6% on a full year basis, which is broadly the same for the second half of the year. And this is How we get to retain the €1,400,000,000 to €1,450,000,000 in the guidance this year. Fuel, we believe we'll deliver savings, I think, between €70,000,000 a on where stock goes over the next number of weeks and indeed, what the CIC situation is going to be over with. Michael, back to you. Okay. Thanks, Neil. Okay. We're now going to open up to Q and A. Obviously, this is we're on an open line. We are aware that there's a number of media And others who are on this call, therefore, we're going to limit what we say, particularly in relation to the pilots and the union On the path from the competitor unions because we think this is best managed quietly and internally, not feeding the kind of wild a Regulation or the inaccurate press reporting if it's subject to date. But within that context, then let's open up for Q and A. Thank you. And our first question comes from the line of Duane Pfennigwerth from Evercore ISI. As we think about the slightly slower growth profile of the business into the back half of 'eighteen and fiscal 'nineteen, How should we be thinking about the cost structure of the business, excluding any pilot changes? It's too early to say yet. I think if they when the pilot deals are accepted across all of the bases, they will add something of the order of €80,000,000 per year to the payroll. We're allowing another $20,000,000,000 for growth and for other areas or for other areas within the company. I mean, I think it's helpful if you go back to the 3rd or the 4th slide presentation, which is our comparable unit cost advanced over all other airlines. On a per passenger basis, our staff costs are about €5 per passenger. We think that may rise to maybe €6 over the next year or 2. But nothing that would show the already formidable and widening gap on unit costs with every other competitor. And that's ultimately the point. We have a huge cost leadership over everybody else. Yes, we are have suffered a roctoring failure. In part, we're dealing with By significantly stepping up pilot pay, I believe the pilots will accept those increased pay terms over the coming weeks months. But those that don't, Then that's fine. They'll continue on their existing pay. Thanks, Michael. And I don't know if you have a value handy for What the asset position on your hedge positions stands now and how much of that is the second half of this year versus 2019? Thanks for taking the questions. Yes. On the fuel side, we're 90% hedged for the current financial year, going at over $4.90 per metric excess. With the euro dollar hedged at about 1.12. As we look into next year on the fuel, we're 50% hedged in the first half at similar levels, the 4.90 a Eurodollar hedge at $1.15 And then as you look at the asset side, the CapEx, we're now up to 85% of our CapEx hedge, export options and firm aircraft alike at about $124 on the euro dollar. I was just wondering what the value of that asset Would be today if we mark that hedge book to market. Look, I'm not going to go there. No idea. Yes. Okay. Thank you. Next question, please. Our next question comes from the line of Faby Seif from Raymond James. Hey, good morning. Two questions from me. Just first, I was a bit surprised that your fiscal year 2024 traffic targets have not changed. And I was just wondering if provide a little bit more color on the lease returns over the next 2 years and or maybe even looking at the year end fleet count you expect for the next 2 years? A question. And second one was on the hedge book and the little surprise maybe not a higher hedge percentage in fiscal 1Q for next year. A change in hedging strategy here, maybe a little bit more cost given the run off? And last one, on Norwegian, that was a question on the connecting traffic. I know you were talking to Norwegian and that didn't come to fruition. Just wondering if that was kind of a strategic decision a or maybe just Norwegian thinking it's a benefit with Easyjet where they're located in the airport. Yes. Thanks, Avi. The 2020, good. There's no reason for us to change the for 2024. We will take all of the new Boeing MAX aircraft we have on order. There is a slight slowdown in growth this winter and Through the summer of 2018, we're going to keep 10 backup aircraft for next summer. But ultimately, the underlying growth model remains unchanged. If you look at the underlying performance of this business through the fog or much of the noise of the last number of weeks, Gold factor is 97%. Forward book is 2% ahead of where they were last year. The business continues to trend along. The hedge book, Well, this is light on fuel at the moment. Yes, we are already 50% hedged for the first half of next year. We were hoping to see oil prices dip as we came out The hurricane season, they were oil prices spot around mid-50s. It has risen now to kind of slightly towards $60 a barrel spot. We are we have resumed hedging in the last week or 2 at slightly higher prices. And so we will have a jump in fuel costs into next year if oil remains where it is At the moment, much depends on the upcoming OPEC meeting in November. And Norwegian, we have an issue with Norwegian. We Our company, we weren't able to they couldn't get their IT team assembled to meet with our IT team. And we ran into we have concerns over Norwegian financial viability and whether they're a partner we want to be working with this time. There will be Yes. Just Savi, on the leasing, 33 aircraft in the fleet are approximately 8% of the fleet are leased at this point in time. You'll recall that we extended some of those leases in the summer of 'eighteen 'nineteen. So we've got 16 leases coming out Before the back end of FY 'twenty, we've got 7 odd coming on 'twenty one and thereafter, they taper off in 'twenty two. Got it. Thank you. Thanks, Abi. Next question, please. Thank you. Our next question comes from the line of Steven Furlong from Davy. Please go ahead. Your line is now open. Hi, guys. Just there's a lot of deals obviously being done at the moment in terms of Air Berlin and Alitalia and perhaps Monarch. What are the airports saying in Italy and Germany, perhaps also U. K. Provincials in terms of providing growth for them? Do you think that So YACI's position actually is enhanced here that there's more market opportunity kind of growing, continuing organically rather than buying these companies. A I think there's a bit of both. But the underlying I mean, without breaching the confidence of ongoing negotiations with those Of course, there's an underlying concern, certainly among the German, the UKP and the Italian airports, that there will be less capacity flown by the incumbent whatever the transactions are. And that is leading to slightly more advantageous growth proposals, I think, for David and the New Roots team. I I wouldn't want to put any stronger than that. Germany is a market where we are growing strongly. We have a lot of airports too. Many of those airports are dependent on Lufthansa and Air Berlin for up to 80% of their traffic. And here you have action with which you have a remarkable deal. You have to admire Lufthansa's ability to pull off a deal where they can acquire their way from 68% control the German domestic markets 95% control of the German domestic market, in breach of almost every known competition consideration, not only the German government waive it through, they actually lend them $150,000,000 so that it can be facilitated. But it is what it is. I think it creates more opportunity for us in Certainly, it creates more opportunity for us in the UK, PE airports, and it creates more opportunity for us in Italy as well. David, do you want to add to there will be No, that's all of that is true. And combine that with our relatively slower rate of growth, the competition between airports to secure Their share of that growth is intensified. So it's a reasonably positive environment. Great, Okay. Just one final one. Slots at Gatwick, does that interest you? No. Okay. It's unclear anyway who owns the slots. They could well be going back into the pool and Have no value whatsoever. Got it. And the issue for us is the flop tends to be militate against putting together a kind of coherent schedule that was excluded without leaving aircraft sitting on the ground for long periods long periods of time. Okay, great. Thanks, Michael. Thanks, Dave. Thanks, Steven. Next question, please. Our next question comes from the line of Neil Glynn from Credit Suisse. If I could ask 3 quick ones, please. The first one on Peter Vallew. Just Interested in terms of your thoughts as to what he brings. I think there was some Irish media coverage about his strong relationships with staff, With labor at Malaysian, for example, I'm just thinking ahead in terms of your pilot deals expiring in 2020, 2021, I'm sure you're keen to cut off any particular issue at that point in the interim. And the second point, you mentioned you're better booked, of course, but I'm sure website visits Presumably took a little bit of a hit in September. I'm just interested in any flavor you can provide as to whether we're back to normal levels now, albeit with a bit of fair discounting as you touched a And then the final point, clearly negative publicity has been touched on, but just interested how useful has MyRyanair been in communicating to as well as stimulating markets, as you've touched on, through this period. Thanks, Neil. A couple of quick a Peter Feiglio brings familiarity. He was the Director of Operations in, up to 2 years ago. He was responsible for a lot of the pilot recruitment training and interaction with pilot bases. So he will bring a pilot seat a Pilots give us somebody who the pilots are familiar with, but that's not a solution to any perceived problems to pilots. The best solution for the problems with the pilots is We paid them more money, and we fixed the things that we have clearly mismanaged this summer, like simple, stupid stuff. People applying for annual leave couldn't get a reply. People who wanted a day off couldn't get an acknowledgment. People who are being asked to work days off to cover holes in the roster that weren't apparent Because we were being told the rosters are fully covered. So I think he brings some experience. He brings a face that the pilots and the operations will know. It doesn't work on water either. Like we have underlying problems here that we have to fix. But we will, Eddie Wilson and the team are, And we're well on the way to fixing the communications issues with the pilots as well. And we're 2% better booked. Yes, we're 2% better booked. Honestly, we didn't see that much of a dip even as we were announcing the cancellations. I mean, there's a couple of reasons for that. One, because we're 97%. We have 97% load factors close in. Access. We managed the business so that we are highly booked close in. And then the second wave of cancellations, which was the November through to March, we announced those with more than five a We handled that process better. We did suffer an overreaction from that of the press and the media, but We deserve that. It's not one of our finest hours. It was a screw up on our part, and it's something that we have to make sure it doesn't happen again. But through all of the fog and the noise and some of the bullshit that gets reported, particularly in the written media, our people are booking. They're flying. The punctuality is excellent again. We have fixed it. And I think that will What we were famous for was low prices and reliability. I think our reliability has taken a reputation hit, but we were assured that pretty quickly. A The negative PR, Myronaire has been very helpful in the negative PR. In the same way, it's been helpful as we continue to grow. A I think one of the most impressive things, not too much about just My Ryanair as the membership continues to do, but also the ryanair.com website itself. This is now the world's largest travel website or the world's largest airline travel website. It has more customers than any other airline website despite the fact there are a few other airlines in the U. S. That are bigger than we are. It has been key. I think one of the key statistics that we are showing in this roadshow is that 95% of our customers a Directly, I've said they're not being referred by search engines or paid for media or anything else. We don't pay Google, Facebook or anybody a cent For references, because frankly, if you're flying in Europe, A, you'll have heard of Ryanairn. B, you already know that we have the lowest airfares. I think that will continue. And I think a This is one of these periods of time where you believe that the underlying business model is the underlying business model continues to Yes, it is. This will continue to execute. Yes, it is. Should this cope with the occasional fuck up, if it can? And I think that's what we're demonstrating today with these numbers and with Evol. A with these numbers and with a lot of people willing to take very painful and difficult operational decisions if it's the right thing to do to protect The punctuality of the flight of the other 98% of customers who were unaffected by this at all. Very few customers were affected by escalations in terms of our overall size and scale. That's not in any way to reduce or in any way minimize The inconvenience and the frustration we did cause to see Blue's flights were disrupted, but I'm pleased to say that the overwhelming majority of those passengers We'll reaccommodate another Ryanair flight. Our next question comes from the line of Damian Brewer from RBC. Damian, please Three questions, if I can, quickly. First of all, Could you tell us a little bit more about now we're a month into it or Q3 in terms of calendar sorry, your reporting Q3, And in particular, not just the ticket prices, but also after the 3.9% lift for passenger and ancillaries, how that's trending, whether that's down to the sort of 1% trend. And then secondly, just want to explore a little bit more how you're thinking about aircraft and balance sheet allocation. In particular, on aircraft allocations, the next summer, you're thinking of following whether a gap from Monarch and Air Berlin or really looking at where the GDP growth and demand is highest in places like Spain and Central and Eastern Europe. And then with that in mind, how are you thinking about positioning your balance sheet into Brexit and also any opportunities that might arise Should there be another major carrier? You guys seem to point to Norwegian fail. And how do you sort of preserve balance sheet capacity to do that? Okay. Thanks. I don't think David will give you any guidance on Q3 pricing. I think we've already given sufficient guidance into the second half of the year. We a great yield for H2 to be minus 4 to minus 6, that's better than the minus 5 to minus 7. And not really at this stage to split that out between Q3 and Q4. How will the aircraft be allocated, as always, in Ryanair, opportunistically? David and the Duluth team are running around the UKP, the German, the Italian airports, but also some airports in Central Europe and in Spain and Portugal as well where we're seeing some capacity being shifted away from there back to places like a Turkey and Egypt next year. And so our opportunity at the aircraft allocations will be opportunistic. How do we gear the balance sheet for Brexit? We don't. We think Brexit is a potential large crisis. The aviation sector will be first up because we'll be 6 months before almost every other sector, a And we will try our best to work our way through it as best we can around this time next year. But I can't give you any better guidance at the moment other than We worry that the U. K. Government is completely underestimating the difficulties or the extent to which the Europeans want to cause a disruption to flight Because it may be the earliest way of putting pressure on the entrenched economy. And if there's another large When there's another large bankruptcy, we will again approach it opportunistically as we do all of these developments. A We have an underlying growth plan. David and the team are kind of rolling that forward over a 12 18 month period, But we will always be opportunistic. And if needs be, and some opportunities arise, we'll flip aircraft around. We'll move them around, and that will continue to be the case. Okay. Thanks very much. The ball will be. Thank you. Our next question comes from the line of Adam Stade from Deutsche Bank. Please go ahead. Your line is open. Yes. Hi, good morning, guys. Good morning. I've just got a couple of questions, please. Could you walk through the reasoning behind pushing back, I think it's a €6,000,000 second bag fee. I guess it's just now is not a great time to put that in. Just wanted to check if there's anything else. Secondly, Can you update on Internet on board? A lot of your competitors are planning to do it given the ancillary ambitions are unchanged. And there are risks you're left behind if you don't start to move on that. And then very lastly, some other airlines in Europe are talking about sharing revenues with Air Force. I would just thought actually that's very applicable to you given the growth you can offer. Are these in any of your discussions at all? Okay. We pushed back the introduction of the second bag or the second bag being put in the hold for the non priority passengers to the middle of January. We just said from a kind of a PR and from a customer point of view, the 1st November was the wrong time to launch this given the issues we're dealing with Here, I think it's important after the rostering failure in September that we demonstrate through October November that, that has been fixed. There's still a worry or maybe a concern out that there'll be more cancellations. There won't be. It's been onboard. I'm not a great fan. We are Very happy. We'll have Wi Fi on board whenever we can put it on board without a large fuel penalty. But I don't see much demand for people to pay for Wi Fi on board short haul flights. If we could provide them with Wi Fi free of charge, they'd be happy to take it. But until the technology exists to provide it to them free of charge, I don't see it on Ryanair. Are we looking to share revenue with airports? I think we've been doing that for about 25 years, sharing revenue with airports. We think it is something that will continue, Particularly with the Ryanair mobile app, I think it's an opportunity we have of encouraging more of our customers to engaged with airport retail where we get some kind of a fee or some kind of a share of commission back. So we're at the foothills of those kind At the moment, I wouldn't be putting it into any model for the next 12 months. Can I just ask on The Internet stuff, more in terms of so my line AFAD, you have more members than anyone else exported in Europe? But presumably, the quality of the data is still reasonably light. We've got those times One of the data is very impressive, but We haven't we're not monetizing it yet. I think we've been focused more on continuing to build membership and continuing to deliver value to customers who are using MyronAir. It is certainly playing a key role, though, in our ability, particularly to convert people to mobile, as it gets to the take up, things like airport parking, I mean even the priority boarding can now be bought 40 minutes prior to scheduled departure. If you want to bring your second bag on board from January onwards, if you haven't got priority boarding, you can do it on the mobile. And now it's just 40 minutes. So I think we want to kind of monetize our own services first. The data we have and are able to capture is pretty impressive. Okay. Okay. Thanks very much. Thanks, Graham. Next question, please. Thank you. Our next question comes from the line of Jaden Collin from Exane BNP Paribas. Please go ahead. Your line is open. Gabalda. Hi, good morning. Yes, one on cost and one on pilots. Just on the first one, and this one matters going a bit awry. We're looking at H2 guidance on actual unit cost up 7%. I think that means incremental year on year growth of over €100,000,000 Clearly, €45,000,000 is given on the pilots. Just What else there was to watch for? Or was it just ForEx given the weaker euro against dollar and sterling? And sort of linked to that, is that GBP 45,000,000 does that pay deals are accepted pretty much as of now. And if they're accepted later, are they going to be backdated? And then just secondly, a point of clarification. As far as I'm aware, Monacanal Italia don't really fly 737s. I was wondering how that's helping Yes. I'll give you the second one first and ask Neil to touch on the H2 fuel guidance. Firstly, yes, the €45,000,000 assumes that all of the The pay deals are agreed from the 1st November. There's over 15 bases now agreed those. I think to the extent that those deals are put in place, we're still in negotiations with a number of bases. Those bases have come over the line before we run, say, for example, I imagine November payroll, which would be around for the 3rd week of November, would probably be run from the 1st November. Those that don't won't be back updated. If they will run if they're agreed in December, they'll run-in December. If they're agreed later on, they will run later on. So the €45,000,000 might actually be reduced between now and the end of the year by some or other of those bases who don't yet agree or aren't willing to agree to those bases. And it's important. There's been quite a sea change in Stansted, for example, who this time last week were all full of fire and thunder over, mainly because they were misadvised by the unions that you reject This 22% pay increase and Ryanair will come back with more. That's not the case. You reject this pay increase, then you're not going to there won't be more. You think we stay on it later on? And that's helpful. I think one of the dynamics in Stansted is they're beginning to understand actually there isn't more money coming. The only thing that's coming is 50 new pilots who are joining in Stanford in November who are on the higher pay because people who join us now, new joiners, new promoters And base transfers are all getting the higher pay rates. And I think that way, the one of the issues that's facing pilots in Dublin, pilots And some of the other bases turned down the deal is new people are joining at your pace on the higher pay. But why don't you go back to Palta and see what suggestions they have for a Remedying that. I mean, it's extraordinary the amount, at least, to which organizations like Bausa, which have recently presided over 500, 400 job losses in Monarch, Are now suggesting to our pilots that they who are already well paid, they should turn down a €22,000 pay deal. There was a what's the other elements on the pilot? Answered. Yes. Monarch had about 50 737 pilots. Monarch were due to take 7 30seven-eight 100 for Boeing in the spring of 'eighteen. They had contracted about 50 pilots in Norwegian and who were flying on Norwegian 737s to build up a kind of they had a core of 7 37 Those guys have all, and Geras, have applied directly to us. I think as of last weekend, we had already hired about 20 of them. And I think their job offers out to about another 20. And the attraction we offer those people is that we have bases largely at those UKP airports. We will be adding capacity at some of those UPAP airports. So they can simply walk across the road onto a Ryanair job as it now pays $20 a year more than Monarch we're paying or the Jet 2 are Norwegian are paying. So there are at Alitalia, yes, Alitalia doesn't buy 737s, I mean, if I It's a matchup, but there's clear concern down there as there is in Air Berlin, who are generally an Airbus operator. People see their jobs disappearing. I mean, remember, Air Berlin, Lufthansa is not just taking out Air Berlin, but it's imposing very swingy pay cuts on the Air Berlin pilots who want to transfer, who a choice of transferring into Eurowings. Eurowings now pays less than Ryanair does in the German market. And so we are seeing a significant uptick in application from Air Berlin pilots, mono pilots and Italia pilots. And again, a It allays this nonsense that we have to keep our PA hearing in the, particularly in some of the more idiot sections of the media that there's a shortage of pilots. Going back to the point, we have 2,500 qualified pilots on a waiting list. We are hiring about 40 a week at the moment. A And this year to date, we have hired over 900 pilots. There's another 2,500 waiting in the wings who want to join. But every year, I think, I've been in this business, somebody union produced a study that says there's a worldwide shortage of pilots. If there is, it might affect maybe some regional or turboprop operators. It's never going to affect a jet operator like Ryanair that pays captains €150,000 a year and promotes people from joining 2 captaincy typically within a 3 to 4 year period. Do you want to touch on the H2 fuel units? Yes. On the fuel guidance, James, We think fuel will be down on a full year basis, savings of between €70,000,000 €80,000,000 This depends on where it goes over the next a few months, but it also depends very much on where our de ice comes in over the winter months. And into Spain, I noticed that some of the analysts We'll be a little bit light in their numbers in relation to the icing and with the planes. So that may be where you're having a bit of a difference, but we're very clear, €70,000,000 savings on a good day. Sorry, just comment, I was actually talking about the actual unit costs, which I think if you're looking at plus 7% in H2, Okay. You got the $45,000,000 pilot costs. Just wondering, apart from ForEx, what might mean it's up over 7% year on year in H2? Yes. Well, The forex won't be a major impact as far as we expect sterling to be broadly flat on a year on year basis in there. So we've got the 70,000,000 coming through with a broadly slightly shorter sector length than we had first half of the year as we've taken some of the shorter domestic flights out, which has an impact there. We also have seen EU261 ramp slightly ahead of expectations in the first half of the year. But otherwise, we're continuing on. As we have said, we'd originally guided that cost to be down about 1% on a full year basis. The SIP is mainly just the €70,000,000 and as I said, it's a slightly a Long, shortest, excellent. Okay. Thanks very much. Thanks, James. Next question, please. Thank you. Our next question comes from the line of Mark Simpson from a couple of questions. I just want to take that last question up actually because I'm not quite sure that fully answers it. Can you strip out The pilot costs assume all CHF 45,000,000 incurred in the second half. Strip that out, that's sort of 5% unit cost inflation ex fuel. And actually, if you take your guidance line by line and plug that in, it looks like you're about €50,000,000 short of your full year profit guidance. So I think that ex fuel issue is just needs some further clarification because it doesn't quite sort of stack up at the moment. The other thing just on ancillary, we obviously saw significant improvements in Q2. I know you're guiding for plus 1 For the full year, but that suggests flat second half. I'm just wondering if you can having highlighted the fact of the advance seen on the seat booking, Why should that fall away in the second half? Is there a current one? I'm sorry? And then you had 3 questions. Well, first question is, I suppose, is just also checking the guidance You said EU261 cost you €25,000,000 in the first half. If you strip that out, Your cost base on a kind of cream base would have been down 1.2%. You highlighted it was down 2%. Just wondering if there's anything else in that Over and above the €25,000,000 EU261 cost. Okay. Due to ancillaries, we think ancillaries will be a little bit less buoyant in the a second half of the year. The postponing, too, of the of the of the of postponing the new introduction of the baggage into January would mean slightly less a priority boarding income over the next 2 or 3 months. Now I think on balance, it's more likely that we might feel a little bit better than that. But This is a time for cautious guidance, and we're generally guiding cautiously for the remainder of the year on ancillaries. And the ex fuel unit cost, do you want to address it here or get Shailene to get back to you, Lonnie? We can get back to Mona. But again, I'm happy to Mark, that the guidance where we effectively grow our ex fuel costs were up to 3% on a full year basis Driven by the sector lengths. We had already indicated the fact that costs increased in the second half of the year, having had the savings in Q1 and Q2 ex excess 25,000,000. And so there's nothing different or strange in these numbers other than what we've had guided previously with Q1 and the full year numbers. Sterling, as I said, won't have an adverse impact on us this winter given that we had about 91 on the Sterling over Last year. So there is nothing strange or different in these numbers other than we have the €70,000,000 in Therap What are we gaining in the second half? We're gaining ex fuel unit costs on the second half, H2, 6%. So 6% we're guiding. Okay. So it's kind of implied, as Trent said, it implies 7% on the guidance you gave us, but you're saying 6%? Excess. Yes, which gets us to the 3%, which we put into the 5%. That's the number. Yes. Okay. And then let's say just in the EU261, dollars 25,000,000 but your minus 2 On a clean like for like base would suggest there's actually additional costs. Just wondering if you can sort of close that gap. No. The €25,000,000 is the exception. There are other units at one cost in the first half of the year as well. Yes, which were running up kind of last year. Okay. So that's over and above. All right. And then sorry, a final question. Vouchers, are they being accounted for as a decline in yield? Or will they be treated as a cost In the second half. No declining yield. Yes. All right. So that's great. Thanks, Lars. Thanks, Mark. Next question, please. And there will be a further call, so our questions are being registered. And our next question comes from the line of Rishi Kaesakhrani from Barclays. Please go ahead. Your line is open. There will be. Hi there, good morning. I just wanted to ask about the slowdown in the rate of capacity growth for summer next year. It sounds to me that decision was primarily driven to build a bit more slack into the business. But I wondered with the labor cost pressures that you talked about and the fuel headwinds, a is any part of the decision designed to protect yields? And then maybe secondly, just on the shareholder return policy and buybacks. Can we assume from next financial year that your kind of ordinary policy of positive free cash flow will likely mean a resumption in previous history around share buybacks. Yes. I think on the share buybacks, we'll continue to keep it under review. Policy will be to continue to spin back excess cash to shareholders, probably through a mix of buybacks and dividends. It is unusual for us to be in a net debt situation of $600,000,000 but at the half year, Because of the CapEx and the accelerated share buyback in the first half of the year, we want to make sure we're back at 0 net debt at the end of the year. Summer 'eighteen capacity. I think we've had a bad experience this summer, particularly with air traffic control delays, I mean, enormous staffing problems within German ATC. Really, the U. K. ATC was better than it was in summer a 'seventeen, but still or in summer 'sixteen, but still quite a significant amount of problems. I mean, our punctuality this year in the peak summer months was 2 or 3 expense points below where it was this time last year. We ran the fleet of 400 aircraft with essentially 7 backup aircraft in the middle of the week, but only about 3 backup aircraft at weekends. I think we feel for next summer, we want to see what the resilience of air traffic control I think we'll be putting a lot of pressure on the Germans, in particular, who have mismanaged their air the ATC capacity all summer long. I suspect if the there is a better degree of resilience in next summer, we will fly some of those aircraft that we're definitely going to operate next summer with some more spare aircraft backup than we did in the last couple of years. So it's not for yield management It is for punctuality and reliability purpose that we're keeping an extra 10 aircrafts there at this point in time for some rekey. Okay, great. Thank you. The next question comes from the line of Alex Paterson from Investec. I think you said that pilots have accepted pay increases at 15 basis. Stansted has so far declined. Could you just say if any other bases have declined? And secondly, looking ahead to next financial year, it seems that for reasons of these bankruptcies also higher fuel. It may be a more positive yield environment. Could you say if you think whether yields will be up in 'nineteen relative to 'eighteen, please? Answers. Okay. Firstly, I mean, we're not going to get into a which base to accept and which base to reject it because that kind of lends itself to the union agenda. There's over 15 bases now accepted the pay increases. Randstad has rejected. There's a number of other bases that also turned down the pay increase. A I think they have been surprised by the extent to which are certainly surprised by they are certainly disappointed that What they were promised by their local by the private unions is that mining will be back with an improved offer hasn't materialized. And therefore, they have to find a way of Returning to the table via their ERC to discuss the pay. Now we continue to engage with the Stansted pilots and their ERC. The door remains open to them and to a number of the others. But will there be some third party? Are we going to sit down with some pilot unions or competitor pilot unions or the EERC, which is the latest construct of these competitor pilot unions, no, we won't. There won't be any discussions with them now or at any time in the future. We have a, What is it, an exhaustive collective bargaining process? I think it's important to understand, The pilots have participated in this protracted borrowing process for over 30 years. It's no secret that the pilots, as Stan said, are on a 5 year pay deal that runs to 2020 that they voted on the secret ballot and improved by an overwhelming majority. Now we're offering to improve those pay terms again. They're perfectly free using the ERC to reject that offer, but that doesn't mean that there'll be an alternative offer. But we'll continue to engage with them and with any other bases that have Turned down the deal and want to discuss it further, but there won't be any more money on the table. I think what they are misunderstanding and certainly what some of the media misunderstood We're now offering pay terms that are €200,000 to €25,000 more than any other 7 37 low cost carriers. We have a flood of people who want to join us from bankrupt companies and from those other inferior pay airlines. We're hiring 40 new pilots a week, And we are adding those pilots at those bases in Stansted and at other bases who have turned down the deals at higher pay rates. So that is where it will lie. We have seen all of the speculation about industrial action that the app, none of which is backed up by any facts whatsoever. But If they wish to take industrial action, they're free to take industrial action. But and why not, the last thing to take industrial action were the a in Copenhagen, to which we responded by closing the base in Copenhagen and moving the aircraft out of there, while still growing over an 18 month period to become the 3rd largest Now I hasten that if there's industrial action, we will not close bases. That would be too easy because that's what the competitor or airline unions would want us But we will move some aircraft out of certain bases if there was industrial action. There will be consequences and those consequences will not be to the advantage of those pilots. But we're not at that stage. The relationship with the a We're not at that stage. The relationship with the pilots is very good despite what you might read in the papers, and it will continue to be good because we are paying them extraordinarily well. We're providing excellent job security. We're providing them with a roster that gives them a double bank holiday weekend at the end of every week of flying. A And we continue to welcome literally hundreds of pilots to Ryanair on an annualized basis. We're flying brand new aircraft and building up their hours and getting ramped promotion to So I think the underlying, when you get cut through the fog and the noise of the PR and I think there will be another 6 months of negative PR generated by pilot unions in whatever country they happen to be and their friends in the local media who generally tend to be somewhat a left wing and pro union, which is where we are, but nobody buys those newspapers anymore anyway. So frankly, and our customers don't pay any attention to them. Next year, it's too early to say. Look, if oil continues to trend upward towards $60 a barrel or higher, then I think there is likely There will be upward pressure on fares and yields next year. If other airlines go bankrupt, as I think would inevitably happen, and it will a And sooner rather than later, if oil remains up at $60 a barrel, remember, some of these airlines haven't been able to make money when oil was at $40 a barrel. I continue to be generally bearish on pricing and yield. Our business is set up so that we are continuing to add new lower cost aircraft a From April of 2018 onwards, the Altamax 200, which, again, remember, have 4% more seats but 16% lower fuel consumption per seat than our existing fleet. Our operating costs will continue to be flat or fall slightly, although we're now going to add some £100,000,000 a year in terms of additional pay for our people. And by the way, the best way of guaranteeing that there won't be industrial action is to pay your people more than the competition. I would be surprised if we were to see industrial action for people who are on €150,000, paid €150,000 a year and a We've been offered a €22,000 pay increase. It would be a particularly difficult challenge for their union in order to demonstrate why these people are disrupting a members of the traveling public where they're clearly well paid and have a very attractive pay increase on the table at the moment. Great. Thank you very much. Thanks, Alex. Thank you. Our next question comes from the line of Jarrod Castle from UBS. Please go ahead. Your line is open. 3 as well, please. Obviously, the fuel costs going up in 2019, you kind of alluded to Kind of some of the building blocks in terms of yield versus actual unit cost. But how would you look to offset this in 2019? Secondly, just in terms of Catalonia, if you could kind of just give a bit of color in terms of what you're seeing there in terms of Demand. And then also, lastly, I mean, you kind of put all these slides saying, look, we are paying 20% more In some certain competitor airlines, I mean, 1, why do you think it's necessary to be so competitive, Michael? And I mean, do you think you're going to shortly see kind of competitors facing quite a big upward pressure in pilot costs? Thanks, Charlie. Okay. Fuel costs, we don't know where to get offset in 2019. We're not sure whether oil will stay at $60 a barrel. We're not in the forecasting business or predicting the future a Business or predicting the future business. I mean, we deal with the reality at the moment. We were hoping as we came out of the hurricane season that oil prices would trend Sound supply remains strong. Stocks are at record highs. But if oil prices rise into 2019, I I think it's inevitable that the flags in Europe will put on more where you see the return of fuel surcharges and there will be a more benign yield environment than there is currently. The troubles in Catalonia have undoubtedly affected yields. We are having to price a discount a little bit more than we would normally on our operations to and from Catalonia. We operate 3 airports there, Barcelona, Girona and Red. But there is a political situation there. I don't think ultimately it affects people flying there as long as it doesn't break out. We're a spillover in safety concerns. But it is undoubtedly a little bit weaker. Our Why is it necessary to pay our pilots 20% more? I think it has always a It's been part of the Ryanair mission that we will pay our people more than the competition, and we expect them to deliver us more productivity. I think we have allowed the gap or we have allowed the likes of Norwegian and Jet 2 in the last 12 or 18 months. But we don't see a serious long term competitors anyway. A But nevertheless, they are paying off to where we are, close to where we are in terms of pilot pay and remuneration. And I think it's important to us as we're going We're going to grow from 400 to 600 aircraft in the next 8 years. It is important that we reestablish that clear blue water between Ryanair pay and a competitor alternative because we expect our guys and girls to deliver us more productivity. I think it's also, though, there is a niche symmetry between ensuring that we restore a significant pay premium to Ryanair Pilots over our competitors. It also makes it much more difficult for the unions of competitor airlines to whisper in our pilots' ears, don't take up this big pay increase Because we will do something. We'll get you, I don't know, things like we got in Monarch or in Air Berlin. We are determined. It has always been we have been nonunion company for 30 years. We will remain a nonunion company a By paying our people more and by fixing the broken elements of communication with pilots that undoubtedly broke this summer, Where we fucked up their rosters, we messed up their days off. We didn't handle and we haven't handled well a very reasonable request for them for days off or leave or whatever it was. And that should be a basic In the operation of any company, it has always been in within Ryanair. You may not like the answer we give you to a request, but at least you get the answer pretty quickly. And even that fell down this summer. And I think that's a management failure. We have recognized that it was a management failure. And we are investing very heavily, not just in pay. We're not this thing is not going to be addressed by just paying them more, although certainly paying them more is a good way to have to start off addressing But paying them more, fixing the rosters, which has now been done, and improving the way we communicate directly with pilots. I mean, Makes sense. I did the in all this, a pilot could send in a request towards the rostering, and it wouldn't get an answer at all. By the time we get to the end of November, they will be sending they will have each right an interview with each pilot can communicate with. Their requests were guaranteed that all those a request will be answered within 48 hours. So we need to get a lot more professional and better at the way we service our pilots and our cabin crew and I'll fix the very silly and unnecessary grief we have caused certainly over the last 6 months. So why is it necessary to pay them 25 more? It isn't, We want to pay our pilots more. We think they do a great job in Ryanair. I love Ryanair's pilots. I despise competitor airline new pilot unions, but I love a Our pilots have long since done so. Thanks, Michael. Thanks. Thank you. And our last question comes from the line of Savi Syth from Raymond James. Please go ahead. Your line is open. Hey, two quick follow ups. The first is on the debt repayment. I was just wondering what you're expecting for fiscal 2018 and maybe over the next couple of years. And then the last question is on the contracting model. Historically, I think that's been a benefit because of the seasonality in the model. Is your kind of willingness to have more kind of higher mix of employees a result of flying at a more primary airport somewhere seasonality. Just on the debt, we're going to be paying down about 4.50 On debt for annum, so we'll be debt free by the time we get to FY 'twenty four at that point. And there's a misunderstanding again that pedals largely by competitor pilot unions about our contractor model. I'd say in 2017, a majority of Ryanair pilots will be direct employees. There is a minority of the captains who are contractors because they wish to be contractors. They earn more money. The contractors are paid more than the direct Then the directly employed pilots. There is a majority of the first officers or contractors, and that is a convenience because as they move around and the a 2nd officers and 1st officers move around more as promotional opportunities arise. It is easier to have them on contract So they are more mobile. As they and it's always been our policy, as they get promoted to captain, return to the base where ultimately they want to Live or lay down roots of an Italian, say, finishing up an Italian basis, we're very happy to have them permanently employed on minor contracts. But this notion and the 2 other things that I nailed. We do not have 0 hour contracts. Our contract is a guaranteed minimum number of flight hours. There are no 0 hour contracts in Ryanair. And secondly, we don't also there's this notion out there that somehow we're running some tax a scam in Ireland by having people on Irish contracts. We have been on Irish contracts because we're required under Irish law. If you're flying an Irish aircraft, it's managed in the a state of Ireland, you're about to pay your taxes in Ireland. It's an Irish fiscal requirement. We'd be very happy to move it to local taxation around Europe Personal taxes in Ireland are very high and they tend to be lower elsewhere in Europe. Ireland does have a bit of a reputation of being So a tax saving from a corporate point of view, but from a personal point of view, it's a paid tax environment. And we would be very happy if that was moved. We are paid people who are employed are paid in the country in which they live. There are mobile transport worker provisions in Europe that need to be addressed and resolved. And we comply with European law, we comply with Irish law. There won't be any changes extra. So the contractor model doesn't provide us with any seasonality. It doesn't provide us with Anything other than we have some pilots who prefer to be contractors, it is more tax efficient for them to be contractors. It makes no difference to us, We have 1st officers who are moving around that need more flexibility. Okay, Abi, thank you. A Okay, ladies and gentlemen. Thank you very much for participating in the call. We have an extensive roadshow. I think we have something like 12 teams on the road for the remainder of this week, a meeting. I hope if anybody wants a meeting, We'll be very happy to facilitate it. Just you can arrange it through Davies, our city. And again, apologies a From me and from the management team for the rostering fuck up in September, we have fixed that screw up. It won't happen again. We will try to learn from this experience and ensure going forward that we continue to execute in a way that we you would be expected to execute while we grow the underlying a disconnect.