Hello, welcome to this Ryanair Q1 for the full- year 2018 results call. Throughout this call, all participants will be in listen-only mode, and afterwards there will be a question- and- answer session. Just to remind you, this session is being recorded. I'll now hand you over to Michael O'Leary.
Okay. Thank you. Good morning, ladies and gentlemen, welcome to the Ryanair Q1 results conference call. As usual, you'll have seen this morning on the Ryanair.com website, both the quarterly results, the share presentation, and a video Q&A with myself and Neil Sorahan, the CFO. Accordingly, I'm going to zip through this, then we'll open up to questions fairly quickly. You'll have seen this morning we reported a Q1 increase in profits of 55% to just under EUR 400 million. This result, however, was distorted by the timing of Easter, which fell entirely into August, or into April rather, with no holiday period in the prior- year comparable. In summary, for the first quarter, traffic is up 12% to 35 million. The load factor has continued to improve, up 2 points to 96%.
The average fare distorted by that presence of Easter in Q1 finished up 1% at just over EUR 40. Unit costs were down 6%, and I think that's the key takeaway. Excluding fuel, unit costs were down 3%, which is in marked contrast to most of our competitors who are still talking about lowering costs while delivering rising unit costs. Notable in the quarter, we announced that 10 additional 737 MAX aircraft, five in spring 2019 and five in spring 2020. It takes the firm Gamechanger order up from 100 to 110, with 100 options. We returned over EUR 200 million to shareholders via share buybacks, and at the end of Q1, we had just under 400 737s operating in the fleet.
Two, I think, key points I would make in the quarter is the continuing uncertainty over Brexit, which becomes increasingly hoping increasingly into view. We will need some sort of legal certainty by about September 2018, which is now worryingly close, about 15 months away. We continue to campaign for the U.K. to remain at least in Open Skies, but if the U.K. government continues to hold its position that it won't accede to ECJ jurisdiction, then there's a grave danger that the U.K. must leave Open Skies. We do not believe that the U.K. has either the time, the ability, or the goodwill on both sides to negotiate a timely replacement bilateral with the EU27, in which case there may well be a disruption of flights for a period of weeks and/ or months from April 2019 onwards.
We've been saying this for some period, considerable period of time. We do not see any other solutions out there. More recently, efforts by some of our competitors to either set up U.K. AOCs or Austrian AOCs under one holding company will not negate or trade away that risk. If there is not some kind of bilateral between the U.K. and the EU27 by around September or October 2018, then I think we are facing some precipitous disruptions. I wouldn't underestimate the extent to which the competitors in Germany and France in particular would like to see or encourage that kind of disruption. In terms of costs, we've, I think, continued to show unit costs declining 3% in Q1.
In marked contrast to a number of competitors, Wizz, easyJet, and others who are reporting unit costs ex-fuel rising despite bullshitting on for the last number of years about how bigger aircraft will lower their unit costs. It seems the more bigger aircraft they take, the higher their unit cost ex-fuel rises. We continue to make the point that that gap, it's that rising gap between us and our competitors on cost is what is going to make and mark Ryanair out from them. I think we'll touch on guidance. As we have repeatedly said to the market that Q1 was very strong, substantially distorted by the presence of Easter in April. We still see H1 fares will fall by about 5%. In other words, we see quarter two fares falling by between 6%-8%.
H1 traffic is growing strongly on the back of these lower fares, but yields are also being affected by a steep decline in baggage revenue, both the penetration of checked-in bags and the rates being paid by customers for checked-in bags are declining. We attribute a considerable portion of that to the continuing success of our Always Getting Better program. In particular, many more customers switching to carrying two free carry-on bags and actually creating some problems for us with the volume of free carry-on bags that are going on board the aircraft. We've raised the full-year traffic target for up by 1 million from 130 to 131 million. As I said, we expect we have no yield visibility into the second half of the year.
At this stage, we continue to guide the average fare decline in H2 will be 8%. For the full year, average fares falling by between 5% and 7%. Ex-fuel unit costs are on track to deliver a 1% reduction this year. Ancillary revenues continue to grow in line with traffic, but as we continue to discount pricing to drive rising penetration. Therefore, based on all of the above, we continue to guide for a full-year profit after tax in a range of EUR 1.4 billion-EUR 1.45 billion, which is a high single-digits growth on last year's profit after tax. Neil, anything you want to add there by way of commentary on the MD&A before we open up to questions?
I just want to highlight that the EPS performed well in the quarter as well in the back of the share buybacks that we've done. Our EPS of 63% by the time when the profit after tax of 55% and the balance sheet's in good shape. We saw a reduction in our net debt figure by EUR 150 million to just EUR 94 million at the end of the quarter. That was after EUR 200 million buybacks, EUR 200 million worth of buybacks and EUR 400 million worth of CapEx in the quarter.
Okay. Thanks. I will open it up to questions now. I'm going to ban questions asking for color on the second half of the year yields. We don't know. We have no visibility. I'm also banning any questions on color for next year's yields. We have equally zero visibility on that as well. Other than that, if you've got a question that isn't already answered in our video or in the results release, please feel free.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press zero one on your telephone keypads. You can withdraw your question at any time by pressing zero two. Our first question comes from the line of Savi Syth of Raymond James. Please go ahead. Your line is now open. Your line is now open.
Hey, good morning.
Morning.
Three questions for me. Just first on the average fare trend. I was wondering what the trend was excluding kind of the impact from the bag fees and when you might expect that to normalize, at least the drag from the bag fees. Second one on the non-fuel, hopefully quick, just what the benefit was from sterling and what you have the sterling impact in your cost guidance for the year. Finally, I know this is kind of very early stages and overall, we're talking about small numbers, but I was wondering if you have any color on, you know, how many connecting passengers you're seeing currently or what you might expect for the full year. Thank you.
Okay. I'll do one and three. Neil, I'll ask you to do two. Average fare trend, as I said, we continue to see average fare trend declining. We continue to see checked-in bags as also declining. Although the rate and pace of the decline will, I think, slow down over time. We have seen penetration over the Q1 this year over last year down and also the rate per bag down. That's just a function of more and more passengers changing their behavior and bringing more carry-on bags. Connecting passengers are too small to mention. We are offering connecting services only over two of our bigger Italian hub airports in Rome and in Milan Bergamo.
There is a meaningful number at both of those airports, but not something that is a significant, statistically significant number yet. I think what's more important to us at this point in time though is that we're not noticing any particular handling difficulty, which is why we are running it as a trial at both of those airports. We're not having passengers miss their flights. We don't seem to have any difficulty transferring the checked bags. Mind you, we don't have a lot of checked bags. We're not going to roll out that connecting to any other hubs until the end of the summer, until we get used to what are the issues with those connections. Neil, what's the sterling impact on non-fuel?
We're looking at about just under 1.5% in the quarter.
Thank you. Next question, please.
Thank you. Our next question comes from the line of Daniel Röska of Sanford Bernstein. Please go ahead. Your line is now open.
Good morning, Michael. Good morning, Neil. Glad you didn't ban any questions on Brexit. Two on those and one on the ancillaries, if I may. First question is, you talked about this a little bit in your Q&A this morning on the site, website. What additional options beyond disenfranchising, forcing to sell for the shareholders have you considered and why, you know, did you choose this part? Did you discard any of those options you looked at and why? Second part is what's your reading on the most recent EU guideline from June on the ownership and control regulations they put forth?
If I read it correctly, there may be, you know, this may make reallocating the shares to mainline Europe a little bit more difficult as the final beneficial owner is kind of the bar you have to, you have to pass. Lastly, on the ancillaries, you said, you know, you're discounting pricings to incentivize the uptake, but I was just wondering, could you give us some color of the different, you know, buckets flowing into those ancillaries as you report them? I think, Neil, you today said that seat and bags were in the seat revenue. What's actually left in the ancillaries and, you know, if you could classify that in two, three buckets and how are they developing into the future, that'd be great. Thanks.
Okay, thanks. Let me deal with those. Working my way backwards. No, we're not giving you any further color on ancillaries or the buckets. Our guidance for the year is ancillaries to be generally flat and, sorry, flat for the year, and it's up marginally in Q1, but we expect to give that back in the rest of the year. We don't see any significant change in the EU guidelines on ownership and control. We expect in a hard Brexit that the U.K. shareholders will either be forced to sell or will be disenfranchised and therefore over a period of time when they come to sell, will be required to sell to EU shareholders, which is why we don't think the IAG ownership structure will survive a hard Brexit.
We don't believe that the easyJet structure of having a holding company owning an Austrian, a Swiss, and a U.K. AOC will survive a hard Brexit. We don't think the Wizz nonsense last week of setting up a U.K. AOC will have any effect during a hard Brexit. If it's a hard Brexit, there is likely to be a period of months, I think maybe even through, [Ed said] that the summer period of 2019, there may be no flights for a period of time.
In a bizarre way, I think, you know, given the weakness of the U.K. government, that might actually be one of the areas where they wake up the U.K. government to the realities of what Brexit means instead of the, you know, the nonsensical cliches they've been drumming out in the U.K. for the last number of weeks and months. Our view of life in a hard Brexit, I doubt if there would be a forced sale of U.K. shareholders on the 1st of April 2019. I think the treatment will be something similar to ADRs at, or ADRs at the moment. The U.K. shareholders will only be able to sell to EU resident shareholders, or we may have a some sort of period of time when we force them to sell.
If there's a forced sale, that would clearly have a downward impact on our share price, and we may well speed up a share buyback program to take advantage of that and also to facilitate U.K. shareholder selling. Additional options, what was the additional options for shareholder sales? Well, the same thing. The first part of the question was what would we, were there any other options other than forced sale of the U.K. shareholders?
No. I think you covered it on the, you know, when you covered it on the IAG and easyJet structure. Basically, you looked at trust structures, and you don't think they will hold up, right?
No. We see, I mean, if there's a hard Brexit, and we know for that the certainly mainland European competitors, most notably the Germans and the French, are all over this like a rash. They will not, I think, they will certainly be campaigning very hard for to look through the something like, say, an IAG structure, for example. I note at a conference in Brussels two weeks ago where, you know, Willie Walsh was very active at calling for reform of the arcane EU ownership rules.
Which I thought was somewhat surprising given how relaxed he has purported to be over the last year or two about how good the IAG structure is. I don't see any way there's going to be blind trusts that would survive a hard Brexit. Maybe that's, you know, I continue to hope against hope that in a hard Brexit environment, the British may well blink or at least have a more considered view of the outcome of Brexit.
Yeah. Okay, fair enough. Thanks for the comment.
Thanks, Daniel.
Thank you. Our next question comes from the line of Jarrod Castle of UBS. Please go ahead.
Jarrod, Hi.
Your line is now open.
Hi. Good morning, gents. Three as well then. One, Michael, I mean, how serious are you about looking at Alitalia? Is this just really to look under the bonnet to see what's going on? I mean, again, it comes to issues with kind of short-haul, long-haul trade unions, et cetera. Just to kind of give some color around, I guess what you are and aren't doing when it comes to them. Secondly, on unit cost performance. A good showing in Q1. I mean, is there some potential that you could do a little bit better than guidance as you kind of move through the quarters?
Secondly, just in terms of you mentioned Brexit and the U.K., and you mentioned it also on your Q&A about U.K. kind of fares performing worse than the rest of the network. Can you give some color relative to the average fare being up +1 across the whole network, what the U.K. was doing? Thanks.
Starting to take those in sequence. Alitalia, look, as the largest airline in Italy, it is incumbent upon us to work with the Italian government and the commissioners in Italy to try to assist a positive outcome for Alitalia, its customers, and the people who work there. We are serious in indicating that we have an interest in Alitalia. We're also serious in that our interest in Alitalia is only if there's going to be some fundamental reform. There's the Chapter 11 process under which the commissioner, three commissioners currently run Alitalia. They can bring about some fundamental reform. They do have the legal power to significantly restructure Alitalia. If there was a significant restructuring such that Alitalia could reasonably be seen to operate on a profitable basis, then yes, I think we would have an interest in it.
Those are high bars to cross. Clearly something, you know, Alitalia's going to have to cross some high bars if it's going to survive in its current form. It would also obviously involve, you know, an absence of Italian government interference, which again, would be another high bar. In unit costs, yes, we're always striving to do better on unit costs. I think our, you know, Remember last year we reduced unit costs by 5% when every other competitor we have in Europe saw their unit costs rise. In Q1, we've taken that down. This is ex- fuel by another 3 percentage points. Whereas in the last couple of weeks, we've seen fairly pathetic unit cost performance from alleged competitors of ours.
Many of whom have been going around for about two years promising to be able to match Ryanair on costs or God help them beat Ryanair on costs because they are getting new super-dupery longer, shinier aircraft. Yet, every quarter, they continue to report unit costs increasing, but some kind of failed hope that by the end of the year or in 2025, their unit costs will decline. The reality is we deliver unit cost declines. We are far better at managing unit cost than any other airline, and our competitors are pretty piss poor at it. There, I think we would certainly be striving to do better, but I think it would be unreasonable to expect anything more at this stage than a 1% decline for the full year. On Brexit, or U.K., we are breaking it down.
Look, we're in the Q1 results. We're not giving you color on sectors or bases or markets or anything else. We'll do that on the half year when we go around and do the investor relations roadshow. It is fair to say, as we have publicly, that certainly the market from the U.K., and U.K. particularly to Spain and Portugal and Italy, where there's been and continues to be a large volume or large capacity increase in both charter capacity switching out of, continuing to switch out of Egypt, Turkey, North Africa. Some other of the Monarch , Jet2, these guys arriving down there with very significant capacity increases. That has put a inordinate downward pressure on airfares. That continues to be the case. We're not in the position on Q1 breaking out this sectoral detail.
Okay. Thanks very much.
Thanks, Jarrod.
Thank you. Our next question comes from the line of Duane Pfennigwerth of Evercore ISI. Please go ahead. Your line is open.
Hi. Hi, thanks for the time.
Good morning. Hi.
Just with respect to your Q2, you know, fares down 6%-8%, is that what you're seeing on the books in July so far, down 7%?
It's in that area, yep.
Okay. Can you just talk about, you know, how far out your order book is fully committed? You know, what periods are still open depending upon pricing? With respect to the MAX, does this bring new markets, given the range capabilities, does this put new markets, you know, on the table for you that you haven't historically been able to serve?
By reference to the order book, I assume you mean the aircraft. Is it?
Yes.
We have the aircraft orders run out to the end of summer or the autumn of 2023. We currently have We take the last of the NGs in the autumn of 2018. We take the first of the MAX 200— well, 110 firm MAX Gamechangers in the spring of 2019. We still have 100 of those that are under options. I would be amazed, I mean, unless there was some kind of very significant adverse event, I expect us to take all of those, be confirming all of those options as they fall due two years prior to delivery. The MAX aircraft won't extend our range of operations. We have very we have no interest in flying the MAX, for example, across the Atlantic. Again, because of its range limitations. We can do Dublin to kind of Boston.
Unless you're going to serve both the East Coast and the West Coast with a long-haul, low-cost carrier, we don't think you have the scale or the ability to penetrate that market properly. We don't see the MAX as being some sort of a quasi-transatlantic or quasi- long-haul aircraft. The MAX as a Gamechanger is going to significantly lower our unit costs. It has 4% more seats. It has 16% lower fuel per seat, and it is going to transform significantly the unit cost base of what is already, and by some distance, the lowest- cost carrier in Europe. The carrier in Europe that has a widening unit cost advantage over Wizz, easyJet, Norwegian, and all the other lunatics out there who can't manage their cost base.
I think it's a particularly important message for some of the idiot analysts out there who keep writing shite that somebody's going to close the cost base between Ryanair either in 2018, 2019 or 2023. It would be helpful if you looked at the current quarter and the previous six or seven quarters and show the inability of the others to manage their unit costs, whereas we continue to deliver declining unit costs. That's why, by the way, as we add very significant capacity, I mean, we will grow this year by another 10 million passengers, which is, you know, not far off half of Wizz's total traffic on an annualized basis. We are supremely confident in our ability to fill those extra seats and continue to deliver impressive returns for shareholders because we are actually reducing unit costs. We're not just talking about reducing unit costs.
Thanks, Michael.
Thank you, Duane. Next question.
Thank you. Our next question comes from the line of Mark Simpson of Goodbody. Please go ahead. Your line is open.
Yeah. Michael, hi.
Hey, Mark.
Tiptoe carefully into this, into your super duper shiny big aircraft.
Oh, yes. Your favorite Central—y ou want to talk about the number two carrier in Central Europe again, do you?
Well, no, I wouldn't want to talk up Wizz on your call, but in terms of.
Go on. It's some flight of the imagination, but do your best.
Well, it comes down to perhaps we'll put SK, but let's not dwell on that.
Oh, we're glad he doesn't.
Now, in terms of the comment, though, Bloomberg suggesting that you might be interested in the MAX-10 in 2023, is that, just, Bloomberg, commentary, or is that something which you would contemplate?
I mean, it's Bloomberg commentary. There's been no development there. I mean, we make no secret we are interested in the MAX- 10, but we're only interested in the MAX- 10 if it can lower our unit cost. Thus far, you know, the discussions with Boeing haven't gone anywhere. I think their pricing on the aircraft at the moment is far too high. It's not something that we have any interest in, but we have told them to go back, and if they can come up with a pricing on the MAX-10 that meaningfully reduces our unit cost, we'd be very happy to place an order. We were underwhelmed by the orders they announced at the Paris Air Show, which were basically conversions of existing orders from United and SpiceJet and a few others.
Like, if that's what your order book consists of, then Godspeed. If or when there's going to be a this aircraft like we do believe a 230-seat aircraft can deliver us a meaningful reduction in unit cost, then it will be of interest to us. If it's the typical Boeing stuff, well, here's 30% more seats and pay us 30% higher price, frankly, it's of no interest to us. We have no need to place another aircraft order on for about another five years at this point in time.
We are very interested in the aircraft, but we're only very interested in this aircraft or indeed any aircraft if it lowers our unit cost. If it's just a shiny fucking toy, as your friends in Wizz there who like shiny toys, yet as their traffic rises, their aircraft ownership cost rises at an ever faster rate. That's not the business model we're in and haven't been for some 30 years now.
Yeah. Fair point. I just wonder what's your view there of residual risk for the MAX 200 on the basis that the market seems to favor, you know, 180-, 190- seaters or 230-, 240- seaters. Is there a perception of residual risk in the MAX 200, and you're gonna have to sweat that asset to the end of its useful life?
Frankly, we wouldn't give a rat's ass. We've never worried. I've never yet ordered an aircraft and worried about the residual life of an aircraft because we know we're an end user. We've always been an end user of these aircraft. What the residual value is, frankly, I couldn't care less 'cause we can fly them until they're 20 years old. The price at which we're buying them is so competitive. I mean, if we get this aircraft in here, and we have 4% more revenues and 16% lower fuel costs, I'll happily fly them until somebody invents Star Trek travel.
Then one final issue different to ancillary revenue per pax.
Yeah.
You highlighted lower hotel penetration rates in your release. Is that just a transition period from Booking.com to Ryanair Rooms, or is that seen as slightly disappointing? I wonder if you could give us an idea of what you're targeting on conversion rates.
No, I mean, I think it's actually a crossover. You know, Ryanair Rooms is a product, is a new product. Actually, the penetration rate started off very lowly. The penetration rate is rising very quickly, both on rooms and on holidays, but it's very low numbers at the moment. I think it's something that we're looking to I think Kenny and John Hurley and the digital team are working actively on. We're looking to have much more inventory online by about the end of this calendar year. I think you'll see a big push into Ryanair Rooms for 2018.
Okay. That's great. Thank you.
Thanks, Mark. Next question, please.
Thank you. Our next question comes from the line of Neil Glynn at Credit Suisse. Please go ahead. You have your line open.
Hi there. Two questions from me, please. The first one, I note some of your top growth routes this summer include Italy domestic and Poland domestic. Just prompts the question, to what extent do you feel you need to increase domestic penetration in some of these markets to produce more balance with international services to ultimately optimize your relevance to local customers? Secondly, on the bag charges, obviously, you've mentioned, Michael, are weighing in the first quarter. Just wondering to what extent do you have a plan to deal with this, if indeed you need to? On top of that, you've mentioned a very good on-time performance number in the 1st quarter. Just interested, do the two carry-on bags, are they having any negative impacts on turnaround times at all?
Okay. The top-line growth, yes. I mean, the domestic Italy is doing well. Domestic Poland is tiny. You know, domestic Poland's only two routes. You know, don't get distracted by— like, we never look at business on the base of are they domestic or international. It's short sectors. Short sectors do help us to maintain efficiency. Unlike all the other airlines who sell their airfares on some seat kilometer basis, we only sell our seats and manage our costs on a per passenger basis, which is why we like shorter sectors. I think there's a very limited growth in the domestic markets generally. Domestic Spain is sizable. We're reasonably big in it. Domestic Italy is sizable, we're reasonably big in it. Domestic Germany is sizable.
I have no desire to be big in domestic Germany. I'd far rather be doing intra-European out of Germany. I think don't get too distracted by different, by smaller, by sectoral issues. Always look at us as a kind of pan-European airline. If we're doing a short flight, whether it's a domestic or it's an intra-European flight, it's just a short flight. Bag charges, yes, we continue to see significant change in customer behavior. I did think last year when we were above 20%, just above 20% in checked-in bag penetration, that that was probably as low as it would go. We have been surprised this year to see checked bag penetration fall below 20%. It's now running at around 16% into the peak summer period, which is unusual.
It does show that more and more passengers are now traveling with two carry-on bags. We are, I mean, it isn't affecting our on-time performance, but it is affecting, you know, the speed at which we can board aircraft. Our on-time performance is struggling at the moment, mainly because of staffing issues within German, British, and French ATC, particularly at weekends where they are piss poor. It's also being affected by —we have this, you know, same as last year, an outbreak of thunderstorms, which seems to hang over continental Europe for the month of June and July. This is the Azores High in the wrong place. That has, you know, is fundamentally the bigger problem. I think, though, it is becoming an issue for us, the volume of carry-on bags.
Our handling agents do a good job at managing the queues, but we are putting far too many, I think, second bags into the hold free of charge at the boarding gates. I'm not quite sure how we'll get there, but I think we'll have to do something before the, maybe the end of this year or sometime into early next year just to reduce the number of carry-on or free carry-on bags that are being put into the hold of the aircraft.
It seems clear to me anyway, although we're, you know, the management team are not entirely united on this, that people are now gaming the system because they know they can just show up at the bloody boarding gate and get the bag carried free of charge instead of going to the check-in desk and checking in the bag. I think, you know, we are looking at different ways where we may limit the number of people who can bring two carry-on bags. That might be priority boarding. It might be by splitting the pricing of different products into a standard and a basic pricing on airfares. We will need to do something to limit the amount of free gate carry-on bags we're taking into the hold of the aircraft.
I would, again, in that light caution, I mean, in many respects, I think that I look favorably on the declining checked-in bag penetration or the increasing penetration of two people, passengers bringing, gaming the system by bringing more bags down to the boarding gate is just one of the byproducts of our Always Getting Better program. It's the Always Getting Better program and its success that has continued to mean that we are seeing very strong traffic growth. Load factor's up at 96% and rising. You know, profit's up in the first quarter by 55%, and even profit growth over the full year of high single digits.
The fact that bag penetration is down is one of the negatives of Always Getting Better, but it goes to the heart of what we're doing, which is still passing on more value to customers in the form of lower fares and now more and more free carry-on bags. Next question, please.
Thank you. Our next question comes from the line of Stephen Furlong of Davy. Please go ahead.
Stephen, hi.
Yeah. Hi, Michael. Can I just ask you about, you talked about Italy, can we just talk about Germany? What do you think is gonna happen and how it's gonna play out with Air Berlin, and also what's going on with the Berlin airports and how you think that will play out with all the delays and stuff?
I mean, again, it's difficult to say how it will play out. Clearly, Air Berlin is teetering on the edge of bankruptcy. It seems to us that it is Lufthansa that's keeping them alive in what is a flagrant breach of EU competition rules. The Germans seem to be able to breach competition rules whenever it suits them. I suspect, again, you know, I also, I caution I was the one who thought the U.K. would vote to stay in the European Union. I suspect that Lufthansa will somehow be allowed to buy Air Berlin, that they will reduce Air Berlin's capacity because they will then ultimately control the German domestic market, which will mean higher fares for German consumers, but less capacity.
That should, I think, assist our growth in the German market because more and more the German airports will look to have low- cost, intra-European traffic growth make up for the decline in the German domestic traffic they will have at their airports. The second part of the question was? What was it?
Berlin Airport.
Berlin Airport, I mean, they have this mad idea to close the second, the two airports, Brandenburg and Tegel, Schönefeld and Tegel, into one smaller airport, Brandenburg, which can handle, has a capacity of about 27 million passengers. The combined traffic at Tegel and Schönefeld at the moment is about 34 million passengers. It's nuts. The only people who are in favor of this plan are Lufthansa, who think that actually it's better to have less capacity in Berlin, less competition to Lufthansa, but at least the poor Germans won't be confused about traveling and operating at a city with more than one airport. It's clearly a scam by Lufthansa to limit competition and keep fares high in the German market. I think there is a reasonable prospect. There's certainly more momentum behind the campaign to keep Tegel open.
Kenny was over there last week, and he did a good job of, in fact, not just keeping Tegel open. By the time he was finished, he was calling for a third airport in the Berlin marketplace. To be fair, if you look at the way the traffic in London has mushroomed once the BAA monopoly was broken up and Heathrow forced to sell Gatwick and Stansted, nobody would argue, I think in retrospect, that that was anything but good for consumers and good for competition. Berlin should have at least two, and if not three airports, not one smaller airport.
Okay. Got it. Thank you.
Thank you. Next question.
Thank you. Our next question is from the line of Damian Brewer of RBC. Please go ahead.
Damian, hi.
Hi. Good morning. Two questions, please. First of all, just one simple one. If we take out Easter, what was the May-June revenue per seat development like, just to understand what the next Easter effect was like? Secondly, just looking at your outlook for the year, fleet growth and therefore seat growth in theory looks like it would be about 12% if it followed the fleet growth, but passenger growth up 9%. Clearly it looks like you're grounding a lot more capacity this winter or something else is going on there in terms of fleet timing. Could you expand a little bit more about what's going on there that the passenger growth so lags the fleet growth this year?
Okay. Let's say Easter, I wouldn't break out Easter on a revenue per passenger. In terms of profitability, we think Easter roughly is now around EUR 50 million in our profits, so about EUR 50 million tends to move around. That's been one of the key drivers of the bumper kind of Q1 numbers this morning. Fleet growth, I think it's a little bit distorted. Remember, we get Most of our deliveries come, the big flow of our deliveries comes through January, February, March, April, and May. We're taking about nine aircraft a month or eight or nine aircraft each month. The fleet growth is heavily skewed towards Q4, whereas the traffic growth is spread across the 12 months. There's nothing untoward in that.
We still believe our load factor will hold up at or slightly ahead of where it was last year, which was, what, 95% or 94% for the full year. We expect that that would be repeated again. There's nothing. We're not grounding more aircraft. In fact, we would be flying. We'd be grounding only to have we did last month. We'd only be grounding what we need for our winter maintenance program. There's no disconnect between the fleet growth and the traffic growth.
It's all in the timing of deliveries basically.
Timing of the deliveries. As you can see this morning, you know, we have raised the traffic for the year. It's gone from 130 to 131. There may be a little bit more in traffic.
Okay. Thanks very much.
Thanks, Damian. Next question, please.
Our next question comes from the line of James Hollins of Exane. Please go ahead.
Hi. Good morning.
I've got you have three. The first one is just on the U.K. inbound. You highlighted terror attacks, London, Manchester. I was wondering if you feel they're still seeing an impact just as it might impact the late booking market for the summer? The second one's on airport handling charges. I just noticed on your video, Neil, you said discounts are coming forward. Just wondering if that you're seeing an acceleration in airport charge discounting, or maybe quantify that at some point. Third one is just on CapEx hedging. Again, on your video, I think you said you're now fully hedged 2021- 2024, partly hedged on 2020. Just wondering if you could say what proportion is hedged on 2020, and what average rate you've got on 2021- 2024. Thanks.
Thanks, James. I'll do the first, Neil. I'll get you to do part two and three. U.K. inbound. Look, whenever that we have terror attacks, and we had them in Brussels and Paris last year, but Brussels and Paris are a smaller part of our overall traffic than the U.K. is. Our immediate response to those is to open up more cheap seats. You never see the impact of these terrorist events on traffic volumes. In Ryanair, you always see it impacting on yields. There's no doubt we have had a London has had a difficult spring. That is particularly prevalent into Q2, where, post Manchester and the two attacks, in London, we opened up more seats to keep everybody flying at that point in response to those.
The response to the terror attacks is not a fall- off in traffic, it's a fall- off in pricing. Neil, the handling charges and CapEx hedging.
On airport handling, we saw a unit cost reduction in the quarter just ended. A point we were making is that we've got volume discount deals in place at both primary and secondary airports, which will continue to deliver savings for us into the future. And then on the CapEx, as you correctly said, fully hedged on the MAX firm deliveries from FY 2021- 2024. And we're about 70% now through FY 2020, at an all-in blended rate of just over 120 against the euro- dollar on each of those years.
Okay, lovely. Thanks a lot.
Thanks. Next question, please.
Thank you. Our next question comes from the line of Rob Byde of Cantor Fitzgerald. Please go ahead.
Rob, hi.
Morning. Morning, guys. Just one actually. Going back to the Brexit theme. In broad terms, can you say how many of your flights as a proportion of the total are between the U.K. and the EU? Thanks.
About 40% of the traffic operates between the U.K. and the EU. That splits, there's slightly more U.K. originating than EU originating. It's about 40% of the total capacity.
Yeah.
Now, as an EU airline, post-Brexit, we can still, you know, in an Armageddon, and one of our Armageddon events is we would take up to 80 or 90 aircraft that are currently based in the U.K., and reallocate them across our remaining bases in continental Europe. We would have the capacity to do that. In a hard Brexit, we think we'd be doing that and taking up enormous opportunities that would arise because either IAG or British Airways or Iberia won't be flying as a subsidiary of BA, or easyJet's Austrian AOC won't be operating at all. Nevertheless, you know, while we are reasonably flexible in moving aircraft around, moving the crews, the pilots and the cabin crew would be expensive and logistically difficult for us for that period of time. You know, I continue.
I think it's important that we front up on this issue. I mean, what's been disappointing in the whole Brexit debate is the extent to which the other airlines have been kind of sticking their heads in the sand and say, "Oh, no, we don't need to. Oh, no, it won't be that bad. It won't be blah." It will. If they were all a bit more upfront about it instead of kind of trying to mumble through it, you know, we'd put more pressure on the British government to begin or initiate bilateral discussions on the, with the EU27. The problem is, because the Brexit discussions haven't even got started yet, they still have none. They haven't even initiated discussions on either the exit bill, the rights of EU citizens and vice versa. They can't even start the bilateral with the EU27.
I think there is a real likelihood at this stage that there will not be a separate bilateral, and therefore if the British don't blink, which I ultimately think is what may well happen, certainly as regard to flights. The idea that, you know, Gove and Johnson and some of the village idiots over there would have you believe that the European airports, like the German car manufacturers, would put pressure on their government to do a deal with Britain to ensure that they continue to welcome British travelers, that's simply not going to happen.
Right. Thanks, Michael. That's clear. Thank you.
Okay. Thanks, Rob. Next question, please.
Our next question comes from the line of Anand Date of Deutsche Bank. Please go ahead.
Anand, hi.
Yeah. Hi. Morning, everyone. I was just wondering, with the developers you've got in Dublin and Eastern Europe, what are the metrics you're using to analyze their performance? What are you actually tangibly looking to get out of them? Just interested in that. Secondly, on the Business Plus and the Leisure Plus, could you just outline maybe what proportion of tickets are booked that way? Basically, I'm trying to figure out how much of what we might classify as ancillary is actually sitting in scheduled. Thank you.
Okay, thanks. Labs, devs, what we're trying to do here is to hire, you know, talented IT developers, who we can spool up quickly and give us more, if, what do you call them? Development teams, so that we can actually implement more than one project at a time. Here in Dublin, we have about five or six development teams. I'm looking at Kenny. About five or six development teams. We have now in Wrocław replicated that. We have in total between 10 and 12 development teams, we're looking for about another five or six in Madrid over the next 18 months. It is so that we can be very flexible, very adaptable. We, Kenny and John Hurley, set the way we develop both mobile app and the penetrations.
I think if you look at the way the penetrations are jumping, it has been enormously successful. I think that's what we're looking for is to hire bright, young development talent. The advantage of doing that in Wroclaw and in Madrid is there, it's cheaper there than it is in Dublin, with a far lower rate of turnover. I mean, the problem here in Dublin is that the market is very hot. We bring in bright kids here, you know, both domestically and in from Europe, and within two, or, you know, within a period reasonably less than 12 months, they are being distracted or having their heads turned by working for the back office tossers here for Google and Facebook and all these guys who in Dublin do no IT development at all. They're just issuing fucking invoices.
Nevertheless, they have all the sexy appearance of doing sexy stuff, and the kids can't help. The advantage primarily of Wroclaw and of Madrid is much lower rate of turnover of these IT development talent and lower costs. Business Plus, Leisure Plus, the penetration is now all rising up around between the two, we're now heading about between 6% and 7%. If you find it difficult to break it out, how much of ancillaries is in the underlying airfares, although there is clearly some, and it's a growing percentage. It's also the continuing growth of the Business Plus and Leisure Plus is also partly responsible for the decline in the checked bag revenues as well, because they have bags included in them. Yeah.
Can I, sorry, can I just ask a quick follow-up as well?
Yeah.
Just a bit longer term, we're hearing from some of your competitors as well that the ancillary mix is permanently changing, right? Because customers are behaving differently. Is the implication therefore that revenue growth on ancillary might be slower, but that actually margins are more likely to go up because the newer products are higher margin?
I don't think so. Look, it depends. The problem with that is you're trying to predict what's going to happen to ancillaries into the future, and it is a very fast-changing area. If you look at what we talked about with Ryanair Rooms, Ryanair Rooms in the next two or three years could generate very significant revenues for us, but almost no profitability, because frankly, we're willing to promote Ryanair Rooms on the basis that we'll make no money. Whatever commissions we get from the hotels, we will give away to customers in the form of either discounting below the prices being charged by Booking.com and the other GDS suppliers, or we'll give them discount off their flights. We're willing to do hotel rooms for zero margins. That could change again in 12 months' time.
Making predictions as to what's going to happen, I think, to the margins on ancillaries or the profitability ancillaries is very dangerous in what is a very fast-changing environment.
If I could just add, it's—
Yeah, Kenny?
It's about driving the conversion rates. I think if you go back over the past number of years, next number of years, there's still loads to go for in getting a higher percentage of the customers who fly with us buying various ancillary products. Be that seats, be it fast track, and the kind of the owned ancillary products related around the flying product or be it car hire or as Michael said, rooms. There's still plenty to go for in terms of the overall penetration rates.
Okay, lovely. Thanks, guys.
Thanks, Anand. Next question, please.
Thank you. Our next question comes from the line of Johannes Braun of MainFirst Bank.
Johannes, hi.
Yes. Hi, good morning. It's just two for me. Firstly on the full- year guidance net profit. On what sterling rate is that more or less based on, and did you hedge any of your net sterling exposure by now? Secondly, again on costs. I mean, I can see what you are saying on your relative cost performance versus peers. Still, I mean, just looking at your moving parts here, you are guiding - 1% unit cost per passenger. You still have the benefit, you know, of the weak sterling, the benefit of higher load factors, and you also have cost benefit of almost 10% growth. I was just wondering or trying to understand if there is any underlying cost inflation there. Is it marketing? Is it wage inflation?
Do you have growth costs, or is it just you being, again, conservative?
Well, let me address the second question first, Johannes. I'd like to correct you. We don't have peers.
Okay.
There's a basket of other people out there claiming to be peers, but when you analyze their cost performance, it becomes pretty fucking evident that we don't have any peers in the marketplace. I, you know, I think the point I'd make to you is our cost guidance, unit cost guidance, and it's ex-fuel down 1% for the year, is another superb performance coming on the back of a year last year where we reduced unit cost by 5% ex-fuel. You know, we're lower. These are meaningfully lower costs. I mean, I contrast that. I mean, there was some silly analysis produced recently by Bernstein, I believe, you know, who were writing that, "Oh, as we move to primary airport, you know, our costs will increase." We started moving to primary airport three years ago.
We're now moving to year four of AGB. The whole analysis, as we move into main Madrid, main Rome, main Brussels, Frankfurt main, our costs will explode. Handling move. We have all these uncontrollable costs that easyJet and others seem to whine on about. I mean, we're now in our fourth year at a lot of those airports, and the key message is if you go through each of our cost lines, staff, airports and handling, route charges, maintenance and materials, even the others, there is unit cost reductions across all of those classes. There is one, I think, where we have cost inflation. That's the continuing rampant scamming of EU 261 claims, and these bloody ambulance chasers who we are trying to bury across Europe.
I mean, it is a complete and utter scam that we have with an average fare of EUR 40 have to pay out compensation of EUR 250 every time some bloody judge thinks that they, you know, that delay was our fault or we're somehow should be responsible for these delays when it's ATC and others who are [MANFA], who are clearly responsible for the delays. We continue to believe that, you know, if there's going to be customer compensation, as in most other industries, it should at least reflect the airfare paid. That's the only area we have cost inflation. Even that cost inflation, which is included in our other, is on a unit cost basis, close to flat.
Because Kenny and the team are spending less money on advertising and more marketing, as we use our lower fares, lower declining bag fees and the brilliance of AGB to continue to deliver a 9%, 10% traffic growth. The sterling impact on the full- year guidance. Shane, do you want to take that or Neil?
Well, first and foremost, Johannes, we don't give out our budget rate to you guys. What I can say is that we had a positive impact of sterling, which I already indicated, about 1.5% in the first half of the year. We would expect sterling to go in the opposite direction as the comps get more difficult into the second half of the year.
You are not hedged on your net exposure?
No, we're not hedged on net exposure.
Can I just come back to the costs point? I mean, the point I was trying to make is that given that you are calculating unit costs on a per- passenger basis and you do not adjust for currency, you do have a tailwind from the currency side and you do have a tailwind from higher load factors if you chip out the.
Yeah, those load factors are flat this year, Johannes.
Yeah, load factors are flat. They're not higher.
In Q1 they were up. Still, if you strip these out, it seems that you would have some cost inflation underlying. I was just trying to understand this one.
Nope. We don't.
Okay.
Okay. Thanks, Johannes. Next question, please.
We have no further questions in the queue at this time.
Excellent. Well done, everybody. That's the first time we've managed to get this bloody call down to under one hour. Look, if there's any follow-up questions, Shane is here in Dublin. Neil is in London doing the press stuff. Again, the underlying themes are traffic is strong. Yields will be weak into Q2. I would say we did, we're the only ones for the last number of months who've been predicting fares would be weak this year when all the boats were predicting fares would be up. Our unit cost discipline continues. We are continuing to deliver unit cost declines when most, and in fact, all of our competitors are delivering new unit cost increases.
It's that widening unit cost gap between us and the competition that will continue to enable Ryanair to succeed, particularly as we expand the amount of head- to- head competition we have with these so-called peers. The only other one out there is clearly Brexit continues to be an issue. It's going to become more and more of an issue, I think particularly as we get to the second latter half of this year, and we're less than 12 months away from September 2018. We will be trying to keep this issue front and center in the U.K. I don't think anybody should get panicked, but, you know, until the U.K. begins to realize the weakness of their negotiating position, particularly in this sector, there's a real risk of a disruption to flights from April 2019 onwards. Okay, everybody, thank you very much.
If anybody has any follow-up questions, please feed them back to Shane here in Dublin. Thank you. Bye-bye.
Bye-bye.
This now concludes our call. Thank you for attending. Participants, you may disconnect your lines.