Good morning, ladies and gentlemen, and welcome to the Ryanair Q1 results presentation. I'm Michael O'Leary, Chief Executive of Ryanair, and I'm joined this morning by Neil Sorahan, our CFO.
Morning.
You have seen on the ryanair.com website the quarterly results press release, together with the MD&A and the shareholder presentation. We're going to briefly take you through that. This morning, we've announced Q1 profits are up 55% to just under EUR 400 million, due primarily to a very strong Easter in Q1. I caution we're not changing the full-year guidance. We're pleased to report the 55% increase in profits, but the Q1 results have been distorted by the presence of Easter, which was absent from the prior Q1. Average fares in the quarter rose 1% to just over EUR 40. This was due to a very strong April, boosted by Easter, but offset slightly by adverse sterling, lower checked-in bag revenue as more customers switched to our two free carry-on bag policy, and lower fares following a series of security events in Manchester and London.
During the quarter, we took delivery of 14 new Boeing 737s ahead of the peak summer period. We've opened new bases in Frankfurt am Main in March, in Naples in April. They're performing well. In September, we'll increase the Frankfurt base from two to seven aircraft. We'll also launch two new bases in Memmingen, Munich, and Poznan, and open 170 new routes during winter 2017. We continue to see significant growth opportunities for Ryanair across Europe, as many of our competitors are either closing bases or legacy airlines are restructuring. In June, we added 10 more units to our 737 MAX 200 aircraft order. Five of these we'll deliver in the spring of 2019, five in the spring of 2020. In addition, we recently agreed extensions for 10 operating leases, which will provide us with three more aircraft for summer 2018 and 10 more for summer 2019.
This addresses the temporary capacity shortage we had in summer 2019 before the Boeing MAX deliveries kick in September 2019 onwards. Year four of AGB is underway. In May, we launched flight connections at Rome, Fiumicino. In July, we extended this to Milan, Bergamo on the Ryanair network. We've started selling Air Europa long-haul flights to the Americas from Madrid on our website, and we've become the exclusive airline partner of the EU Erasmus Student Network. From June, our customers who purchased reserved seats now enjoy a 60-day check-in window. On Ryanair Rooms, we added a fifth hotels partner HostelsClub, and Ryanair Holidays continues to roll out across the network as we went live in Italy and Spain in Q1.
We continue to invest heavily in Ryanair Labs and are recruiting now, have opened a third dev facility in Madrid, where we hope to recruit up to 200 highly skilled digital professionals over the next two years. On-time performance in Q1 improved to 89%, up two points from the 87% in Q1 last year. We are working hard to ensure that our customers can enjoy punctual flights. We are campaigning with our partners at A4E to encourage the EU to take action to ameliorate the impact of ATC strikes. On cost, the gap between Ryanair and our competitors continues to widen. We delivered a 6% unit cost reduction in Q1 as our fuel bill fell despite a 12% increase in traffic.
Ex-fuel unit costs helped by weaker sterling, which we believe will be reversed in H2, fell by 3% as we delivered unit cost reductions across nearly all of our cost lines. For FY 2018, fuel is 90% hedged at about $49 a barrel, and we are now about 45% hedged for H1 FY 2019 at about $48 a barrel. We expect, though, however, that these fuel savings will continue to be passed back to Ryanair customers in the form of lower fares. We remain very concerned about Brexit and the continuing uncertainty over the terms of the U.K.'s departure from the European Union in March 2019. We continue to campaign to persuade the U.K. to remain in the EU Open Skies agreement.
We caution that if they leave the Open Skies agreement, we worry that there won't be sufficient time or goodwill on both sides to allow a bilateral to be put in place between the U.K. and the EU 27 in time for September or October 2018, which would allow us to roll out the summer 2019 schedule. In those circumstances, we think there may be a disruption to flights for a period of weeks or months after March or after April 2019 onwards, and we are certainly campaigning to try to avoid any such disruption. On balance sheet, our balance sheet remains one of the strongest in the industry. The board has approved a EUR 600 million ordinary share buyback program. In Q1, we spent about EUR 165 million under this program at an average price of EUR 18.20.
We also purchased almost EUR 40 million worth of ADRs under the Evergreen ADR buyback program. Despite this spend of over EUR 200 million on buybacks and CapEx of over EUR 400 million in Q1, we still reduced our net debt position by about EUR 150 million from EUR 244 million at the end of March to EUR 94 million at the end of June. On outlook, as previously guided, the Q1 results were substantially boosted by the presence of a very strong Easter in April, but not in the prior year comparable. The H1 outcome remains heavily dependent on close-in Q2 summer bookings, and we continue to guide that the H1 fares will be down about 5% as we grow traffic by almost 11%, and checked-in bag revenues are steeply declining.
Thanks to the higher Q1 load factors and the completion of our summer sale winter 2017 schedule, we're now raising the full-year traffic target by 1 million to 131 million. Ex fuel unit costs are on track to deliver a 1% reduction this year. Our fuel hedging program should deliver savings of EUR 70 million, As I said, these will be passed on in the form of lower fares. Ancillary revenues continue to grow in line with traffic, as we discount pricing to drive increased penetration. Based on all of these factors, we continue to think it's sensible to guide for an unchanged profit after tax for FY 2018 in a range of EUR 1.40 billion-EUR 1.45 billion. This guidance remains heavily dependent on close-in summer bookings, H2 average fares, and the absence of any further security events, ATC strikes, or negative Brexit developments.
I'm going to ask Neil to take you through the slide presentation before we open up to Q&A.
Thank you. Thank you very much. Ryanair has the lowest fares and the lowest costs of any airline in Europe. This year we will grow by 9% to 131 million customers, making us again the number one airline for traffic. We're number one for choice and coverage, with 86 bases in over 200 airports dotted around Europe. Our customers enjoy number one customer service. We're now in the fourth year of the Always Getting Better program. As a result of all of the above, we have 240 aircraft on order, which will see us grow to 200 million customers by March 2024. Our average fare last year of EUR 41 is significantly lower than everybody else, on average about 230% cheaper than the high-cost comparators. The reason why we can have such low fares is because we have the lowest costs.
Our unit cost, ex fuel, in the year ended March 2017 was just under EUR 27, or a 5% reduction on the prior year. We're forecasting a further 1% reduction this year, thus widening the gap between ourselves and everybody else at a time when they're talking, at best, of flat unit costs, but in most instances, rising unit costs in their business. Our base network is unique to Ryanair. We have 86 bases dotted around Europe, over 200 airports, the majority of which are primary airports. We operate into 33 countries and have over 1,800 routes in the entire network. We enjoy strong market shares across Europe, where we're typically number one or number two, We're seeing massive opportunities to grow as airlines restructure across Europe.
In the quarter just ended, profit was up 55% to EUR 397 million, although this was boosted by a strong Easter in April. Passenger numbers or customers increased by 12% to 35 million customers with a record load factor of 96%. Unit costs are in a very good shape. We're down 6% within the quarter. Earnings per share, which is boosted by the buyback programs that we've been undertaking, we're up 63% to just under EUR 0.33 per share. Our balance sheet remains one of the strongest in the industry, where we saw our net debt drop by EUR 150 million at March 31 to EUR 94 million at the end of the quarter. This is after EUR 200 million on share buybacks and CapEx of just under EUR 400 million.
On current developments, our low fares and AGB are driving our passenger numbers, where we'll deliver 131 million customers in the current year. We see significant growth opportunities in Italy, Germany, and elsewhere. In the quarter, we added 10 new Gamechanger aircraft to our order, just bringing us up to 110 firm orders and 100 options. We're well through our buyback program, with 45%, more or less, complete at this point in time. As I indicated, 131 million customers in the current year, thanks to AGB. We also expect to see our numbers grow to 200 million customers by March 2024, thanks to our low fares and our Boeing order. Connecting flights have been rolled out to a second base in the quarter, with Milan Bergamo now joining Rome Fiumicino for connecting flights within the Ryanair network.
We're connecting up 20 airports out of Milan and have lots of opportunities to grow. We would expect to have a third-party long-haul partner by the end of this year. In relation to the MAX order, we've added 10 additional MAX Gamechangers to our order, bringing us up to 110 firm and 100 options within the order. The first of these delivers in the spring of 2019. It'll deliver eight extra seats, which enables us to spread our costs over more customers and enhance our ancillary opportunities. It's 16% more fuel efficient per passenger and has 40% less noise emissions. In relation to Brexit, this continues to be a big area of uncertainty, particularly with the volatility in currency, which we've seen in the past quarter, and indeed, into the summer period. In a best case scenario, the U.K. will remain within Open Skies.
A hard Brexit looks a bit more likely at this stage, which means we need bilaterals to be in place between the U.K. and the EU 27 by the end of March 2019. There's a good chance that there may not be flights for a period of time between the U.K. and the EU. In relation to our guidance for the full year, our passenger numbers will be up 9% to 131 million customers. Fares, we believe, will be down in the region of -5% to -7%. As previously guided, they'll be down -5% in the first half, and with very limited visibility into H2, we're guiding fares down as much as 8%. We believe that checked bags will continue to see penetration drop. Where we were previously seeing penetrations in the 20s, we're now looking at penetration somewhere around 16% today.
Our fuel hedging, after adjusting for volume increases, will deliver a EUR 70 million saving, which we passed on in lower fares. Our ex-fuel unit costs are in good shape, and we expect to see a 1% unit cost reduction in the current year. As a result of all of that, we're maintaining our guidance of profit in the region of EUR 1.40 billion-EUR 1.45 billion on a full year basis. However, this is highly dependent on close -in summer bookings, the fare outlook for H2, the absence of ATC strikes and security events, and of course, Brexit developments. With that, back to Michael for Q&A.
Thanks, Neil. Well done.
Thank you.
Q1 profit after tax rose 55% to EUR 397 million. Why?
Number of reasons in relation to that. Firstly, passenger numbers up 12% to 35 million customers, as we had a 96% load factor. Our average fares were up 1% in the quarter, unit costs were down 6%. I have to say, however, that the numbers were somewhat distorted by a very strong Easter in Q1, and the absence of same at the same time last year.
Average fares are up by 1%. Why?
Well, again, as Neil has said, April was very strong. We had the entire Easter in the month of April. I think that masks an underlying softer yield trend. As we move into Q2 and the remainder of the year, we have lower checked-in bag revenues. Our checked-in bags are in the yields. We have adverse sterling, we have seen certainly lower prices since the three security events, one in Manchester, two in London in recent months. We're seeing softer pricing into the Q2, I think that will characterize the overall pricing in for the remainder of the year. Why did fuel fall 1%?
This is primarily down to our better hedging in the quarter.
How did ex-fuel unit costs perform in Q1?
E x-fuel unit costs were down 3% in the first quarter. When I compare that or contrast that with Wizz's report last week of unit cost up 3%, this for a company that claims it's going to close the gap or will have costs as low as Ryanair. Yet, like most of our competitors, they talk a good story on cost, but when they report, it's usually cost up. In Ryanair, unit costs are still falling. The gap between us, Wizz, and all of our competitors is getting wider, and I think that underpins our model well into the future. Why are airport and handling charges up 11%?
It's primarily due to a 12% increase in passengers in the quarter, offset by lower costs at many of our airports and indeed a slight sterling benefit as well.
Why are route charges up 7%?
Because the number of flights operated rose 10% and we had the benefit of some Eurocontrol price reductions in markets like France, Germany, and the U.K. in the quarter. Why are staff costs up 10%?
Yeah. This is below the 12% increase in passenger numbers, and it's primarily due to a 10% increase in sectors, a 2% pay increase that we awarded our people back in April, and some positive GBP translation impact on the U.K. payroll.
Why is depreciation up 11%?
Because we added 50 more owned aircraft in the quarter. Depreciation growth of 11% is less than the 12% growth in traffic. Why is marketing, distribution, and other up 15%?
Key drivers of this are the EU 261 compensation, passenger compensation just increased, and indeed the input costs which are rising in line with our increased onboard spend.
Why is maintenance materials and repairs down 13%?
We had fewer leased aircraft, and we had no handbacks or lease handbacks in Q1. Why did the finance expense decrease by 15%?
Lower interest rates, and we're seeing the benefit of our low cost financing coming through.
Why is finance income down by EUR 0.7 million?
Because of lower interest rates. What is your fuel hedging position?
Well hedged. We're 90% hedged for the current financial year at about $49 a barrel. As we look into next year, for the first half of FY 2019, we're about 45% hedged, $48 a barrel.
Ancillaries rose 13%. Why?
Ancillaries are up 1% more per passenger in Q1, although I think that's slightly overstated. We expect ancillary spend per passenger to be constant over the full year as we try to increase penetration by being more aggressive on pricing. How many myRyanair members do you have?
We've got 27 million members at the moment. We're well on track to increase that to about 35 million by the end of this financial year.
How many app downloads?
Currently, we've just over 23 million app downloads. We'd be hoping to get to about 30 million by the year end. Is there any change to the ancillary per passenger target for FY 2018?
No, we're comfortable with the broadly flat spend per passenger. As we reinvest in various products, we've seen growth in the likes of reserved seating and priority boarding due to discounting, and we're also investing in the likes of Ryanair Rooms and Ryanair Holidays.
What is net debt at quarter end?
Net debt is just under EUR 100 million, and we've reduced that by EUR 150 million in the first quarter, despite the fact that we spent almost EUR 400 million on CapEx and EUR 200 million on share buybacks. How is the EUR 600 million buyback progressing?
It's going well. We're about 45% of the way through at this point in time and well on track to be done by the end of October.
Have you bought back any ADRs in the EUR 150 million evergreen program?
Yeah, we bought EUR 39 million worth of ADRs during the quarter. What are the details of the new MAX order?
We've ordered 10 additional aircraft, so this brings us up to 110 firm and 100 options in the aircraft order. The first of these will deliver in the spring of 2019. It'll be five aircraft coming in for summer 2019, and we've an additional five coming in the spring of 2020.
Have you done any further hedging on the 737 MAX?
We've now hedged the currency exposure on all the firm orders for our delivery through from FY 2021 to FY 2024. We have hedged some of the CapEx for FY 2020, and all has been done at a rate of just over $1.20 to the euro. What is the likely outcome of Brexit on flights to and from the U.K.?
It's probably a little bit too early to say at this stage. If we see a heavy or hard Brexit, and no bilaterals are in place in advance of March 2019, there's a chance that there may be suspension of flights for a period of time from April 1, 2019.
What about your U.K. domestic routes?
We've three U.K. domestic routes. In a hard Brexit, we believe we, as a European airline, we wouldn't be allowed to operate U.K. domestic routes. A couple of alternatives there. Either we close those three routes, it's less than 1% of our capacity. We take a minority stake in a U.K. AOC holder that would continue to operate those routes under some license from Ryanair. We'll continue to therefore be flexible depending on how the Brexit discussions transpire over the next 18 months. Has Brexit affected U.K. consumer behavior?
Yes, it has. Sterling's an awful lot weaker than it was this time last year, so we're stimulating customers with lower fares, as a load activity would be across the airline, however we will absolutely hit passenger numbers. That's not an issue.
What about your U.K. shareholders post-Brexit?
Yeah, we have about 20% of our share register we think are U.K. nationals. Some of those, which will be institutions, may be able to move their holding or reallocate their holding out of the U.K. Other than that, there may be two options. One, you disenfranchise those U.K. shareholders, so you limit their ability to own or control. We force them to sell their shares, which would facilitate certainly further share buybacks on our part. What will Brexit mean for your growth plans?
It'll have no impact on our growth plans. We still have ambitions to grow to 200 million customers by March 2024, that's going to happen. It just may mean that we will do so in mainland Europe, where there's lots of opportunities with restructuring going on at the moment, and move some growth out of the U.K.
How was on time performance in the quarter?
Q1 on time performance was up two points from 87% last year to 89% this year. I'm still not happy with that performance. We would want to have the operating in the 90 percentile. Nevertheless, it is an improvement. We have struggled, I think, with thunderstorms over Europe and occasional air traffic control strikes. EasyJet are closing their Hamburg base in March 2018. How is Ryanair's Hamburg base performing?
It's performing well. We opened it in November just past. We've got 25 routes, and we're very pleased with the way it's going at the moment.
Is there any update on the feeder plans?
Not really. We're now doing connecting flights on the Ryanair network at Rome, Fiumicino, and at Milan Bergamo. We've begun selling Air Europa's long-haul flights from Madrid, but we don't yet connect or feed into those yet. We are working with their IT people to get the IT systems to talk to each other. Once we get to that, I think you'll see us offer connecting flights through Madrid onto Air Europa, and that would be a precursor, I think, for other feeder arrangements, maybe with Aer Lingus and/or Norwegian. Is there any change to the FY 2018 profit after tax guidance of EUR 1.4 billion-EUR 1.45 billion?
We're sticking with that after a strong Q1, which was boosted by Easter as previously guided. Fares are dropping into Q2, and we believe into the winter period. We will see the decline in bags most likely continue into Q2.
How are forward bookings into the peak summer performing?
They're marginally stronger, up about 1% on the same time last year. I caution at lower fares into Q2. What are the components of your full year guidance?
We see passenger numbers increase by 9%, 131 million customers, which is 1 million ahead of previously guided. We believe average fares on a full year basis will be down -5% to -7%. Unit cost ex fuel, we believe will deliver savings of approximately 1%, and we'd have EUR 70 million savings on our fuel bill, which will be passed on to our customers in lower fares.
With passengers increasing 1 million to 131 million and 10 new aircraft ordered, will this increase your 200 million passenger target for FY 2024?
No, not really. We would expect there may be minor adjustments to the passenger target going forward, but to the extent that we're taking some 10 additional new aircraft, it may release the resale or the return from lease of some of the older aircraft. At the moment, it's far too early to adjust the 200 million passenger target for 2024.
Can Ryanair retain its cost advantage over other airlines?
Absolutely, we are. After a 5% unit cost reduction last year, we're targeting a further 1% unit cost reduction in the current year. Key drivers of our cost savings going forward are the 86 base agreements that we have in place across the Ryanair network. We have got discounts coming forward on all of our airport deals, both primary and secondary alike. We're financing our aircraft very cheaply. Indeed, we've got the first of the Gamechanger aircraft delivering in the spring of 2019. These aircraft will deliver eight extra seats, 16% more fuel efficiency per passenger, and 40% noise emission savings.
Michael O'Leary, thank you very much. Thank you.
Pleasure. Thank you.