Half Year 2023 Ryanair Holdings PLC Earnings Call
Welcome to the Ryanair H, one FY 'twenty Free result conference call throughout the call participants will be in listen only mode.
Sophie I question section.
During the Q&A in the interest of time and fairness, please limit yourself to two questions kind of attacks.
Just to remind you this call is being recorded.
I am pleased to say, Mike Library pieces that you mentioned.
Okay. Good morning, ladies and gentlemen, you're all very welcome to the Ryanair half year results conference call I'm in London today.
Most of the team Eddie Wilson is in Dublin with another portion of the <unk> is in New York All joining controlled this morning, I'm going to take the results and the MD&A and everything else is red so the way to maximize time for the Q&A here couple of quick themes I would point you to the slide presentation on the website I think the.
Two key issues coming out of Covid and coming out of the half year is slide four which shows the unit cost ex fuel gap widening considerably between us and every other airline in Europe , we went into Covid with a unit cost ex fuel at 31 Euro as we come out of Covid and that number is.
Slipped down to just under 30 euros, whereas almost all of our EU competitors have emerged out of Covid with significantly higher ex fuel unit costs are rising and that gap is widening I think that's one of the reasons why we're seeing such a strong.
Recovery in Ryan here. This summer, we had and we were fully staffed into the summer we operated at 115% pre COVID-19 capacity fairs at the first quarter were under pressure because of the Ukrainian invasion, which damaged Easter but into the second quarter. The September quarter, we've seen traffic growth of a 11% 12%.
Possibly go to 15% per airfares average fares were up 14% in the second quarter, we don't expect that to continue into the winter, but we have been quite surprised at the strength of forward bookings into the third quarter. We had a very strong October mid term Christmas looks strong both the volume and that the average fare level. This began.
Bookings were stronger than the previous weekend bookings, which is remarkable.
Given all of the kind of coverage of recession inflation consumer price.
Pressures I I I think we're seeing something at the moment I don't know how long. It continues but we are seeing one and I would point you to slide 10, which is competitors cutting capacity as Ryanair Grove, we're going into the second half of the year to December and March quarter operating at 110% of pre Covid capacity all of our.
Competitors are still running at less than their pre COVID-19 capacity. The one exception being the small smaller Hungarian airline, but our experience with them in recent quarters has been that they talk about offering capacity, but then they frequently and close in so that they actually operate probably only 10, 15% more than pre COVID-19, but off a much smaller.
Based on what we're seeing at the moment I think as it is a combination of three things one a lot of people booking with Ryanair because we had delivered a very reliable service. This summer and they know they can trust us to not cancel the flight and we'll get the baggage in the fight there more on time without risk of cancellation too, we're adding capacity we're taking.
Big market shares across Europe in all markets, because we have add new aircrafts fuel efficient aircraft and we are still growing at a time when others are cutting capacity and three we have significantly lower airfares than the competition.
And I think if that continues through this winter we could have a very strong winter now we're still forecasting we could lose something between 100 $200 million. This winter, we still have challenges out there. We've had a very strong first half of the year, but I think if we get through the winter with strong growth, 10% pre co.
With a reasonably strong pricing performance and we have no disruption from Covid or Ukraine, then I would hope we would be at the lower end of that hundreds to 200 million lost in the second half of the year, but it will still be a loss.
But that would leave us in a very strong position going into December 2023, when we think.
With the likely recovery of Asian traffic coming to Europe , the Trans Atlantic.
<unk> is very strong given the strength of the dollar the strength of the dollar will keep more families at home holiday in Europe next year, because the council Trans Atlantic given the strength of the dollar and I think we're looking at a year if the Asian traffic returns to Europe next summer 2020 could well be quite strong and we would hope to see a second year of mid <unk>.
High single digit fare growth, which would help us paint bar the higher oil prices.
So.
We're seeing continuing strong recovery we're cautious.
The second half of the year remember this time last year, we were looking into very strong Christmas and omicron emerged out of South Africa in the last week in November and canceled Christmas we were looking at a very strong Easter and then Putin invade Ukraine and that kind of crushed Easter and also damage our central eastern European traffic for a couple of months, but we have recovered very strong.
The out of that in a marketplace, where most of our competitors were challenged on the staffing side. This summer they still haven't restored their pre COVID-19 capacity most of them are not as well hedged as we are on fuel or on the dollar and I think the dollar to strengthen dollar is going to be a key challenge for EU Airlines for the next couple of years, whereas Ryan.
<unk> has fully hedged our capex on all of the new aircraft deliveries out to 2026, we're well hedged on our Opex for this year and into next year and we have.
In a market, where we've been widening cost leadership over everybody else. So.
I think where we have reason to be proud of our recovery in the first half of the year I think we want to recognize the contribution of our people have played in that we've been in communication with all of our Union partners there over the weekend.
Confirming that we're going to restore bring forward to pay restoration from April 23 to December 'twenty two.
Over 90% of our pilots and cabin crew are covered by those pay restoration on pay agreements with drone out to 'twenty six 'twenty seven but.
By bringing it forward. It means they will all go back to their pre COVID-19 fully fully pay restored in the Christmas payroll and Theres a couple of smaller unions out there the Belgian pilots the Irish pilot, who we have invited to retard to pay restoration negotiations for various different reasons.
None of which are really explicable. They are continuing to deny their members to pay restoration that over 90% of our pilots and cabin crew have agreed elsewhere in Europe , but that's a matter for them, we would like to see the pay of our Belgian and Irish pilots for store pre Christmas, but it can't be done unless the unions to agree a payer or a medium term pay agreement.
Everybody yes.
With that said I think we are the only other kind of blemish on the horizon is Boeing.
<unk> 51 aircraft from the <unk> before the end of April next year, we do not think we'll get those 51 aircrafts.
Having come back from Seattle, two weeks ago, I'm hopeful that we'll get between 40 to 45 aircraft by the end of June we will not take aircraft deliveries. After the end of June because we can't put them on sale for the peak period, but if we get between 40 to 45 aircraft by the end of June I think that still puts us on track to hit our 185 million passengers.
Either for FY 2024, there is some concern out there that we have higher oil prices next year, we paid 50% of our fuel bill at $93 a barrel I think there's a reasonable prospect if theres no negative news flow out of Covid, new created this winter that actually fares will be modestly up into the summer of next year, because we will still be short.
European short haul will still be short capacity compared to pre COVID-19, but there will be stronger demand because of the strength of the dollar and the return innovation traffic at all and all that leads us this year to restore guidance.
Cautiously guiding I returned to full year <unk> of between 1% to $1 2 billion, which is just about where we were pre COVID-19. That's allowed us have given us the confidence to restore pay decided to Christmas, but it could still be derailed if theres negative news flow on Covid, our Ukraine. This winter, therefore, I'd like everybody to be keep their feet on the ground and remained.
<unk>, but there's no doubt that ryanair the management team and our people have recovered faster stronger and better than any other airline in Europe , and we would expect that outperformance to continue Neil do you want to add something maybe touch briefly on that I think particularly currency dollar hedging and.
Capex base.
Yes balance sheet as well.
Before I get into like the balance sheet has performed very well, but we finished the quarter with $4 6 billion in cash and importantly, our net debt dropped from $1 5 billion to just over half a billion and that was with voice.
Nearly $1.900 billion in Capex in the first half of the year.
As Michael has already said hedging we're in a very strong position there, particularly on the Capex are hedged at the end of the order book at Euro dollar $1 24, which compares very favorably to 98 <unk>. This morning.
Yes. After the second half of the year, we're 87% hedged at just under $70 a barrel.
And I'm, a well hedge 115 on the Euro dollar for the second half of this financial year on about 20% hedged on the Euro dollar rate into next year with 50% of our our jazz hedged away at approximately $93 a barrel I think it's important as well to know staff.
We own all of our SAPIEN three seven aircraft that are unencumbered and in a rising interest rate environment, and where lease rates are going up we won't have the challenges of other airlines out there, which again will help from a cost perspective over the next number of years.
Michael let that that's about all I want to ask.
Okay, that's fine and Eddie maybe I don't know.
You want to give us a quick couple of lines on the outlook for growth.
To this winter and into next summer.
Yes.
Unlike our competitors we plan to grow.
10% is winter plenty of opportunities out there, which are long term.
Low cost deals with our at our major our major hubs and stats at charter.
Bergamo, and we continue to leverage and lower cost.
At airports.
Those airports, which are an increasingly smaller proportion of the.
The spread of airports that we have there if you've got cost increases will be rewarded with any capacity growth.
Whatsoever, and we have an excellent pipeline of.
People joining from pilots and cabin crew to support that to support that growth over the next number of years. So.
Yes.
Michael will say theyre going to make very good strides this weekend I think thats really it.
Function of.
Less capacity with our competitors and also I wouldn't underestimate the story of reliability. It was in the UK the last week.
Sure.
Extending our sales environment.
The background over there is that we're the most reliable airline and I think that's feeding into bookings.
Okay, and do you want to touch retail maybe ask Daryl will give you the quick briefing on how they did did just the flavor of the discussions with the unions over the weekend went on the pay restoration.
Okay.
Yes, I mean.
They've done quite well, we breached the Europeans.
Sure.
We have what we have is that we get into discussions from April last April <unk> whereby.
We pushed out.
And PE deals for the next two to three years as 2026 in some cases 2007.
We were able to restore pay earlier that was going to come in in April where there was normally going to be a review call. So there today on the back of <unk>.
Operational performance, we think it's the right thing to do the right time, even though there is uncertainty over the winter to get paid fully restored for all of our people who license already referred to the.
The two countries, where we still need to do that I'm pretty reasonably confident that we can do it at the same level and get that up to a 100% but that is a matter.
For the year for the two unions there.
So there is predictability.
Pay over the next three to four years, yes. It was positive generally speaking the unions came back very positively.
The idea is that it was actually.
I thought it was brought forward from April into the Christmas payroll I think was welcomed.
Okay, Alright with that let's open up to Q&A, Please where tight for time. So we're limited until about 11 or just after 11 o'clock with various people have to go to meetings, but that's one we're keeping as tight as we can please.
Thank you. Our first question comes from the line all Xiaomi rigor for mats.
Please go ahead you are monetizing.
Good morning, guys two for me firstly on the non fuel unit costs.
The move on pay restoration is clearly a commendable one can you give us a rough estimate of the incremental cost to Ryan arris, bringing that forward clearly you've had some baked something into your full year guidance today, and perhaps you could tell US why you think it leaves you on non fuel unit costs for the year to March 24 second question, Michael You mentioned.
Fast could still be up next summer potentially offsetting fuel if that stays high do you mean.
First up Y O y.
Some oh or still up versus pre crisis and within that any better.
Areas, where the supply demand imbalance is giving your particular confidence or areas, where you're less confident thanks.
I'll do the payers need and maybe you do the the non fuel unit.
In terms of fair. Thanks, an awful lot of waiting around for speculation here, but you know theres no doubt in my mind.
Dan.
Point, you to slide 10, where you see what we're competitive cutting capacity. This winter you have lufthansa operating at 80% pre Covid IAG, 87%, 85%.
Any easy get at 90% I mean people are unhedged are significant unhedged fuel. This winter oil is an increasing cost and people are I think sensibly cutting capacity into the winter you know the days of land grabs and fighting for growth are over.
People are much more sensitive I think managements of European Air that's a much more sensible now even ways, who are diverting all of their growth out into the middle East and further away to avoid competition with Ryanair is good sensible strategy.
And I think that's likely to lead to what we if we go through a winter where there is we are meaningfully shorter capacity in short haul Europe is operating at 80% to 85% of pre Covid Ryanair is operating at 110% to pre COVID-19 with load factors in the low 90 percents.
That creates I think a space into next summer.
Thank you.
Reasonably optimistic that fares will rise and I think it's year on year Dahan pre crisis, we're already up on pre Covid fares I think varies the rise year on year by another I would say mid to high single digits through next summer that's driven by two things one Easter is in Q1 next year. So that gives you a <unk>.
Strong springboard through Q1, I see I can see no. Other alternatives that there was going to be very strong demand for our holidays families traveling abroad next summer within Europe .
Asian travelers would hopefully recover and that will underpin short haul connecting traffic on the legacy carriers the trans Atlantic market is incredibly strong.
And while there's some short term concerned about inflation recession and caught me try booking of getting a whole day, a restaurant booking a hotel in London, Dublin, most of the European cities that we're still at full employment and people are still spending.
Uncertainty this Christmas is going to be very strong and if we have Easter in Q1.
Reasonably strong a robust Q2, I think it's I think very reasonable to president <unk>.
Predicted that certainly for the first half of next year, especially if oil prices spot jet stays up at around $110 a barrel.
There will be significant upward pressure on oil on airfares with less than pre COVID-19 capacity recovery across Europe age in December 2023.
That's my view and I think.
As long as there is no adverse developments on Covid are you create this winter than I think the trends we are seeing this summer and into the third quarter will continue into the board into the fourth quarter and the first two quarters of next year.
Neil maybe you would've come to the non fuel unit cost development.
Yeah, sure Jeremy I'm, not going to give exact figures around what the payroll is going to be over the second half of the year, but we have previously guided that unit cost next year will be approximately 31 in the current financial year, we're not deviating away from Nasscom seems slightly lower load factors into the second half of the year and we'd see that step up on the on the staff cost.
Route charges.
Well that we're sticking to that party one and then we get the extra game changers into the fleet next year, we hope to start seeing unit costs ex fuel coming down again.
Thanks, guys. Thanks, Nick next question please.
Thank you that comes from the line of Alex.
Please go ahead your line is open.
Alex Hi.
Good morning, gentlemen, two from me. Please so first of all taking it on staff cost a little bit I thought your unit staff cost went up between Q1 and Q2, even as productivity rose looks like he was about five years 16 seat in Q1 and six euro in Q2, I am wondering whats behind this we you rupturing extra Alice this summer to handle potential ATC delay.
<unk> is it is it change in pay levels, if there was something else.
My second question, please I'd say looks like that one yet.
Yes.
Thank you.
It looks like it's starting to hit a new sort of steady state growth in the low single digits annually do you have the ability to and to accelerate this either by pricing up closer to inflation by introducing any new products, what the size of the opportunity here going forward. Thank you I'm sorry, Alex just wanted knee Atlanta, you broke up at the start of the second top of that the <unk>.
Second question you just repeat the second question. Please.
Salaries, what growth opportunities do you have going forward. It looks like we're starting to normalize it at low single digit growth per passenger per annum.
Yeah, Okay, and you used channels with ancillary okay, yes sure on the staff there. There's a number of factors. There. Yes, we were ramping up those aircrafts came in and we also had seen the likes of the payroll supports rolling off and the starts will pay restoration, which we agreed with people.
Starting to kick in over the course of the summer. So it's a combination of all of US which led to the increase in obviously increased activity increased sector pay for people.
And then of course, we now have the full pay restoration.
Balance over the coming into the second half of the year.
And all the ancillary is I think youre right I think we expect it to normalize now.
Growth of low single digit under per passenger basis, we're still seeing a conversion on the big ticket items are priority boarding reserved seating we are beginning to yield manage some of that with some degree of success.
We are still seeing a strong recovery, but there's more to go on the inside sales, particularly with duty free and 40% of the flights are operating to and from the U K.
We're still struggling with the kind.
Kind of supply issues or some of the <unk> bar providers are doing.
Judy providers.
The supply is a bit hit and Miss we will spend I think that this winter trying to sort out the labor staffing at our.
The in flight suppliers.
Having a much more reliable delivery of Judy three supply and product.
Having a lot of sellouts in some cases stock outs on some of that so.
So I think there's more to go but I think it's reasonable for the next two or three years to expect modest low single digit growth in ancillary per passenger.
Excellent.
Thanks, Alex next question. Please thank.
Thank you that comes from the line of Savi system that Raymond James. Please go ahead. Your line is open.
Hey, good morning.
Quickly on the <unk>.
Fiscal year 'twenty for capacity growth I'm, just wondering if you could talk about what your expectations there.
And then you mentioned you think you can hit that 185 and clarify the 10 Max delays that you have does that mean you have a range for next year or you can hit utilization or something like that to get there.
And then just a second question just beyond strong demand are you seeing any new booking patterns that are showing up in your numbers always disconnect.
Environment is strong as you pointed out capacity.
And the demand is strong.
Let me start with the second one first because I think there's a couple of new trend, but how sustainable. They are we're not sure. Firstly, we have a much bigger market shared a lot of European markets. So we're seeing much more even much bigger.
Positioning the Spanish domestic easily domestic Ireland UK to Europe , but we're growing strongly particularly in the provinces.
We're seeing I think stronger off peak demand and pricing in those domestic markets, where you know its not subject to leisure, it's not pleasure it just kind of continuous year round.
Traffic, particularly in markets, like Italy, where alitalia and retreat with are in retreat.
The Ana we're growing strongly again level wage of all recruited out of Vienna.
And we think that will continue.
We are undoubtedly then benefiting but certainly in the short term from a very strong reliability. This summer, giving us a kind of blow of being a more reliable provider competitors cutting capacity strongly this winter at a time when we're expanding capacity.
And I would suspect maybe we're seeing the beginning of people, becoming nervous about a recession consumer price index inflation et cetera that may be more and more people are beginning to turn to the lowest cost provider, which in air travel is ryanair in Europe , the kind of Ikea.
Those are all the effect and I think that will continue or not how they pay out we don't really know, but certainly I think it's fair we have been surprised by the strength of bookings and pricing coming out of the peak summer period through we expect it to tail off a little bit of I'll have to get more aggressive on pricing through September we didn't.
October we didn't delete in November at the moment, we still haven't done any great seat promotions and we don't have too but.
Dan.
I would argue that fragile and if we haven't omicron or Ukraine, or some negative development that could fall over very quickly. So I think we're right to be cautious if we get through to the spring without any negative developments that we could have a reasonable second half of the year, but we should be cautious rather than optimistic.
Some are 24 capacity.
If Boeing delivered 40 to 45 aircraft instead of the 51.
It is just about hit the 185 million passengers, we will get a little bit more aircraft utilization.
We are opportunistic we've done a deal for one additional LNG that's being offered back to is that we used to operate on an operating lease we've got a long term low cost lease rate on that the load factor will probably go up maybe 1% next summer. So there is a combination of different things, but we won't kill ourselves to get to a 180 <unk>.
The polling leave a shortage of aircraft and we have to come back to market look it would be 183 to 180 482 million passengers that is what it would be.
We would be more mindful next year.
We continue to recover our business that we continue to.
Carey people across Europe , particularly during the peak period Q1 with Easter in Q2, but air fares that are up mid to high single digit I don't think we'll get a second year of double digit, but certainly single digits.
Mid to high single digit is entirely rational and reasonable next year as long as there is no outside our adverse outside factors.
And with a mixture of aircraft deliveries from Boeing timing of those deliveries aircraft utilization and a bit more on load factor, we could still get to from $168 million this year to $185 million next year.
Thanks Savi next question please.
That's from James Hollins at BMT powered by James height.
So how are you doing.
One for you one for Neil Welcome Neil is on the on your little video that road it seems.
Seems to be very clear that you plan on just using cash to repay the bonds in the next nine months I'm just wondering just to nail on what's the right liquidity level for <unk> going forward as we come out of Covid and on my right and thinking it looks like cash was the refi and then the second one probably for you Michael.
Again on <unk>, you are talking about 110% capacity. This winter, but you sort of hinted at a bit of schedule and productivity improvements around higher we can capacity maybe flattish on the weekdays just let us know what you're doing on that please thanks.
Okay.
Firstly I'll ask you rather than take the second one on that the winter my mic adjacent to get into here as well to give some commentary on that as well so new uses of cash okay. James Thanks.
The use of cash for the next 12 to 18 months is paying down those bonds and <unk> capex.
If there is an opportunity in the market to do something at very low levels, we look at it but the working assumption very much that we will use the cash in.
We want to get down to that <unk> net.
Zero debt position by the end of next year, we still like holding a fair bit of cash in the on the balance sheet before six volume sorry, $4 6 billion at the end of September not sure if it needs to be $4 6 billion.
Infant item, but it is important to have somewhere between kind of three and a half of $4 billion.
On a long term basis in case, either hits like Florida shops over the next number of years.
Yes.
Just to point out of that $4 $6 billion at one six of that is for debt repayment next year and then we're in peak Capex. So we're spending about $2 billion a year like it's we don't have $4 6 billion spare lying around.
Uses for that but.
The opportunity, but we're paying we would pay down bonds next year that are funded at one point to one 5%. If we were to refinance at the moment, we're even for US. We're looking at five 6%. So I think and plan our interests as an airline to pay down debt, while our competitors will either be looking at additional equity raises are refinancing bonds at that.
Markets that have moved materially adverse.
So it's more sensible for us to use the cash and pay down debt Eddie.
Yes, I think there's two points there just on the <unk>.
Utilization.
While we made some strides this summer of utilization given.
Given the backdrop.
ATC a lot of effort or eaten up into longer hours, which are clearly as we would know about and start basis.
We're able to do that in the winter, Tim tweak up the utilization adhere to those aircraft and also we have moved a couple of percentage points. When you look back to where we were back into particularly 2018 on the proportion of clients moving out of the Tuesday, Wednesdays and maximizing the number of aircraft at the weekend.
Higher yielding flight so nothing radical there, but just.
That shift to the shift to the left.
The ability to be able to do higher utilization in the winter time, and then that shift into.
As we begin to weekend flying.
And maybe I'll have Jason Mcginness here head of commercial you wanted to comment on the kind of profile update the winter schedule lighter midweek heavier weekend, yes, James So we spend a lot of time, because we've seen such a lot of time. This summer preparing for winter in terms of focusing the growth on weekend traffic historically, we would have slowed and about 40% of our winter capacity on midweek.
35% this year so.
We can traffic is up to 65%. So that's been hugely beneficial in terms of yields and load factors.
And contributing to our strong Q3.
That continues on through the rest of the winter as well so it's been hugely beneficial this winter and something we're going to try to improve.
Next next winter as well.
Also has crew utilization.
Got it good crew utilization.
By flying people over four or five days to julie's across weekend, rather than having them sitting around on Tuesdays and Wednesdays rostered on home standby. So generally speaking more efficient we couldnt do that if we were having a big land grab our capacity wars with other airlines, but the fact is that all the others cut back this winter and we grow it gives us.
Allows you to kind of target our growth.
On the days of the week or the weekend some people want to fly rather than just having to be very aggressive on capacity and pricing in the middle of the weakened again, we would hope that that will translate into a better than forecast performance in the third and fourth quarters, but again caution fourth quarter, no Easter and the third and fourth quarter are hugely exposed to any adverse.
Negativity on Cobra are you create next question. Please.
Thank you that's from Susan said, along the baby.
Stephen Hi.
Hi, Michael just go through again slide for there in terms of the ex fuel costs in terms of where you see I mean, it's a big team of course inflation of our cost base across not just the sector, but other sectors. So that's not hopping in Ryanair just go through that again and then secondly on Boeing just talked to you in about your relationship there how is that.
Boeing what what they're doing or through U S. Airlines for example, calling for.
Some resolution on the Max 10 in terms of what's happening there. Thanks.
Thanks, very much okay, having very very briefly if you run through slide four what we've seen at <unk>.
Third to pre Covid.
We've done an update on based on the half year.
So our disclosures of the of the main competitor Airlines has been a huge widening of the gap all unit costs.
<unk> been significantly more efficient than other airlines and airports and handling costs are materially lower our ownership and maintenance costs are.
Very materially lower than with easy jet EBIT southwest in the states.
GAAP seems to have widened quite dramatically during COVID-19 as we emerge out of Covid, we had the benefit of the <unk>.
Sensible kind of pay cuts that we agreed in return for keeping people currently unemployed during COVID-19. Some of our competitors were understaffed. This year and went out with panicked pay increases and desperate deals sign on bonus to get people to join we have negotiated a sensible extensions of long term growth and traffic recovery.
At airports, we're not exposed as many of our competitors are to kind of monopoly airports of gap Inc. Shares the goal, Switzerland. Some of the eastern European capital City airports, where they are price takers. We are very aggressive we've close basis. This summer we've closed Frankfurt main we have.
Sure.
Until we close this winter again in the face of.
Cost increases at a time when there are those airports were facing traffic declines. So we continue to be very disciplined and that means you know.
If you take most of our biggest base Stansted Bergamo shot about we've extended our tropical deals. They are over the medium to long term many of them now run out to 'twenty to 'twenty eight 'twenty 930.
Ownership and maintenance cost line that was going to be the seismic difference post COVID-19, we own all of our fleece, 90% unencumbered.
We could sit the aircraft on the ground during Covid, we didn't have to pay lease rentals.
Most of our competitors, who went into COVID-19 owning a significant proportion of their fleet have come out of Covid now with very addition to their fleet. So most if not all of the fleet that one operating leases, therefore, I think subject to.
Ongoing cash trades in terms of monthly operating leases much more expensive costs that we have maintenance provisions at.
As interest rates rising I think challenged on some of their operating lease costs will rise as well.
So I think the gap between us and that competition is widening and I expect that I'm not sure we'll stay under <unk>.
To euros of passenger ex fuel unit cost, but I think the next three or four years that Costco or Turkey might go to stay in the low 30, 31 32 to 33, but at a time when our competitors were all go about 50 or in some cases above 60, or 70 euros ex fuel they will be under much more pressure to get airfares.
Therefore to control capacity growth that would give us I think quite a significant headroom for us to expand our capacity but.
Seafarers rise modestly to cover our unit costs will have much more headroom than any of our competitors with Boeing relationship look it's challenged at the moment it is very difficult.
But we've come to the realization we have to work with Boeing.
They are continuing.
Continue they are challenged with production in Seattle, we accept now we won't get the 51 aircraft that they had originally contracted to deliver to US probably the end of April I think if we get to 40 or 45 aircraft by the end of June that still allows us to maintain our ambitious traffic projections, our traffic load projections out to FY 'twenty.
For I think over that period of time there.
Blockages production Blockages will work their way out of the system.
<unk>.
Back having discussions with them about new aircraft I think we would be very strong supporters of Boeing and the other American Airlines.
Kind of campaigns with Congress that Boeing do have to get an extension on the Max 10 certification nobody is not in anybody's interest that you have two different top down the kind of the Max the existing Max aircraft and the new Max 10, we need to have similar cockpit, we do not want to have pilots trying to learn.
Two different type of cockpit.
And I think we would strongly piece of it but very strongly supportive of boeing's.
Cause the Congress to extend the certification program for the Max turns out to maybe the end of 2023.
We are not anywhere yet nowhere close to price agreement on pricing I think we're not we are not.
<unk> had anywhere in terms of new aircraft discussions, but we don't need new aircraft until 2026 anyway.
A very comfortable where we are at the moment.
We are receiving some modest compensation from Boeing for these delivery delays, but really compensation is not that attractive to us we take compensation payments through the balance sheet. It does help to reduce capex, but we would much prefer to take the aircraft would be able to deliver headline growth in that schedule revenues and ancillary revenues, but I.
The Boeing relationship is what it is for all of at the moment. It is difficult because they are continuously failing to meet their delivery obligations to us, but I think we're at a stage, where we recognize we have to work with Boeing.
Best we can we have to help them get those aircraft delivered to us in some cases, we're going to provide them with some of our spares. So they can deliver some of our aircraft and we're both working towards delivering getting 40 45 aircraft to Ryan there by the end of June of 2023, which would be sufficient for us to at least try to hit.
185 traffic target for FY 'twenty, four we might finish a million 2 million passenger short of that.
We finished short on traffic I think we'll see.
Some uplift or benefit on fares and yields.
Okay got it.
Thanks Steven.
That comes from the line of Satish Kumar Citigroup.
Hi, Michael.
Two questions here. So first one maybe on the working capital into Q3 and Q4.
Is it fair to say that if you go back to the similar seasonality levels that we've seen.
Before pandemic or is there anything that should we think about into that store and second one is around the Italian market given your market share gains. There are you seeing better pricing power I E that the pricing within both domestic and intra Europe out of Italy.
Outperforming your end to end network any color on that would be helpful. Thank you.
Okay.
I'll give you the working capital question to Nir Sarhan I would like to add one of the Treasury team John North maybe add a word too on the Italian market again ask you to lead off on that and I'll get Jason here to add a couple of words at the at the end of year or so.
Okay.
On the working capital bookings are still a bit closer in than they would have been pre COVID-19, which means at this time of year when our cash Mcdonald's would be dropping back it's not dropping backer is extremely unimportant, Michael it's Ed bookings very strong opens a Christmas very limited visibility into Q4, but barring any COVID-19.
<unk> saw on towards geopolitical events, we would hope that will start to see a more normalized booking curve at that stage with people started coming back in January and February in booking their Easter.
There are there is there somewhat holidays at that point in time, but it's a little bit too soon to say that we're seeing that yes with limited visibility to Q4 at this point in time.
Jon Norton you want to add anything on that.
Working capital.
Just liquidity has still proven to be very strong stations as well.
Builds into Q1 during the January period will restart team.
The bookings for the summer and the cash starting to come back as part of the cycle for Q3.
Okay, and Eddie maybe followed by Jason on the Italian market market share and pricing power.
I think like all of the Italian market.
Particularly like post Covid, we had a sort of a rush of Italian airports to.
Don let them because nobody is going to fill those capacity, yes, except Ryan.
Brian era, we were to sort of go to Erin.
And that is reflected itself in higher frequencies better schedule and that.
Those sort of them.
It into some <unk>.
Some pricing there are certain routes, but domestics are still.
Still very competitive.
Seeing that on those where we've come up against competition.
Like it's the first time since we've seen over the last several years, where you have sort of melted away.
From a lot of those core roots have been more frequently you see where our.
More recently, we have seen wins come on some of the routes and Theyre pulling back out of places like <unk>.
Heads of Naples, and tolerable dose domestic routes.
<unk>.
Less competition thats going to reflect into higher pricing in the medium term.
Jason.
Yes, we're very happy with the Italian market load factors are very strong across the summer and into winter. We're operating well over 600 routes 100 hurdles are domestic routes. Our overall market share is 40%, but we're probably closer to 50%.
The domestic markets and we're by far and away number two airline in Italy, It's easy jet on 12%, So we're by far and away the dominant carrier.
I'm very happy with how the market is performing at the moment, particularly hanging.
Off season, and when we see that very strong domestic traffic continues and we're continuing to see competitors cooked capacity, if we would like to roll in Catania accounting that roof easyjet pulling back in Venice in April So, we're very happy with the target markets and the growth that we've put in there over the last two years and we plan to grow there again next year.
Okay and next question please.
Thanks, that's from the line of many of the piano at Bank of America.
Right.
Hi, good morning, So just a clarification on <unk> mid single digit to high single digit in the yard.
So.
How much of that is based on the bookings you're seeing is that what youre seeing in bookings right now is that Jun.
I'm sure. That's my first question and then secondly.
Fuel hedging on slide 18, the disclosure is different from what you had before which had captain broken out. So have you changed your strategy here.
Do they view the fuel hedging it.
So I'm not going to give any more guidance or breakout what we're seeing at the moment.
We think it's reasonable for the full year to expect mid to high single digit fare and yield growth.
It's fair to say at the moment, we're seeing better than that but we're not sure whether this will continue through to Christmas and into Q4.
We continue to be very wary.
Risk is that this will get derailed by an adverse COVID-19 or Ukraine development.
Sure.
Card by the experience of last November in last February, which DRAM at very short notice what seem to be a very strong post COVID-19 recovery.
So mid single mid to high single digit for the full year. I think you said optimistic enough. We don't want to be any more optimistic on that business, but if there is a risk I think there's a risk to the upside.
The few slide yeah, Yeah, I mean, Murray, but there's been no real change. So we haven't added meaningfully in fact, we haven't added the caps at all and a lot of them have been exercised at this stage. So if that was more meaningful to give the blenders Jack figure on the understanding that we will be exercising what's left of the taps which is why.
Are you seeing 87 at approximately $700 a metric ton, we continue to hedge Jess.
The key item and then into next year, when you're using jet swaps at this point in time to $900 monetary dollars, a metric tonne to make life easier for yourselves and those around this I think that's still build them on some of the splits between the caps on the Jack in the past.
And it's reasonable somebody would have asked me. This morning is why are we not more hedged for next year I think we're genuinely concerned into next year I think 50% hedging is a sensible place to be we think there's as much risk to the downside or the upside on oil into next summer.
Recession is.
His deep dark as predicted by the bank of England, If China continues to struggle with Cobra and economic demand. If the shale guys, who are materially increase in rigs, there's a risk that oil prices could fall into next spring next summer. If you create situation resolves itself. So we want to kind of stay where we are at the moment 50 percentage next.
<unk> enough.
And then see which way fuel as if it rises into next summer because of the geopolitical situation fine we'll be we'll be facing higher oil, but we'll have hedged 50% and if it falls and again one of the challenges that our competitors are have inferior hedges to us we don't want to see we don't want to behave to 100% or 90% or 90.
$2, a barrel and see that pick up lower oil prices than osage well into a declining marketplace. So I think were sent to behave with the risk as much risk to the upside is to the downside on oil into next year.
Thank you differences that we're one of the few areas as the balance sheet to be able to hedge fully both off the dollar I don't know it.
Thanks, David next question please.
Thank you and that comes from the line of Mark Simpson at Goodbody.
Mark Hi.
Yes, hi, good morning, two questions.
I'm just wondering within the target for zero net debt by bumps twitchy full once the assumption of the on the revenues within that.
Obviously back in say 2019, and it was at 1.9 billion.
If it does then you should cut causes around that.
The ancillary one of the good things. We saw Q2 was another step up in the ancillary per Pax number.
With vessel loads anticipated over the next 18 months and we expect further leverage on that ancillary per Pax before.
Okay disappointed both answers here.
Look I think it's enough there that we say we set that target that by the end of FY 'twenty four it will be a packet zero net debt and we will be we will have paid down to one 6 billion worth of bonds. We would still have funded most of next year's capex out of our own cash flows, but we're not going to break down guidance in Washington owner, Davita I think by that.
As long as we're back in normal we haven't had a negative COVID-19. Our Ukraine, you would expect there to be enormous bid of owners back to where it was similar to pre COVID-19 levels and salaries per Pax again, I've already answered I think I've answered. The question, we expect there to be very modest low single digit growth in ancillary per pack for the next year or two.
Some increase I don't think higher load family that we're talking about a loan types. It maybe goes up by 1% in the peak of next summer. It's not material. We still think we get a little bit of upside on conversions, a little bit of upside in yield management, and then certainly the jewelry sales on routes to and from the UK will be a feature of our ancillary.
Revenue next year, it's certainly a very prominent Brian the discussion we're having at airports at the moment that they were a number of airports reporting a very significant rebound in their airport retailing and commercial income as a result of the restoration of.
Julie free on U K services.
The UK government is struggling to find be able identify any benefits of Brexit, but certainly they're returning to <unk> to around GBP sales both for airports and airlines on flights to and from the UK has been one of the very few in thinking or benefits.
Oh Brexit.
Great question.
Yes.
And just what it is.
The reason I'm asking that is just the application of dynamic pricing and.
Ancillary I'm wondering if there's anything you can tell us about that with it.
The lapsed projects.
Not really I mean.
We're working on it but.
I don't want to kind of over promise here, we're continuing to work on conversion.
Management, and there is a little bit the dynamic pricing, but unlike many of our competitors who are promising the data would provide everything that the future lay in data.
We'd rather deliver for us and we'll talk about it later.
Next question please.
Thank you that comes from the line of Jarrod Castle at UBS, Jaredite, Hi, Hi, everyone.
Clarification on the first question if you don't mind.
I was asked about the pricing that you're seeing but you did say I think in the release that you've got most of summer on sale.
At the moment.
Any color relating to tell you the summer but also.
I'm certain that you might be in a situation, where you must managing sorry, that's finishing the wrong, there's a mismatch between.
Between what you're currently selling now for summer, but it's just what you.
<unk> hedged on fuel so what happens if the reverse happens to fuel price spikes and you've sold based on today's prices for the summer.
And then the second question you know for someone.
At least a company, which.
Historically, it hasn't done much M&A.
Sort of.
Conversation during this results season about M&A, so be interested to get your view on how you see the landscape currently Michael Thanks.
Yes, Thanks, Sharon I mean look at this point in time, but we have most debatable, but wanted 80% or 80, 90% of <unk>.
Some are 23 on sale, but forward bookings would be down in low single digits, you're talking through the summer months of next year, one and two presented seats sold.
If you could move against us, but to the extent that fuel moves against US remember, we've already hedged 50% to $93 a barrel current.
That fuel is about 110, so we're still saving money there.
And few will move against our competitors much more violently than it will against us because we have the balance sheet to be able to take very long term fuel hedge positions I think are conservative or the opposite is that we don't want to get caught having hedged.
Asia, 90%, if you will next year at $92 of Ireland and find that spot has fallen to 75 or $80. A barrel. We want I think we have plenty of insurance there, but half of our fuel the next year hedged and if it goes up we're covered on the hedges we have in if it falls we pick it up on the gain so that we're in.
Never going to beat the market with hedging, but we should certainly be able to eliminate the volatility and that's as much as we want to do.
I think and.
C Affairs next year will be driven much more I think by rational capacity discipline. This winter.
Every sign of that continuing through the winter period.
Sure.
We want to emphasize again Q4 will be challenging because there's no Easter in it but Q1 next year will be all the better for having a full Easter in the middle of Q1, leading into what I think would be a strong Q2 because of trans Atlantic visitors coming to Europe with the strong dollar Asian visitors, returning and Europeans continuing to holiday.
Even in a recession and with the price inflation you try booking getting accommodation. The tour operators are reporting very strong bookings into next summer flight accommodation.
Accommodation next summer in Europe, I think will be materially higher than they were this year. Despite that the tissue was poured it certainly in our case, 40%, 50% ahead of where it was pre COVID-19.
So I would I there may be a mismatch, but I think on balance I like where we're positioned and I think that the prospect is.
If there's going to be a mismatch it would be to our upside.
M&A.
This is more than sufficient to organic growth for the next five years ago 225 million passengers a year, we do not see ourselves participating in M&A, Although we may work with others.
I think others would be challenged and M&A that there may be to find kind of something we can work with them par to cope with competitive.
Finally students competition remedies are pre competition remedies, we could help assist some M&A in there I have no doubt and I hope. This results season, that's interesting that both IAG Lufthansa Air France KLM are all beginning to talk about M&A again.
Yes.
None of them.
Are all of them, putting their hand in the ring for THP Alitalia.
Even extending the disclosures are not denying an interesting wins are easy jet.
Both of which we think would be candidates for M&A over the next couple of years because they are not.
They are both well run airlines, but they are stuck in a space where they are mid mid airfare mid cost are not able to compete with us on cost or on pricing.
<unk> has built a very good business, where they have a very much a fortress.
<unk> positioning in that.
Expensive airports like Gatwick charges are all already Switzerland, but really mainly retreating in airports in Italy, Portugal, and others were in Berlin, where they're largely not able to compete with us with increasingly under threat for most in central and Eastern Europe .
I think they have shown in the last year or two with their expansions in Vienna, and easily that they're not able to compete or enter markets, where ryanair Ryanair group of airlines have a lower cost and lower fares, but I think with a sensible strategy of expanding into the middle East.
Like the idea that they're going to grow the market in Saudi Arabia in Dubai, They may well find some additional equity or debt as those markets as well as they build their presence in those markets. So I think everybody is behaving rationally.
Yeah.
And I think I think there is inevitably it is inevitable in the next three to five years that Europe will consolidate further alitalia and THP will get taken out because they can't continue with stating that they presently have and I think it's a much more likely a rational outcome that ways that easy.
Jetblue and participate in some way and that M&A process and that Europe is an exemplary moving towards a similar outturn is North America, where you would have three very large somewhat higher cost high fare.
Ken.
Connecting carriers and one very large low cost carrier, except in Europe that low cost carriers, what do you mean materially lower cost a lower fare than southwest in the United States.
I think we're now without an exit process people may say, otherwise, but I have been predicting this for a number of years at Covid and certainly the tsunami of state aid has postponed at the timing of that but I think it's an inevitable consequence.
Great. Thanks, Mike next question please.
Thank you that comes from the line of Johan <unk> from Stifel. Please go ahead. Your line is I had is like.
Yes, hi, good morning.
Questions from me also.
Firstly, if I if I did the math right I think free cash flow was slightly negative in Q2, which.
I think it would also explain why net debt is slightly up to the 0.5 billion from the $2 4 billion that we reported at the end of Q1.
I think that's a little bit at odds with other European carriers, that's still reported positive free cash flow for the quarter.
Can see your Capex was 500 million in Q2 was slightly higher than Q1, but for any other reason why free cash flow was negative for you or is it maybe.
The working capital impact from the slightly weaker growth that you expect for the winter versus the last quarter.
And then secondly, the pay deals that you mentioned, which were prolonged until I think 2026 or even 2027 can you just remind us about the PE deals employee my last information was that it's a 2% to 3% wage increase per annum, but is this still the case.
Thank you.
Yes.
The correct on the PE deals that was restoration in April and April 23, and 'twenty four brought forward to April 23, now broad post December 22, followed by.
Multi year kind of secured pay increase in itself to 3% a year.
Negative cash flow I mean, I assume most of it is capex I mean, I don't I don't gateway.
With the prime the Prime reason for the difference in Guyana as opposed to theirs.
We've extended Johannes <unk> hundred 20 days out to 2028, so under accounting rules.
<unk>, we have to capitalize our take the.
Extra years off the the deemed gas onto the balance sheet, so that kind of notional deaths on leases that makes up the delta that youre trying to reconcile there.
Okay. Thank you.
I would say.
I think the strength of the balance sheet, we reduced net debt from $1 45 billion to 0.5 billion over the half year.
Recognize your presentation, there in terms of negative cash flow or declining yields if anything its the opposite but.
It is what it is next question please.
Thank you that's from the line of Paragon at J.
J P Morgan.
Yes.
Two quick ones if I can first one just on the visibility post Christmas maybe you can give us an insight into what percentage of Johnson marches.
Current land is not very different to what you had expected at this point pre Covid and then just second quick one any difference in bookings between the U K in terms of point of sale versus Continental Europe , currently or pretty equal parts of it in terms of demand.
Yeah, I'll do that forward or anything you can do the U K at the moment January to March.
As of today, we are sitting with just under 10% of the seats sold January to March that.
That would be marginally behind where we would've been in previous years, but again some of that was because we had no Easter in March.
The fact that Easter has moved into is in April or Q1 of the following year.
Very limited visibility into Q4.
<unk> bookings and the profile is slightly behind where we would have been pre COVID-19.
UK market at the moment.
Remarkably strong UK outbound is strong.
To Europe short haul weekend and business travel.
You want to add on that no there's like no no difference.
As you seem like we've been putting extra capacity in for next summer into into the UK So we are looking to add to what you said, there and particularly in provincial UK that we've already had very strong growth in stansted, but we're adding capacity in Birmingham in Bristol and Manchester, Liverpool, and we have a new base Edinburgh, we've been new base coming in Belfast as well so.
It's a marketplace. Despite the challenges of Brexit It is a marketplace, where there are still significant growth and it's one of the markets, where there's been a lot of capacity has been taken out of the system. The failure of Thomas Cook Flybe.
Easy jet cutting back.
There are capacity are trimming their capacity.
Significant shut in your on the short haul type capacity.
Next question please.
Thank you we have one further question in the queue. That's from the line of Evercore.
<unk> ISI.
Hey, Good morning, just just one for me.
Could you talk a little bit does the Max situation change your thinking about the pace of retirements or actually going into the market and acquiring used 730 Sevens are you investing.
In maintenance overhauls on aircraft that you'd otherwise be kissing goodbye.
No I mean, I think it is fair.
You asked that question is we have so much growth at the moment I think we had thought we would be using some of our.
The game changer deliveries to retire older aircraft, but actually we have so much growth opportunity out there we are growing faster than we originally thought we would at this time because we're not retiring older aircraft in fact as I use. The example, one of the aircraft. We've returned off an operating lease two years ago has now been offer back to us at a very.
Significant discount them, we've been opportunistically add aircraft it ones and twos, where.
737 sort of <unk>, where does that kind of.
A financial incentive to do so we're not looking to the second hand market, though where there isn't much of a secondhand market out there at the moment on.
And geez.
A lot of those aircrafts have gone back into a cargo conversion programs et cetera, et cetera, we have 200, and we have another 150 160 aircraft deliveries to take from Boeing over the next three years.
That gives us plenty of headline growth of these aircrafts I remember in one of the key efficiencies of these aircraft a focus at more seats, but burning 16% less fuel.
So not alone are they much more financially from an operating point cost of view much more efficient to fly, but theyre also environmentally much more efficient as well.
And I would continue to focus on those aircrafts I think it's inevitable by the time to get to sometime in $2024 25, we would like to be back at discussions with Boeing on a new aircraft deal, but boy you have to sort out their own kind of manufacturing challenges at the moment and there they are going to deliver what they've committed to first before we can actually start.
Negotiating new aircraft orders with any bit of any sense of confidence with Boeing in the meantime, Airbus are mounting of huge amounts of boeing's market share there now grabbing converting an auto pulling customers in China and the U K J two has gone too.
Two.
Airbus from Boeing.
No doubt once they sort out the call.
Current production problems, they will Boeing will want to recapture market share and when that timing comes about they know where we'll be there.
Working with them, but only on pricing that makes it economic for us to continue to grow as boeing's principles kind of standard bear here in Europe .
Thanks for the thoughts.
Thanks, any other questions before we wrap it up.
No that was the final question I had said it would be wrapping up why don't you give us a couple of closing thoughts on balance sheet cash flows paydown of debt and then I might ask Eddie Wilson give us a couple of closing thoughts on it.
Some are 2023.
Okay.
The balance sheet itself as I previously said its performance.
Recovered quite significantly, but we do have two big years of Capex ahead of us.
While we spent $900 million in the first half of this year, we do with $2 3 billion Capex program in the current year that will drop to somewhere in the region about 2.1% to $2 two.
Julian next year, but I think the strength of the balance sheet as core and it's enabling us.
To pay at a time when interest rates are rising to pay off maturing debt onto film themselves from our own resources. So that's hugely important it's also giving us the ability to have a rock solid triple D racing, which enables us to put hedging in place for both the dollar and.
For the few particularly on the Capex, where were extremely well hedged at $1 24.
And of the Boeing order book, which means we're locking in aircraft in Euro terms.
Very attractive levels, which enables us to grow over the next number of years costs in great shape as Mike has already said as well unit costs haven't come down quite significantly in the first half.
Full year unit cost with Turkey, one euro ex fuel and then we'd hope to start seeing some reductions as we take more game changes into the things over the next couple of years.
And then maybe you can give us.
Last thoughts on summer 'twenty, three and kind of generally commercial.
Development.
Again, I'll start off on just talking about the operational learnings from what we've learned.
This summer has been prepared.
For next summer as well.
<unk>.
We've had the backdrop.
<unk> seen this summer, which really enhances our crew hours.
Head of everyone else.
We've got to ensure that we have we're fully prepared particularly with its hard charging providers in advance of next summer. So that we can we can deliver what we promise. So I would always like to be able to say that we've got the April .
The airports on the aircraft and the only one that has.
Yes.
So that is the aircraft that we believe will be temporary in nature, we look at it.
Where we've got our fares.
A particularly strong Q2 various.
The capacity that's coming out.
We looked at places like Germany. This summer.
The market shrunk by about 25% in July and August .
And.
Are those gaslog because by and XR.
Effect itself.
Hopefully in higher fare so let's get the operation right make sure we got all that.
Partners at the airports are ready to go for that so we're not going to solve the AUC by next year, and then but I think it's a good environment in terms of capacity reductions in the market for ferrous.
In December 23.
Thanks, Eddie and Okay. I'll just leave you one final thought to be the party pooper.
We have recovered very strongly we've had a very good first half of the year. We are still forecasting a loss for the second half of the year. We're looking at something up to about a 200 million lost between Q3 and Q4, the absence of Easter will hit Q4.
Could be worse, if there is I mean again I want to keep re emphasizing the risks we face as we experienced last year with an adverse COVID-19 development in November and with the Ukraine invasion of February. This recovery is strong, but it is fragile and it could still fall over but if it doesn't fall over I would be reasonably optimistic that we're heading into a strong <unk>.
Number 2023, our first priority will be to restore the pay raises to restore the pay of our people recruited another couple of thousand pilots and cabin crew to service. The summer 2023 growth. The next priority will be used the cash to pay down $1 $6 billion worth of dour euros worth of debt next summer.
And then we have we need another 2 billion just to continue to fund the Capex. So these are challenging times, but I think the management team at Ryanair and our unions and.
The people and our people have demonstrated a resilience through COVID-19 flexibility through COVID-19 that leaves us very well positioned coming out of Covid to grow strongly if there is a recession. It will be good for our business. We will continue to grow much stronger into a recession than any other airline in Europe because of the widening constant fair gap we have over every.
Other European Airlines and with that can I say, thank you to everybody who joined US. This morning, we have extensive roadshows on the road all week here in the U K and Europe in the U S. If anybody wants a meeting or a one on one please contact Davies, our city and we'd be happy to fit one in.
In the meantime, I hope, we'll see you all individually at some stage during the week and if not.
<unk> come to Dublin in November December .
Boost a load factor all in Europe . Thank you very much everybody good to talk to you.
Right.
Today's conference. Thank you all for everyone for attending you can now disconnect your lines.
Okay.
[music].