Michael O'Leary - Chief Executive Officer, Executive Director, Member of Nomination Committee, Member of Executive Committee, Chief Executive Officer of Ryanair Limited and Director of Ryanair Limited Howard Millar - Chief Financial Officer and Deputy Chief Executive

Neil Glynn - Crédit Suisse AG, Research Division Tim Marshall - Redburn Partners LLP, Research Division Stephen Furlong - Davy, Research Division Jarrod Castle - UBS Investment Bank, Research Division James D. Parker - Raymond James & Associates, Inc., Research Division Alexia Dogani - Liberum Capital Limited, Research Division Penelope Butcher - Morgan Stanley, Research Division Robin Byde - Cantor Fitzgerald Europe, Research Division Damian Brewer - RBC Capital Markets, LLC, Research Division Donal O'Neill - Goodbody Stockbrokers, Research Division Anand Date - Deutsche Bank AG, Research Division Edward Stanford - Oriel Securities Ltd., Research Division Gerald Khoo - Espirito Santo Investment Bank, Research Division

Good day, and welcome to the Ryanair Q3 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael O'Leary, CEO. Please go ahead, sir.

Okay. Good afternoon, ladies and gentlemen. You're welcome to the Ryanair Q3 conference call. You'll have seen on the website this morning, on the red line, we put up the results, the investor presentation, and also the detailed numbers. So I propose to not read it out, as is traditional -- we'll just move on. I think we'll highlight 8 key themes and then Howard will add a couple of points, then we'll open it up for question and answers. So I'll assume you all have seen -- read our IMS, which is some 7 hours ago. I think today's key themes, I like to draw your attention to as follows: Firstly, Q3 was a very solid performance. After-tax profit up 21% off a small base, and per-passenger revenues grew 11% of passenger numbers from 3% to 17 million. We've hit an all-time high in terms of customer satisfaction statistics. 93% of flights for the past 9 months have been on time. Lost bags are running less than 1 per 3,000 passengers carried, and we canceled less than 4 flights in every 1,000 for the 9 months of December. In our last 20 years of our history, we've never performed as well. Business passenger volumes continue to build strongly and now exceeds 20% in most of our major markets. A feature we've drawn attention to is a survey carried out recently in Spain where, bear in mind, Ryanair is by some considerable distance, the #1 airline, and 22% of passengers traveling in Spain were traveling on business. Balance sheet remains the strongest of any airline in Europe. We expect the net cash position by the -- by fiscal year end March, despite having paid out almost EUR 500 million in a special dividend to shareholders in November. We own outright…

Thank you, Michael. I'm just going to deal with 2 matters. First is in relation to currency. If you look at our 8% increase in average fare in Q3, of that, the strengthening of sterling against the euro, accounted for 2% of that. Obviously, on the far side, we have a significant element of sterling costs. So our total cost per passenger, excluding fuel, went up by 4% and about 1% of that is due to sterling. I'll just turn to the one other matter, which is in relation to fuel. Our fuel available is higher than we would have expected. We guided that the increase in Q3 will be just shy of EUR 50 million. It ended up at EUR 80 million. The reasons for that are threefold. Firstly, we traditionally only hedge 90% of requirements both for currency and jet fuel. So obviously, we had to buy the balance of the 10% unhedged during the quarter when prices were higher than what we've hedged already. And also, it was a period when you recall that the euro significantly weakened against the dollar and was lower of about EUR 1.20 to $1 to the dollar. So that additional fuel unhedged had to be purchased at a higher price. The second part of that is in relation to the level of activity. We had originally guided of passenger volume number is -- would rise by about 1%. We actually ended up 3% higher than we expected as we launched additional sectors to cope with that strong demand. We saw it up in the run up to the Christmas period. This, I suppose, is one of the positive sides of having 80 aircrafts grounded during that period. We can take advantage of commercial opportunities as we see them. However, obviously we had to buy more fuel at a higher price. And obviously, we had the weaker euro as well. So the combination of those 3 factors meant that our fuel bill was about EUR 30 million higher than we had originally anticipated. Looking at the fourth quarter, our guidance we gave in November is still intact. We think that fuel cost will be broadly flat for the year. While I'm talking about fuel, I might as well cover up that into next year, we have a reference to it in the notion, also on the slides. So some positive news, and so far, as we've had a 14% increase in fuel prices this year, we expect that to moderate. And we expect that cost per passenger for fuel to rise by about 5% for fiscal 2014 for the volumes and the currencies that we've hedged. And we gave an indication there, our average price per fuel, was about $97 per barrel and currency will be $1.32 per EUR 1. So with that, I'll hand you back to Michael for general questions.

Thank you very much, Howard. Okay, Sarah, you can open to questions, please.

[Operator Instructions] We will now take the first question from Neil Glynn of Crédit Suisse. Neil Glynn - Crédit Suisse AG, Research Division: I just really wanted to focus on the new bases that you've launched over recent months. Just interested in terms of whether you're seeing airports increasing the attractiveness of terms on offer as their own volumes disappoint, and how that might shape you're thinking in terms of route churn over the next year or so or even into the summer?

Yes. We are seeing increasingly competitive approaches from not just new bases, but also from existing airports and bases looking for further growth. As you see, we've announced, we have 6 new bases already announced for 2013: 2 in Morocco, Fez and Marrakech; 1 in Greece; 1 in Croatia; 1 in Poland; and 1 in Holland in Maastricht. We're also seeing an improvement in terms being offered to us by existing airports with the notable exception to Spain, where the charges run by Spanish government monopoly and increasingly raising fees. I think you would see a significant decline in traffic across the Spanish airport for the next 12 months. But that those -- and you will also see a higher rate of churn within Ryanair. I think we'll be much more disciplined at focusing on taking marginal capacity or marginally profitable capacity out of certain airport destinations and base airports and switching it to new bases -- new destination airports and new bases. The focus of that would still be, for example, this winter, we grounded up to 80 aircraft. I expect next winter that, that will be down around 40. And the following winter, down around close to 0, allowing for maintenance adjustments. That will, even with no more aircraft orders to allow us to grow at a cliff of -- to maybe 3% a year for the next 2 fiscal years. But that will involve of churning to -- opening up new bases and new destinations during the winter. And then in order to maintain those operations into summer of '14 and summer of '15, churning a bit more of what we did in summer '13. So the basic deals are getting better with the exception of some of the statist airports in Spain. Ireland will be included in that. I think the -- for example, the purchase of Stansted by MAG will be positive there. We believe there is significant traffic growth available at Stansted, but only when the price increases that were imposed by the BAA monopoly in recent years reversed. In that, we welcome obviously the mind of two [ph] documentation by the CAA, which notably found that charge at Stansted were higher than the competitive market would allow -- would sustain. We think Manchester would be good in addressing those issues, and particularly, at stimulating growth. We have a number of deals with the MAG Group at Manchester [indiscernible], all targeted around traffic growth and better airport cost yields. So I think the answer to your question is twofold. Yes, there will be a higher rates of churn; and, yes, the airport deals are getting better.

We will now take the next question from Tim Marshall of Redburn.

Can you give some color around the characteristics of the softness you've seen in January? And then, I just wanted to ask about the reserve seating, and just how much more we can expect from that as we move into the new year?

Yes. Tim, it's hard to give you a lot more color. We're giving you kind of pretty much live information. There's a danger, if we go out -- as we've gone out this morning, in our numbers here, that the average fares are up 8% in the fourth quarter. Ancillary revenues are up 15%. Revenue per seat was up -- revenue per seat is up some 15% in the third quarter, significantly ahead of the competition. But you'd all go mad. So I think it's not unhelpful that there's been a little bit of yield softness in the week 2 and 3 of January. There is a bit of yield softness. It's very hard to give you any more color. Look, we've had to open up some -- a bit more -- I think you characterized it. In Q3, in the road to Christmas, we were closing off cheaper seats because of demand. We were trying to get -- not limited demand, but we're responding to, on a daily basis, the bookings were coming in a bit stronger than we had expected. Each day, were closing off, were closing off, were closing off. Really, in weeks 2 and 3 of January, the bookings were marginally weaker on a daily basis. We're opening up a little bit. We've seen competitors opening up a little bit...

Which markets would that be in? Would that it be in...

Generally, it's across the piece. But it's certainly more pronounced in Italy and in Spain, in particular. But we're a big operation, we're spread across 28 countries. So there's never one in that country market that stands out. The U.K. has always been a little bit weak immediately post-Christmas. I mean, if you want my subjective view, and all I give you my subjective view, I think there's a little bit of -- everybody's a bit nervous after Christmas. Everybody's broke in the first 2 weeks of January. I think it's been a bit softer till week 2 and 3. I think it will settle down as we move through February and with Easter coming in March. We think Q4 will be fine. I know -- just counting on, I think on the piece, some of the research that came out this morning, Tim, I think the only thing that I would disagree with your analysis is, bear in mind, we're coming off a very strong Q3. So having your kind of a flat Q4 is partly a function of having a very strong Q3, and you just need to allow a little bit for that. But it's hard to give you much more color than we had a very strong Q3. This is the airline business. It never continues to be very strong for long in this business. I expect we've got a little -- it's a bit softer in the middle of January. I'd be cautious, no more than that. But I suspect things will settle down as we move through February and into March. I don't think there'll be another period of weakness at end of April and May. But because Easter this year is early and struggle of Q4 and Q1, the back end of April…

Please go.

With the arrival of first final aircraft from the current order, how quickly should we expect the cash tax rate to reach the income tax rate? I think it was a liability in the recent quarter?

Certainly, obviously, as our program unwinds, the level of capital allowances will follow up. We have significant allowances that we've obviously taken from purchasing 250 out of the 305 that we operate. But if we don't do something in the next couple of years, your cash tax rate will inevitably rise. It's certainly several years away.

We will now take the next question from Stephen Furlong of Davy Research.

You might just go back to Stansted. It just seems from your view, just where you see the kind of medium-term potential for Stansted? I guess, it depends on the price, et cetera. But I mean obviously, volumes have come down a long way in that business. And just generally, going forward, over the medium term, do you think that growth is going to come from more replacement growth with all these restructurings going on in Europe in terms of the network airlines? I mean, some of them still have substantial point-to-point businesses in Europe, even with the latest restructurings. And just the last one, I was just wondering, in terms of -- were you surprised with the level of ATC cost increases in Italy or, indeed, the Spanish Airport charge increases? And presumably that influences what you do with the network and where you put the aircraft as we go forward into the summer and into next winter?

Yes, a couple of questions in that. I think there is a potential if you just summarize on Stansted, I see some criticism about the price that MAG paid at GBP 1.5 billion. We thought that's where the price will ultimately finish off. And certainly if we had not been precluded from the bidding process, our numbers were based -- that it would finish off at GBP 1.5 billion, so we weren't surprised by the number. I think there's a unique opportunity in Stansted for 2 reasons: one, the traffic there has fallen by 25% from nearly 24 million passengers to 17.5 million passengers in the last 5 years, during which the BAA monopoly doubles the airport charges justified via Stansted. I think there is a significant -- Stansted to get that traffic back or return traffic to 24 million. But it will have to be done in the context of a significantly lower cost than are presently available at Stansted. The one issue that kind of militates against that return to growth is obviously U.K. APD. And particularly, there was -- a large load of that traffic was U.K. domestic routes, Belfast and Glasgow, which is really hammered by APD GBP 12 -- both ways. So it's a little bit hard to build that growth back. We think it's largely by airlines like Ryanair, significantly adding capacity. I'd say 50% of additional flights on existing routes, additional frequencies and about 50% will be new routes and new destinations. And obviously, to incentivize airlines like Ryanair to significantly lower yields, we have to have lower airport cost. I think the MAG Group understands that, and we look forward to discuss this with them. I think the big opportunity that exist for MAG and Stansted, though, is that Ryanair accounts for…

We will now take the next question from Jarrod Castle of UBS London.

Two, if I may. One, just you did make a mention, but in some of your smaller areas or cities such as Budapest and Warsaw, you're doing well. But I guess, you're saying you have very low prices. Can you just talk a little bit about what's going on in terms of the competition? And also, as you annualize things now, where are you? Where do you see things in terms of profitability in Hungary and Poland? Secondly, clearly, you're doing quite nicely or you're doing very well on your business passengers. But you don't really seem to do any marketing, or are there any initiatives, I guess, is the question to kind of drive that further, or is it just passengers who are naturally drawn to you?

Budapest and Warsaw, again, I think, they're growing strongly. They won't be our 2 most profitable bases, but we don't lose money at either of them. We have cut back significantly in Budapest, it's where we announced cutback this winter. We would expect both of them to be kind of operating at breakeven. I think on that, until we can interest the authorities in Budapest in low-fare kind of routes-growth initiatives, I think it's unlikely that we will grow further at Budapest at the moment. Warsaw, we're very keen to continue to grow strongly at. We have a little problem with the runway in Modlin Airport on the 23rd of December. There's a problem with the concrete on the turnoff areas. So they can't guarantee or they've closed the -- effectively closed the airport, originally until the end of January. It now looks that there's a problem with the concrete and the turnoff areas that can't be addressed until probably, I suspect, April or May. They have to wait for the temperatures to rise over there before they can pour concrete and address this issue. So it looks like we'll be operating to and from Chopin [ph] I'd say, certainly, until the end of March, maybe the end of April, end of May. We have a meeting coming up the middle of this week with the authorities in Warsaw and with Modlin to assess how we handle that. But we are now Poland's #1 airline. I think, in most markets in Central Europe, we're significantly larger now than last -- or within Poland. We'll be running with the cuts. We were #1 in Budapest last year, but with some of the capacity cuts announced for this summer, we'll be running 2 behind Wizz Air. But I think that's about the…

I think the other thing, we get feedback is that business travelers like to sit at the front of the plane under reserved seating. But they also like the airports, because in many cases, flying to a secondary airports means that they can get to the airport very, very quickly and get on with their onward journey. So that combination of the packages, as Michael outlined, seems to be translating very, very well.

Jim Parker of Raymond James. James D. Parker - Raymond James & Associates, Inc., Research Division: You may have covered this, but I want to make sure, if we look at your competing capacity in city pairs, actually it's been declining for 4 years in a row. There doesn't seem to be much different in recent quarters. So are you suggesting that your average fare has gone up because of the greater mix in business traffic? And if that is the case, your 20% now, what was it same time a year ago?

You broke up at the first part of that question, Jim. There was something about city pairs?

Flying in city pairs. James D. Parker - Raymond James & Associates, Inc., Research Division: Okay. We've done the Analysis 4. It appears that for 4 years in a row, competing seats have come out against Ryanair. So there doesn't seem to be anything new there. So I'm curious about your average fare, has it risen because of the greater proportion of the traffic that comes from business passengers? And what is -- what were business passengers, say, a year ago, as a percentage of the total?

I think, the honest answer to all of this is, the greatest driver of our fare performance in Q3 has been price increases by the competition to compensate for significantly higher oil prices and capacity reductions in some of the larger markets. You have markets like, for example, say, Liverpool in the U.K., where easyJet are increasingly switching capacity into Manchester and away from head-to-head competition with us, the capacity cost by Alitalia and Iberia in Spain and Italy, which are significantly greater on the ground than they have yet announced. We're looking, for example, now at more flights in Italy down to the islands Sicily; Sardinia; in Spain, to the Canaries. Although Spain has been certainly stunted by the airport cost increase of last year. So I think the biggest driver of the fare increase, average fare increase has been the competitive environment of the higher cost of fuel. But I think that, undoubtedly, and I think there's a great similarity, if you look at what the easyJet communication last week and ours this week, there is, undoubtedly, a shift on short-haul traffic. There's something, by the way, that happened as you know during, the States, 20 years ago, there is a shift of short-haul business traffic and late-booking traffic away from the traditional carriers, who tend to be kind of high fare, strike-ridden, frequent cancellations. And an increasing shift across to the low-fare, strike-free, tend to be more efficient and more punctual operations of Ryanair and easyJet certainly. I don't know whether the same numbers are reflected in the smaller guys, the Norwegian and the Wizz. But I'm not sure their punctualities will be quite good as ours. But I think you're seeing that sea change that took place in the states 20 years ago, where people, increasingly,…

There haven't been much of a change in the mix. But the penetration -- we're continuing to manage the penetration. The key one in the quarter was obviously the -- well, it continues to be driven by strong performance of the combination of reserved seating and priority boarding. We are targeting -- we're still increasing the penetration [ph] encounter. Travel insurance, probably, is still doing well for us. I know easyJet were kind of a little bit negative in fact last week. But we haven't seen that the travel insurance take up is still strong. Obviously, admitting fee and the on-board sales continue to build. We launched the Getaway Café, which has certainly increased the spend for our passenger in the last month, but that could well be kind of the run into Christmas.

We will now take the next question from Alexia Dogani of Liberum Capital.

I had a couple of questions. Just firstly, can you describe to us what kind of cost headwinds we should expect in Q4? And what sort of the unit cost, your constant currency, you expect for the quarter? And then my other question is about what you did in Q3 and sort of the additional sectors you added because of last-minute demand? And was the demand driven because competitors were cutting capacity on those routes, or sort of what led you to add those incremental flights? And I guess, what was the lead time that you put them on sale? Was it sort of 2 to 3 weeks? And I guess, leading on from that, could we see that happening again pre-Easter, if demand was strong? And then just a follow up on the previous question on priority boarding, are volumes actually going up for sort of the take-up of the priority boarding?

So maybe, I'll just deal with the last one first. Priority boarding is stable. As Michael said earlier on, we had some concerns that the introduction of reserved seating will cannibalize priority boarding. Remarkably, priority boarding has stayed at the levels it has been at for the last year or so. So that was somewhat of a surprise for us. And reserved seating continued to grow through the year. Obviously, it's higher in the summer, falls off a little bit into the winter. But certainly, adding those extra 12 seats has proved to be very good. We expect it to even increase this year. I think there's a certain amount of consumers learning about the product, staying about it whether on board. And I expect penetration rates on reserved seating to rise into next summer. Dealing, then, about the additional flights, we certainly have the ability with 80 aircraft on the ground over the winter to respond. In some cases, we launch them 4 -- typically, 4 to 6 weeks before they flew. In some cases, I think the record was 3 weeks. So we were able to react quickly when we saw flights filling up, and add additional capacity. In terms of the fourth quarter, as I highlighted earlier on, fuel costs in total will be flat. And we still have the headwinds in terms of the air traffic control cost in Italy and higher airport charges in Spain. That will continue until they're introduced on the 1st of July, so you continue to see that ripple into Q1 of FY '14. We will have some more higher costs associated. We've got some more aircraft deliveries, so you can expect depreciation and aircraft rentals to be slightly higher. So overall, what I would see is a broadly similar outlook for Q4 as of Q3 in terms of unit cost per passenger up by about 4%.

Okay, great. And actually, can I just ask, so when the flights that you added on, was it just a natural demand being stronger because competitors removed capacity, and therefore, you chose to replace with your own mettle?

Largely, it was a bit more kind of opportunistic than that. Where capacity of competitors reduced, there had been a lot of it came around to roll in, to bid up into Christmas. It's not that we're a flight filled, so we add an extra one. But additional capacity was taken out. We also got some additional, particularly in Italy, some incentives from the airport and some additional flights through November and December. But mostly, it was responding to the bank holiday weekend, football matches that run into Christmas and post-Christmas. We have the aircraft sitting on the ground to be able to do that.

Next question comes from Penny Butcher of Morgan Stanley.

Two questions from my side, Michael, Howard. The first is just a clarification point on the fuel guidance that you mentioned in the release for next year, the increase of around 5% versus the 14% that you face this here. In your slide presentation there, you do show that your hedging position is down around 2% to 3% in pricing terms, and I appreciate FX is running against that. But I'm not sure quite how you're getting to a kind of 5% inflation rate per passenger. Can you just help with anything I might be missing?

The currency is on the other side of that, Penny, given where we were. And we were looking at hedges about $1.36 to $1.38. So we would expect to see that go the opposite way with $1.32. And so that's why we're kind of calling it around 5%. What that means, obviously, is that it's down still. Average fare actually have to rise by about 2%. So that's the first year and quite a few years where we've had such a small rise in fuel cost per passenger, and on your part, a fairly modest 2% increase in average fare to offset that.

Okay, that's great. My second question is a bit more of the medium-term nature. I think, given all the speculation around potential update in aircraft order, could you just sort of clarify for us what you would be thinking in terms of the annual planning? Sort of roughly how many aircraft per year, or perhaps maybe just more a CapEx side that you're prepared to spend? Because, I think, there is a level of concern in the market that you'll be returning to sort of $1 billion-type level of CapEx, similar to the previous order? If you can give any guidance on what your parameters are, that you are thinking about the new order?

It's very early days yet, Penny. I think it's important as well to understand, we continue to be opportunistic in terms of the aircraft order. We're very happy where we are at the moment with 305 aircraft in the fleet. We would like to see some new aircraft being delivered to us. But probably, over the period, starts as summer of '15, '16, '17, '18, I think a reasonable assumption would be that we'd be taking delivery of something between, say, 30 to 40 aircraft a year over that period. So about 10% to 15% capacity growth. Half of that would be replacement, half of that would be for underlying growth. So I think what you're looking at then is a -- by not grounding as many aircraft in the next 2 winters, I think you're looking at sort of 3% growth for the next 2 years, then sort of 4%-ish, 5% growth per year for the following 3 to 4 years. Now if we could do a -- cover an incentive from the aircraft manufacturer in terms of pricing, we would obviously speed up that rate of growth, but that would have a downward impact on yields going forward. And if there isn't an incentive to accelerate that growth, then we might, in fact, grow slightly less than that. In which case, there'll be more of an upward trend in yield and cash, because I don't foresee anybody else over that period of time, has, nobody else in Europe had significant aircraft orders over that period. And I think you're going to continue to see medium-term capacity stability in Europe, which would be a function of some aircraft delivery to the low-fare carriers, and continuing significant retrenchment and consolidation within the flags. I mean, the one market that --…

In terms of CapEx, Penny, we would see the benefit of having a young fleet, average age just 4 years. We'd expect very modest capital expenditure, and the runoff to any order, if you're talking about 2015 scale, you'd be talking about less than EUR 100 million per annum, mainly on maintenance CapEx, typically engine overhaul.

Okay, that's very helpful.

And just before the next question comes, obviously, there isn't going to be another special dividend until we do resolve the aircraft order situation. So please, don't anybody ask for one.

We will now take the next question from Robin Byde of Cantor Fitzgerald.

Just 2 for me, just on short run CapEx issues. Now you're final deliveries have been made, is that pretty much it for the year? So in other words, should we assume CapEx of less than GBP 300 million, all-in? And just secondly, on sector lengths and thinking about fuel usage, I just noticed in your statement that you said these are now shortening. Can you just talk us through some of the moving parts there, please?

It's a bit -- the second part of that. What was the -- is the reference sector shortening?

Yes. In the statement, you said that your sector lengths are now shortening. I think on your last call, you said they were lengthening. So I'm just trying to sort of model my fuel usage, and second, just sort of comment on what the moving parts are there, please?

Yes. Obviously, absent the new aircraft order, the CapEx will continue to be very modest. I think it's reasonable to accept not more than sort of GBP 100 million -- and we offer the basic kind of GBP 100 million a year, but I really still need to tell you how we spend GBP 100 million a year. I mean, the big ones would still be -- there's some infrastructure spend on maintenance, facilities, some spare engine acquisition, that kind of stuff. But it's relatively small. I mean, it's not materially in our numbers. Sector length is something -- it's very hard to give you any guidance on because it continues to be opportunistic. It depends on who comes up with best deals and where that would be. We're guiding in Q4, sector length would be down 2%, down 3% for the year. That's a function of the buildup of a lot of domestic routes in Italy. And also, an increase in number of routes to and from the German airports to places like Italy, France and Northern Spain. I don't see any reason why that would change. For example, if you look at the new bases we've announced this. For next year, Morocco, the 2 Moroccan bases are largely cast with serving destinations in Spain and France with a high proportion of VFR business traffic. The one Greece base, the Greece base is again largely serving Germany, Italy, where we're trying to keep the sector lengths down. And the bases in Croatia, Poland and Holland are pretty similar to what we already do. So really...

I have to say flattish. It was probably...

I think flattish is reasonable, but it's a good -- if it's up 2% in 1 -- say, 1.5 years, it's down 2% another 0.5 year is just us being opportunistic.

We will now take the next question from Damian Brewer of RBC.

Just one quick one. Could you talk us through the criteria which you would change the degree of aircraft grounded in winter? Is there a particular yield or profitability requirement you'd have to get out of those? And then as a follow-on to that, if you're flying more of the fleet in the winter, how would that change the way you'd approach maintenance and what would that do to maintenance costs?

We'll do the second one first. It wouldn't have any effect on the winter maintenance. I mean, we have a core requirement, I think, to ground about 20 -- between 15 and 20 aircraft on a rolling basis through the winter, so we're grounding, with 80 aircraft, it's about 60, 65 aircraft grounded that could be flying. Obviously, we would not go below that 15 to 20 aircraft. Accomplishing all the maintenance is a key part -- during the winter is a key part of both our reliability and our accounts management. And I think the dynamic going forward in the next winter is, clearly, we don't have a lot of capacity growth in the summer. We have an awful lot of airports who are still very anxious, I'd say, to make up traffic that they're losing through competitor retrenchments. That's certainly a feature in Italy. It's certainly a feature in Germany, not much of a feature in Spain at the moment, although the airports in the Canary Islands are lobbying hard for reversals in the fees and tax increases to get a special kind of Canary Islands concession. We expect MAG, when they get their feet on the table in Stansted, will be looking for a significant commitment to grow. Obviously, a lot of that -- so I think what we'll be looking to do would be next winter, ground up to maybe 40 aircraft, focus on those kind of airports where we can build a decent bill of business, our new route and business in the winter, that will sustain itself through in the following summer, and then come up with the aircraft in the summer by -- through increased churn over the summer '13 schedule. That means we also I think will be much more tough for our class of existing airports, too. You'll be losing some of your existing routes and aircraft unless you can come up with competitive cost reductions to mask the kind of cost proposals we'll have on the table. From airports we're looking to either reverse traffic losses from others or we're looking to grow. And I think that's going to be the feature of the business for the next FY '14 and FY '15, with the winter growth and summer churn. And I think we have demonstrated an ability to be very disciplined in our approach to airport and handling cost, and also, government taxes and using churn as sort of a way of at least influencing that process.

Okay. And I assume that means you will look closely at Rome, given the 58% price increase announced there?

In Rome. Yes, that was at -- it's at Fiumicino as opposed to Ciampino. Although, that's not to say there won't some increase at Ciampino. Again, I think a lot of that will accelerate the retrenchment of Alitalia, particularly Alitalia short-haul. And we've seen that already from a number of the regional, particularly the Southern Italian airports, who are over us like a rash looking for growth of domestic services feature to Rome and Milan. Our problem at Rome, though, is that we are constrained by artificial noise, and is our constraint in Ciampino, which we would like to see it raised. But I think the Southern Italian airports are very, very concerned about the extent of the cutbacks that will be necessary in Alitalia. Meridiana, who would the #2 kind of Italian airline in Italy, although significantly smaller than Ryanair, they have continued to struggled with their financial position. They've gone through temporarily operating license there, are also causing flights particularly on the domestic routes. I think the [indiscernible] has had to pump in -- pumping in another GBP 100 million in there, not that it would make any difference. So those opportunities continue to present themselves. And I think we see the early warning signs that is how aggressive the airports have been in trying to attract us to grow there.

[Operator Instructions] The next question comes from Donal O'Neill of Goodbody.

Most of my questions have been answered, but just a couple of short ones. Again, on the airport side of things, as you look forward, and you talk about more and more offers from new airports, better offers from new airports, how many of those would be more primary airports? And I'm thinking just in terms of the retrenchment of the legacy carriers. Would you see your share of primary airports increasing over the next 12, 24 months? And secondly, just again on Stansted, assuming or, let's say, you get the deal you want out of MAG, how quickly could you put another 5 million passengers into Stansted, let's say?

Okay. In terms of primary airports, well, I think we've been quite surprised by the amount of offers we've got from airports. Michael referred to earlier on there the weakening -- the weakness of Air Berlin, the kind of retrenchment of Lufthansa into one larger German wings. And what we're seeing is that a number of the primary German airports are now approaching us and with very attractive offers for additional growth. So that's kind of symptomatic of what's going on as the flight carriers retrench. And if you can take a broad look across Europe, be it Iberia, be it Alitalia, Stansted, Scandinavia, Air Berlin in Germany and Air France, KLM, gone through a major restructuring process. This whole set of circumstances is creating demand from those airports for additional capacity. And they're coming to us with some very, very attractive offers. And...

Stansted.

Stansted, I think Stansted is -- given that we have 70% of the capacity there, the ability to increase volumes would, as we referred to earlier on, we would have look at some route churn. We have limited capacity in the next 2 years. We could certainly allocate some of that towards Stansted. But we'll be looking to continue the process we've done over the last number of years, which is looking at our total route network and pulling out those weaker, underperforming routes. They may still be profitable, more profitable, but not as profitable as some of other routes we operate, and reallocating that capacity to Stansted. So when you got the goods of 80-plus million passengers, significant capacity sat on the ground during the winter, certainly, churning 1 million passengers and growing that over a 5-year period is certainly possible. But obviously, that would be helped significantly if we had another order in 2015 or somewhat beyond that.

Yes. I think it's fair to say, too, adding, [ph] we're unlikely to get the kind of -- our relations with MAG over the years is we're very unlikely to get the kind of cost base we want from MAG. MAG are very unlikely to get the kind of growth that they want from us until there's some kind of a compromise reached. But I think the difficulty for MAG at Stansted is that we -- not just that Ryanair operate 70% of the traffic there, but that we operate so much of the route network. It will be very difficult to get other airlines because of an increasing unwillingness of the airlines to come to Stansted to compete with us on a like-for-like basis. There's certainly opportunities, I think, for long-haul and medium-haul airlines to go to Stansted, by all means, and we would work to encourage them. I think it's an unusual situation in that we certainly want to grow at Stansted and reverse the declines in recent years, but we're happy to do so on the basis of reduced airport fees. I think the upside for someone like Manchester is that even the BAA's own figures at the moment show that, that airport with 70% of Ryanair traffic has a profit per passenger from commercial activity to GBP 4. And that's profit, that's not revenues. So there's kind of a myth out there that Ryanair carries all of these impoverished peasants who spend nothing at airports, and the Stansted numbers show actually that our passengers, probably the spend is higher certainly for short-haul passengers, and they make a profit of GBP 4 per passenger. You don't have to be a genius to work out that Manchester are pretty good at working this out. If the profit per passenger is GBP 4, and you add another 5 million passengers there, with no CapEx, it's a pretty easy decision. But to be fair to Manchester, they are robust partners of ours. I think they would speak equally -- describe us as being equally robust. They're still the only airport that ever impounded one of our aircraft. Although to fair, they didn't have to apologize subsequently. So I think they will -- put it this way, if they come up with a very attractive cost offer, we can grow very quickly. But I think the general proposition that we will be putting to them is that we can sustain readily growth of -- incremental growth of 1 million passengers a year over a 5-year period, it'd be 5 million incremental passengers. Now if you want to grow faster than that or slower than that, yes, we can handle all that, and we can do that relatively readily, even through churn ourselves.

The other thing we would see as an opportunity particularly at the BAA-Stansted cost base has been stopped as [ph] intercompany charges from BAA head office somewhere near Heathrow. And I think historically looking at the way we operate in Stansted, not having any CapEx, but also working with them to eliminate all of the overcharging that's going on means that not only can they generate additional revenue from ancillary spend but they can also make significant cost savings in working with us. So I think there's a tremendous opportunity there.

We will now take the next question of Anand Date from Deutsche Bank.

It is a quick one. You're saying that the business mix has been shifting over time. Is that an indication that's geographically linked? And is that linked perhaps to certain legacies are doing in those specific countries? Or is it just across-the-board?

Generally, it's across-the-board. I think it's certainly influenced by those -- I think it is influenced by what legacy decisions as if where we build a very large kind of position in the market like Spain, where we are -- I mean, last year in Spain, we carried 29 million passenger. Iberia carried 18 million passengers. We're not just #1. We're #1 by a distance. We have a big domestic operation, the same in Italy. That undoubtedly has helped the build, but really -- and without being too-- some of this is subjective, I think an awful lot of it is the increasing realization that what we do, we do very well. The punctuality is excellent. The business people can now have reserved seating. They can now arrive at the airport later and later, with a fare guarantee of getting through security. And it becomes the kind of ultimate business product. Show up late at a short-haul airport, get on the plane quickly, be on time, right on time, don't hang around waiting at check-in desks and all the rest of it. Once you use it, our rate of return is incredibly high. There is and remains an issue on ever whether some business, the bigger companies want to use travel implements -- travel companies or travel management companies. I'm not sure in time that we won't find some facility of working. And we see a lot of those travel managers actually booking Ryanair flights themselves anyway, although we don't pay them any -- but it's because the business people are actually traveling to a destination airport that suits their needs. If you live, for example, in Oxford, you're not going to travel past Stansted to get to Gatwick, and that continues to be the case. So I think it…

I think it's not in the house for the fact that many of the restructuring that flag carriers is mainly in the hub and spoke type operation. So they're trying to push more and more volume into their hubs, which means increasingly -- I always love to do a journey up to Scandinavia from Italy, and we were the only alternative. Why? Because there was nobody serving that market anymore. And if you want to get from point A to point B, the only way you can do that quickly and efficiently at the right price is take a direct flight with a low-fare carrier, either ourselves or indeed, easyJet. So this whole, I think there's whole swath of the market being given up by the legacy carriers.

And again, I'd also -- no different I think -- don't lose -- we should not lose the relative size of our business passengers either. They're 22% of -- they're north of 20%. But the leisure passengers are still -- our leisure VFR is still 75%, 80%. Passengers continue to be the mix, but I think there is certainly a -- there is a -- certainly, there's a yields benefit under it. But there's a mix of passengers coming to us now who are booking later and paying us more than we have seen in the past.

I'm sorry. It's okay. If I could have a second point then. Just could you give an idea of what the average yield uplift might be from a leisure to a business traveler?

No. I state our highest yielding passengers are leisure passengers going to funerals. At the last minute, they're entirely price-insensitive. Honestly, there's just -- you have as many business people who are very price-sensitive and know, for example, you are -- sales people who are -- need to be -- who are traveling out on a Monday, back on a Wednesday for the next 8 weeks, who go in and just book the flight. We have a lot of people -- I mean, I know even kind of -- we have lots people in Spain, in Portugal, who are working in Paris, who fly with us Mondays, Fridays, every single week. You have Irish people commuting to the U.K. I mean, we have this immigration kind of phobia here in Ireland, that they're all leaving on potato ships, and never be seen again. Where it's actually the fact, there's a huge proportion of business leaves on a Monday morning and return on a Friday evening. And it's just that the television cameras aren't there every weekend to record the returns. So there's all of that kind of -- whether you describe that as leisure or business, but they're able to book well 6, 8, 12 weeks in advance. They get their very low fares. And if they don't travel for some reason or change their circumstances, it cost them very little, anyway . So you've got to be very careful against kind of prescribing business good, expensive; leisure, bad, cheap. There's a very much different mix of profiles in those segments. And I think that the answer is, we need all of it. Obviously, the more fuel, the better, but we need all of it. And it all goes into the mix.

I'm just really sorry. This is a yes or no one, it's very, very quick. Am I right in thinking that you would never go and approach companies to look for deals, but if they were big enough and they came to you, you would spend a bit of time looking at that?

I'm always reluctant to answer questions like "you would never" because "never" is a long time, and there is no policy or principle we have here that we wouldn't sell in a heartbeat if it meant a bit more money somewhere. So I think it's logical to assume that we will -- that if we sense that there was a way that we could easily manage the process for large companies, even for medium companies, there's lots of ways that you could see that developing. And I think the way the Internet is -- you could logically have a business-type website or a Ryanair business-type website that would do a lot of that travel fulfillment as the websites get more flexibility as apps keep being written. A lot of companies want this travel management services, they have a record of who flew, at what fares that we have now. Our in-house website, which is of American origin, and it's clunky. It doesn't allow that kind of flexibility. But the way apps are written that allow that kind of interrogation to happen, I think it would be -- I think it's an inevitable development over the short -- over the medium term. It will happen, whether we grow aggressively to kind of -- we'll be putting people on the road specifically to target business companies, I'm not sure. But I certainly think where we think we can tailor or create an app that will allow companies, even companies with 2 and 3 people, to have a manage-my-travel function or manage-my-business function, but it will have to be somewhat kind of an app that adds on top of a clunky-ish website at the moment. Because the website has to service 28 different countries, international travel and domestic travel, different rates of taxes, all the rest of it. It's a very complex system. So I think the answer to "would we never do it?" would be no, because "never" is always too long. But I suspected something that increasingly -- I think there will be a meeting between Ryanair and big business. We will move in the direction of business over the next couple of years, and I think business will increasingly move in the direction of Ryanair's fares and cost savings.

We will now take the next question from Edward Stanford of Oriel Securities.

Just one question, if I may. I think if memory serves, just last quarter, you were expressing some caution about the level of incentives you may have to do to the new bases. Can you just give us a flavor for the experience has been and how you see that going forward in terms of yield and incentives and so on?

Discounts on new fares, Ed?

Yes, and I think you were a little bit concerned about the impact on the overall group yield of the startup of the new bases. I was just wondering how that was progressing.

No, I mean, I think what we're trying to communicate is, in the last quarter, traffic growth, very strong. We had very strong traffic growth particularly at Warsaw and Budapest. But then the fare war going on over there with Wizz. At that stage, we're kind of squaring up towards -- we're going to toe to toe with Ryanair. There seems to be the change in there, setting strategy at both airports. Increasingly they've announced some new routes there. They closed the routes where they competed with us into Italy and Spain. They seem to be increasingly looking at routes from both Budapest and Poland, going to places like Romania, the Ukraine and stuff like that. So I think they're kind of moving away from head-to-head competition with Ryanair at both of those 2 airports and developing routes that are focusing more kind of Eastward, whereas we're still certainly in Warsaw, adding routes that are focusing Westward. But Wizz are not bad competitor. I can say that the market there -- we went into a market in Budapest last February in a vacuum when Mallab went bust, [ph] so the fares were particularly poor. The fares have been so over that 12 months, and the fares this year are ahead of where they were last year. But they were very low last year because we were launching it for Airfive aircraft based out of nothing. [ph] Warsaw continues to build, but it has undoubtedly been interrupted by the runway closure in Modlin. And we're moving everybody and bussing everybody across. The aircraft are traveling to and from Chopin, with some people bussing across and back. It's not ideal, but frankly, we have such a large position now in Warsaw. And we're the #1 airline in Poland. I think we'll just have to continue to manage it as best as we can with Chopin while encouraging Modlin to open up as quickly as possible. But again, what I think [indiscernible] communicated degree of conservatism remains in all the investor calls and in the communication. The story is roughly 8% in the last quarter. It could be weak in January. Everybody, the average fare is doing well. The yields are rising, I think, largely at the back of competitor pricing, restructurings and oil price increases. But those are some weaker spots out there, where we're still growing aggressively in places like Warsaw and Budapest. So it's not uniform. I mean, it's a little bit touchy. I think it's always helpful to bear in mind when you look at it as an airline, and therefore, whenever it's going well, you're just getting close to the next -- s*** happens event. And we try to take some of the exuberance out of the coverage.

Next question comes from Gerald Khoo of Espiritu Santo.

Just a quick question on the exchange rate hedge. In the presentation pack, you've given us the exchange rate for next year, being $1.32. I was wondering if you can give us an indication of the percentage cover for the year or by quarter, please?

We're at 90% hedged for Q1 and 85% for Q2 and 85% for Q3. We have about 20% on for Q4. So when you average that out, that's about 75% of the full year. We still have a little bit to do in Q4 next year. We've got a good year as, coverage and pace.

Next question comes from Tim Marshall of Redburn.

Just a quick follow-up. Are there any limits to your ability to churn routes, like do you have any deals with airports, where you've committed to a certain amount of volume or you're at the liberty to do whatever you like in terms of kind of putting pressure on them that way?

No, generally, we're not at liberty. There's almost none of our airports. I mean, we will have certain minimum volumes at a small number of our airports, but we'd be still be ahead of those minimum volumes that you could easily churn the top end. But that would account for less than -- I'd say less than 5% or 10% of our airport deals have annual minimum volumes. And we will increase churn at will.

There are no further questions.

Great. Well done. Okay. Thank you very much, everybody. As said, John O'Grady is here with me, as is Neil Sorahan and Jimmy Dempsey. If anybody has any follow-up questions, please feel free to communicate them. We're here generally all week. I'd be happy to talk to anybody offline, if that would help. And as said, a degree of caution and temper the optimism and the euphoria and all will be well. I'd be glad to see you and talk to you in the next couple of weeks. So thanks much, everybody. God bless. Bye-bye.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.