Ryanair Holdings plc (RYAAY) Q1 2018 Earnings Report, Transcript and Summary

Hello and welcome to this Ryanair Q1 Fiscal Year 2018 Results Call. Throughout this call, all participants will be in listen only move and afterwards there will be a question-and-answer session. Also just to remind you this session is being recorded. I'll now hand you over to Michael O'Leary. Please begin. Michael O’Leary: Hey thank you. Good morning, ladies and gentlemen and welcome to the Ryanair Q1 results conference call. As usual you have seen this morning on the ryanair.com website both, the quarterly results, the share presentation, and a video presentation, a video Q&A with myself and Neil Sorahan, the CFO. Accordingly, I'm going to dip through this and then we'll open up to questions fairly quickly. So you will have seen this morning we reported a Q1 increase in profits of 55% to just under €400 million. This result however was distorted by the timing of the Easter which fell entirely into August, I mean to April rather, with no holiday period in the prior year comparable. But in summary for the first quarter, traffic is up 12% to €35 million. The load factor has continued to improve up 2 points to 96%. The average fare distorted by that presence of Easter in Q1 finished up 1% at just over €40. Unit costs were down 6% and that's the key takeaway; excluding fuel unit costs were down 3% which is in marked contrast to most of our competitors who were still talking about lowering costs while delivering rising unit costs and notable in the quarter we announced 10 additional 737-MAX aircraft, 5 in spring and 2019 and 5 in spring 2020. It takes the firm or Game Changer order up from 100 to 110 with a 100 options. We've returned over €200 million to shareholders via share buyback and at the end of Q1 we had just under 400 737s operating in the fleet. Two, I think, key points I would make in the quarter is the continuing uncertainty over Brexit which becomes increasingly as hoping increasing the interview we will need some sort of legal certainty by about September 2018 which is now worryingly close, about 15 months away. We continue to campaign for the UK to remain at least in open skies, but if the UK government continues to hold to its position that it won't accede to ECJ jurisdiction then there is very grave danger that the UK must leave open skies and we do not believe that the UK has either the time, the ability or the goodwill on both sides to negotiate timely replacement bilateral with the EU27 in which case there may well be a disruption of flights for period of weeks and/or month from April 2019 onwards. We've been saying this for some period or considerable period of time, we do not see any other solutions out there and more recently efforts by some of our competitors either setup UK AOCs are off screen AOCs under one holding company will not negate or trade away that risk. If there is not some kind of bilateral between the UK and the EU27 by around September or October 2018 then I thing we are facing some precipitated disruptions. I wouldn’t underestimate the extent to which the competitors in Germany and France in particular would like to see or encouraged that kind of disruption. And in terms of comps I mean, I think continue to show unit costs declining 3% in Q1 in marked contrast to a number of competitors with easyJet and others who are reporting unit costs ex-fuel rising despite bullshitting on for the last number of years about how bigger aircraft will lower their unit costs. It seems the more bigger aircraft they take the higher their unit cost ex-fuel rises. And we continue to make the point that that gap that rising gap between us and our competitors aren’t cost is what is going to make a mark Ryanair out from them. I think then we'll touch on guidance, as we have repeatedly tested the market, the Q1 was very strong, substantially distorted by the presence of Easter in April. We still see H1 fares will fall by about 5%, so in other words we see quarter 2 fares falling by between 6% to 8%. H1 traffic which is growing strongly on the back of these lower fares, but yes they are also being affected by a steep decline in baggage revenue, both the penetration of check-in bags and the rates being paid by customers the checked-in bags are declining. We attribute a considerable portion of that to the continuing success of our sbroader despite both the and decline in value per pupil the penetration testing bag and the rate being paid by contradicting bag declining with the very considerable portion of that to the continuing success of our "Always Getting Better" programme and in particular any more customers switching to carrying two, three carryon bags and actually creating some problems for us with the volume of the free carryon bags that are going onboard the aircraft. We've raised the full year traffic targets up by 1 million from 130 million to 131 million. As I said we expect, we have no yield visibility into the second half of the year and throughout this stage we continue to guide the average fare decline in H2 would be 8% and for the full year average fare falling by between 5% and 7%. H2's unit costs are on track to deliver 1% reduction this year. Ancillaries revenues continue to grow in line with traffic, but as we continue to discount pricing to drive rising penetration. And therefore based on all of the above we continue to guide for a full-year profit after tax in a range of €1.4 billion to 1.4 billion [ph] which is a high single digits growth on last year's profit after tax. Neil, anything you want to add there by way of commentary on the MD&A before we open up to questions?

I would highlight that the EPS performed well in the quarter as well and back to share buyback that we've done so EPS was 53% at the time when the profit after tax was 55 and the balance sheet in good shape. We saw a reduction in our net debt figure by €150 million, so just €94 million at the end of the quarter that was after €200 million buyback, €200 million worth of buybacks and €400 million worth of CapEx in the quarter. Michael O’Leary: Okay, thanks. Alex, we'll open it up to questions now, but I'm going to ban questions asking for color on the second half of the yields, we don’t know, we have no visibility. I am also banning any questions on color for next year's yields, we have equally zero visibility on that as well. Other than that if you've got a question that isn’t already answered in our video or in the results release, please feel free.

Thank you, very much. [Operator Instructions] And first question comes from the line of Savi Syth of Raymond James. Please go ahead, your line is now open.

Hey, good morning. Michael O’Leary: Good morning.

Three questions from me, just first on the average fare trend, I was wondering what the trand was excluding kind of the impact from the bag fees and when you might expect that to normalize, at least the drag from the bag fees? Second one on the non-fuel unit cost just what the benefit was from sterling and what do you have the sterling impact in your cost guidance for the year? And then finally, I know this is kind of very early stages and overall we're talking about small numbers, but I was wondering if you have any color on how many connecting passengers you are seeing currently or what you might expect for the full year? Thank you. Michael O’Leary: Okay, I'll do one and three and Neil I'll ask you to do two. Average fare trend, as I said we continue to see average fare trend declining. We concluded checked-in bags also declining although the rate and pace of the decline will I think is a slowdown over time. We have seen penetration over the Q1 this year over last year down and also the rate per bag down and that's a function more and more passengers changing their behavior and bringing more carryon bags. Connecting passengers are too small to mention. We are offering connecting services only over two of our bigger Italian airports in Roman and in Milan. It is a meaningful number after all to those airports but not something that is a significant statistically significant number yet. I think what's more important to us at this point in time is that we're not noticing any particular handling difficulty which is why we are running it as a trial at both of those airports. We're not having passengers miss their flights. We don’t seem to have any difficulty transferring the checked bags. Mind you we don’t have a lot of checked bags and but we’re not going to rollout that connecting to any other hauls until the end of the summer until we get used to the issues with those connections. Neil what's the non's the sterling impact on non-fuel?

We're at or about, just on the 1.5% in the quarter. Michael O’Leary: Thank you, next question please.

Thank you. Our next question comes from the line of Daniel Roska of Sanford Bernstein. Please go ahead, your line is now open.

Good morning Michael, good morning Neil. I'm glad you didn’t ban any questions on Brexit, two of those and one on the ancillaries if I may. So first question is you talked about this a little bit in your Q&A this morning on the website, what additional options beyond disenfranchising forcing to sell for the shareholders have you considered and why did you choose this part, did you discard any of those options you looked at and why? Second part is what's your reading on the most recent EU guidelines from June on the ownership and control regulations they put for us because if I read it correctly there maybe this may make re-allocating the shares to mainland Europe a little bit more difficult as the final Basel beneficial owner is kind of the bar you have to pass and that on the ancillaries you said you know, you are discounting pricing to incentivize the uptake, but I was just wondering could you give us some color of the different buckets flowing into those ancillaries as you report them because I think Neil you today said that seat and bags were in the seat revenue. So what is actually left in the ancillaries and you know if you could classify that in two, three buckets and how are they developing into the future that would be great? Thanks. Michael O’Leary: Okay thanks. To be key with those working my way backwards, no we're not giving you any further color on ancillaries or the buckets. Our guidance for the years is ancillaries to be generally flat and sorry, flat for the year and it up marginally in Q1 but we expect to give that back in the rest of the year. We don’t see any significant change in the EU guidelines on ownership and control. We expect in a hard Brexit that the UK shareholders will either be forces to sell or will be disenfranchised and all differ over a period of time when they come to sell will be required to sell to EU shareholders, which is why we don't think the IAG ownership structure will survive a hard Brexit. We don't believe that the easyJet structure of having a holding company owning an arm with UK you'll see will survive a hard Brexit and we don't think the Wizz now since last week is setting up a UK AOC will have any effects during a hard Brexit. The hard Brexit there is likely to be a period of a month I think maybe even two shed the summer period of 2019 there may be no flights for a period of time. In a bizarre way I think given the weakness of the UK Government that might actually be one year if they wake up the UK government the reality of Brexit means instead of the nonsensical clichés they've been drumming out in the UK for the last number of weeks and months. Our view of life in a hard Brexit I doubt if there would be a forced sale of UK shareholders on the first of April 2019, but I think they will be, the treatment will be something similar to ADRs at the moment. The UK shareholders will only be able to sell to EU resident shareholders or we may have some sort of period of time when we force them to sell. If there is a forced sale, that would clearly be downward, have a downward impact on our share price and we may well speed up a share buyback programme to take advantage of that and to facilitate UK shareholders selling. And additional options on the share [indiscernible] shareholders sale, one and the same thing. Well the first part of your question was would we, were there any other options other than forced sale of the UK shareholders?

Yes and I think you called it out, but you know when you call it on the IAG [indiscernible] structure, so therefore you looked at trust structures and you've done things they will hold out right? Michael O’Leary: No, we see, I mean if there is a hard Brexit and we know that the certainly mainland European competitors, most notably the Germans and the French are all over this like a rash, they will not I think they will certainly be campaigning very hard for to look through the something like say and IAG structure for example and I know there was a conference in Brussels two weeks ago where really worked with very active calling for reform of the archaic ownership rules, so it was somewhat surprising given how relaxed he is purported to be over the last year or two about how good the IAG structure is. I don’t see any way that's going to be blind will survive the hard Brexit. But maybe that's, you know, I continue to hope against hope that in a hard Brexit environment the British may well blink or at least have a more considered view of the outcome of Brexit.

Okay, that's from me now, thanks for the color. Michael O’Leary: Thanks Daniel.

Thank you. Our next question comes from the line of Jarrod Castle of UBS. Please go ahead, you line is open. Michael O’Leary: Jarrod, hi.

Hi, good morning, gents. Three, as well then. One, Michael, I mean how serious are you about looking at Alitalia? Is this just really to look under the bun to see what's going on? I mean again it comes to issues that are kind of short or long haul trade unions, et cetera. So just to kind of give some color around I guess what you are and aren’t doing when it comes to them? Secondly, just on unit cost performance a good showing in Q1, I mean is there some potential that you could do a little bit better than guidance as you kind of move through the quarters? And then secondly, just in terms that you've mentioned Brexit in the UK and mentioned also on the – on your Q&A about UK kind of fares performing worse than the rest of the network. Can you give some color relative to the average fare being up plus one, plus the whole network what the UK was doing? Thanks. Michael O’Leary: Okay to start you tables and statements, Alitalia - look as the largest airline in Italy it is incumbent upon us to work with the Italian Government and the Commissioners in Italy to try to assist a positive outcome for Alitalia is cost [indiscernible] to the people who work there. We are serious in indicating that we have an interest in Alitalia, but we're also serious in that our interest in Alitalia is only if there is going to be some fundamental reform. The Chapter 11 profits [ph] under which the three commissioners currently run Alitalia they can bring about some fundamental reform. They do have the legal power to significantly restructure Alitalia and if there was a significant restructuring such that Alitalia could reasonably be seen to operate and on a profitable basis, then yes I think we would have an interest in it. But those are high bars to cross, but clearly something Alitalia is going to have some cost to cross some high bars if it's going to survive in its current form and it would also obviously involve an absence of Italian Government interference which again would be another high bar. And unit costs, yes we are always striving to do better on unit costs, but I think our – remember last year we reduced unit costs by 5% when every other competitor we have in Europe saw the unit cost rise. In Q1 we've taken that down. This is ex-fuel by another three percentage points whereas in the last couple of weeks we've seen fairly pathetic unit cost performance from alleged competitors of ours many of whom have been going around for about two years promising to be able to match Ryanair on costs, got have to beat Ryanair on cost, because they are getting new super dupery longer shinier aircraft. And yet every quarter they continue to report unit costs increasing but some kind of failed hope that by the end of the year or in 2025 their unit costs will decline. The reality is we deliver unit cost declines. We are far better at managing unit cost than any other airline and our competitors are pretty piss poor at it. So I think we would certainly be striving to do better, but I think it would be unreasonable to expect anything more at this stage than a 1% decline for the full year. And on Brexit UK we are breaking down to, no - look we're in the Q1 results, we're not giving you color on sectors, our bases, our markets or anything else. We'll do that on the half year when we go around and do the investor relations road show, but it is fair to say as we have publicly that certainly the market from the UK and UK particularly Spain and Portugal and Italy where there has been and continues to be a large volume, large capacity increases both charter capacity switching out or continuing to switch out of Egypt, Turkey, North Africa, some other of the Monarch jet to these guys arriving down there with very significant capacity increases. That has put in order to downward pressure on airfares, and that continues to be the case, but we're not on Q1 breaking out the sectored detail.

Thanks very much. Michael O’Leary: Thanks Jarrod.

Thank you. Our next question comes from the line of Duane Pfennigwerth of Evercore ISI. Please go ahead your line is open.

Hi thanks for the time. Michael O’Leary: Duane, hi.

Just with respect to your Q2 fares down 6% to 8% is that what you're seeing on the books in July so far down 7%? Michael O’Leary: It's in that area, yes.

Okay, and then can you just talk about how far out your order book is fully committed, what periods are still open depending upon pricing? And then with respect to the MAX does this frame now markets given the range capabilities, is this put new markets on the table for you that you haven’t historically been able to serve? Michael O’Leary: If I refer to the order book I assume you mean the aircraft is it?

Yes. Michael O’Leary: Yes, we have the aircraft orders run out to the end of summer, the autumn of 2023. We currently have, we take the last of the NGs in the autumn of 2018. We take the first of the MAX 110 for MAX Game Changers in the spring of 2019. We still have a 100 of those that are under options, but I would be amazed, I mean unless there was some kind of very significant adverse event, I expect us to take all of those, we confirmed in all of those options as they fall due two years prior to delivery. The MAX aircraft roll to extend our range of operations that we have very – we have no interest in flying the MAX for example across the Atlantic again because of its range limitations. We can do Dublin to kind of Boston, but we can't - unless you're go in the Serengeti [ph] East Coast and the West Coast with the long haul low cost carrier, we don't think you have the scale or the ability to penetrate that market properly. So, we don't see that MAX as being some sort of cross Transatlantic or across a long haul aircraft. The MAX or the Game Changer is going to significantly lower our unit cost. It has 4% more seats. It has 16% lower fuel per seat and it is going to transform significantly the unit cost base of what is already and by some distance the lowest cost carrier in Europe and the carrier in Europe that has a widening unit cost advantage over Wizz, easyJet, Norwegian and all the other lunatics out there who can't manage their cost base. And I think it's a particularly important metric for some of the EDS analysts out there who keep raising shite that somebody is going to close the cost base between Ryanair either in 2018, 2019 or 2023. It would be helpful if you looked at the current quarter and the previous six or seven quarters and show the inability of the others to manage their unit cost whereas we continue to deliver declining unit cost. And that's why by the way as we add very significant capacity, I mean we will grow this year by another 10 million passengers which is, not far off half of Wizz's total traffic on an annualized basis. We are supremely confident in our ability to fill those extra seats and continue to deliver impressive returns to shareholders because we are actually reducing unit costs; we're not just talking about reducing unit cost.

Thanks Michael. Michael O’Leary: Thank you, Duane. Next question?

Thank you. Our next question comes from the line of Mark Simpson of Goodbody. Please go ahead. Your line is open.

Yes, Michael hi. Michael O’Leary: Hi, Mark.

To tread carefully into, into this, in sense of your super duper shiny big aircraft… Michael O’Leary: Oh yes, your favorite sense of that, you want to talk about the number two carrier in Central Europe again, do you?

Well no, I don’t want to talk about Wizz on your call but… Michael O’Leary: Take some flight to the imagination, but do your best.

Well, if it comes down per pax of SK but let's not dwell on that. Michael O’Leary: Oh it bloody, doesn’t.

Now in terms of the comment though Bloomberg suggesting they might be issuing the MAX 10 in 2023 is that just Bloomberg commentary or is that something which you would contemplate? Michael O’Leary: I mean Bloomberg commentary there's been no development there. I mean we make no secret, we are interested in the MAX 10, but we're all using the MAX 10 if it can lower our unit cost. Thus far, the discourses with Boeing haven't gone anywhere. They are - I think their pricing on the aircraft at the moment is far too high. It's not something that we have any interest in, but we have chosen to go back and if they can come up with a pricing on the MAX 10 that meaningfully reduces our unit costs we'd be very happy to place an order. We were underwhelmed by the or the orders they announced at the Paris Air Show which were basically conversions of existing orders from United and Spice Jet and few others. If that's what your order book consists of then God speed. If or when there's going to be this aircraft, I mean like we do believe a 230 seat aircraft can deliver a meaningful reduction in unit costs then it will be of interest to us. But if it's the typical Boeing stuff per year 30% more seats and pay a 30% higher price, frankly it is of no interest to us and we are, we have no need to place another aircraft order for about another five years at this point in time. So we are very interested in the aircraft, but we're only very interested in this aircraft or indeed any aircraft if it lowers our unit cost. If it's just a shiny f*****g toy as your friends and Duane is there who likes shiny toys yet as their traffic rises their aircraft ownership cost rises at an ever faster rate that's not the business model we're in and haven't been for some 30 years now.

Yes, fair point. I just wonder what's your view of the residual risk for the MAX-200 on the basis that, the market seems to favor, 180, 190 seats up to 230 to 240 seats is that perception residual risk in the MAX-200 and you guys swear that asset to the end of its useful life? Michael O’Leary: Frankly we wouldn't given rushers, we've never worried have never get order an aircraft and worried about the residual life of an aircraft because we know we are an end user. We've always been an end user with these aircraft. What the residual value is frankly I couldn't care less because we can fly them until they’re 20 years old, but the price at which we’re buying them is so competitive, I mean if we get this aircraft in year, we have 4% more revenues and 16% lower fuel cost and happily fly them until somebody invents Star Trek travels.

And then one final issue different ancillary revenue per pax, you highlighted lower hotel penetration rates in your release, is that just a transition period from Booking.com to rent out rooms or is that seen as slightly disappointing, I wonder if you can give us some idea of what you’re targeting on conversion rates? Michael O’Leary: No, I mean I think it’s actually it’s the quarter across [ph]. We are Ryanair Rooms is a product, a new product, actually the penetration rates started off very lowly. The penetration rate is rising very quickly both on rooms and on holidays, but it’s very low numbers at the moment. And I think it’s something that we’re looking to, I think Kenny and John Hurley and the digital team are working actively on and we’re looking for much more inventory online by about the end of this calendar year. I think you’ll see a big push into Ryanair rooms for 2018.

Okay. That’s great. Thank you. Michael O’Leary: Thanks Mark. Next question please?

Thank you. Our next question comes from the line of Neil Glynn at Credit Suisse. Please go Neil, hi your line is open. Michael O’Leary: Neil, hi.

Hi there, two questions from me please. The first one, I note some of your top growth through this summer include Italy Domestic and Poland Domestic. Just prompts the question, to what extent do you feel you need to increase domestic penetration in some of these markets to produce more balance with international services to ultimately optimize your relevance to local customers? And then secondly on the bag charges, obviously that you’ve mentioned Michael, they are weighing in the first quarter, just wondering to what extent do you have a plan to deal with this if indeed you need to? And on top of that you’ve mentioned a very good on-time performance number in the first quarter, just interested do the two carry-on bags are they having any negative impact on turnaround times at all? Michael O’Leary: Okay. The top line growth, yes I mean the Domestic Italy is doing well but Domestic Poland is tiny, Domestic Poland is only two routes, so don’t get distracted by do we need to do more domestic, like we never look at business on the base of are they domestic or international, it’s short sector and short sectors do help us to maintain efficiency and unlike all the other airlines who sell their air fares on some seat kilometer basis, we only sell our seats and manage our comps on a per passenger basis which is why we like shorter sectors. But I think there is a very limited growth in the domestic markets. Generally Domestic Spain is sizable, but we’re recently big and Domestic Italy is sizable, we’re recently big and Domestic Germany is sizable. I have no desire to be big in Domestic Germany. I'd far rather be doing into European over Germany. So I think don’t get too distracted by different, by smaller, by sector issues. Always look at us as a kind of Pan-European airline and if we're doing a short flight, whether it’s domestic or it’s an inter-European flight, it’s just a short flight. Bag charges, yes we continue to see significant change in customer behavior. I did think we - last year when we were above 20, just about 20% in checked-in bag penetration, but that was probably as low as it would go. We have been surprised this year to see checked-bag penetration fall low 20% now running at around 16% into the peak summer period which is unusual. It does show that more and more passengers who are now travelling with two carry-on bags. We are, I mean it isn’t affecting our on-time performance, but it’s affecting the speed at which we can board aircraft. Our on-time performance is struggling at the moment mainly because of staffing issues within German, British and French ATC particularly at weekends where they are piss pool. It is also being affected by we have this same as last year an outbreak of thunderstorms which seems to hang over continental Europe for the month of June and July, it’s [indiscernible] high in the wrong place and that is fundamentally the bigger problem. I think though it is becoming an issue for us the volume of carry-on bags. Our handling agents do a good job at managing the queues, but we’re putting far too many I think second bags into the whole free of charge at the boarding gate. I’m not quite sure how we will get there, but I think we have to do something before the maybe the end of this year or sometime into early next year just to reduce the number of carry-on, or free carry-on bags that are being put into the hold of the aircraft. It seems clear to me anyway although the management team are not entirely united on this, that there is a - people are now gaming the system because they know they can just show up with a bloody boarding gate and put get the bag carried free of charge instead of going to the check-in desk and checking in the bags. And I think we are looking at different ways where we may limit the number of people who can bring two carry-on bags that might be priority boarding, it’s by splitting the pricing of different products into a standard and a basic pricing on airfares. But we will need to do something to limit the amount of free gate carry-on bags we’re taking into the old aircraft. But I would again and in that light caution, I mean in many respects I think that the - I look favorably on the declining checked-in bag penetration or the increasing penetration of two people or passengers bringing gaming the system by bringing more bags onto boarding gate is just one of the byproducts of our "Always Getting Better" program and it is the "Always Getting Better" programs its success that has continued to mean that we are seeing very strong traffic growth, load factor is up at 96% and rising profits up in the first quarter by 55% and even profit growth in the over the full year of high single digits. The fact that bag penetration is down is one of the negatives of "Always Getting Better", but it goes to the heart of what we’re doing which is still passing on more value to customers in the form of lower fares and now more and more free carry-on bags. Next question please?

Thank you. Our next question comes from the line of Stephen Furlong of Davy. Please go ahead. Michael O’Leary: Stephen, hi.

Hi Michael, can I just ask you about, you talked about Italy, so kind of just talk about Germany what do you think is going to happen and how it’s going to play out with Air Berlin and also what is going on with the Berlin Airports and how you think that will play out? Michael O’Leary: I mean, again it’s difficult to say how it will play out. Clearly Air Berlin is tethering on the edge of bankruptcy. It seems to us that it is Lufthansa that's keeping them alive in what is a flagrant breach of EU completion rules. But the Germans seem to be able to breach competition rules whenever it suits them. I suspect, but again I also I caution, I was the one who thought the UK would vote to stay in the European Union, I suspect that Lufthansa will somehow be allowed to buy Air Berlin, but they would reduce Air Berlin’s capacity because they will then ultimately control the German domestic market which will mean higher fares for German consumers, but less capacity. That should I think assist our growth in the German market because more and more of the German airports will look to have low cost into European traffic growth make up for the decline in the German domestic traffic they will have at their airports. And the second part of the question was Air Berlin, Berlin Airport they have this mad idea to close the second, the two airports, Brandenburg and Tegel, Schönefeld and Tegel into one smaller airport Brandenburg which can handle, has the capacity of about 27 million passengers, the combined traffic at Tegel and Schönefeld at the moment is about 34 million passengers. It’s not - the only people who are in favor of this plan are Lufthansa who think that actually it’s better to have less capacity in Berlin, less competition to Lufthansa, but at least the poor Germans won’t be confused about travelling operating a city with more than one airport. It’s clearly a scam by Lufthansa to limit competition and keep fares high in the German market. I think there is a reasonable prospect of certainly more momentum behind the campaigns, keep Tegel open. Kenny was over there last week and he did a good job of in fact not just keeping Tegel open, by the time he was finished he was calling for a third airport in the Berlin marketplace. And to be fair if you look at the way the traffic in London has mushroomed once the BAA monopoly was broken up and Heathrow forced to sell Gatwick and Stansted, nobody would argue I think in retrospect that was anything but good for consumers and good for competition. Berlin should have at least two and if not three airports not one smaller airport.

Okay, got it. Thank you. Michael O’Leary: Thanks Stephen. Next question?

Thank you. Our next question is from the line of Damian Brewer of RBC. Please go ahead. Michael O’Leary: Damien, hi.

Hi good morning. Two questions please. First one just simple one, if we take at least what was the May, June revenue per seat development like just to understand what makes the Easter effect was like? secondly, just looking at your outlook for the year, fleet growth and therefore seat growth in theory looks like it would be about 12% if it followed the fleet growth but passenger growth up 9%. So, clearly it looks like you are grounding a lot more capacity this winter or something else is going on there in terms of fleet timing. Could you expand a little bit more about what's going on now that the passenger growth so lacks the fleet growth this year? Michael O’Leary: Okay, let's Easter, I wouldn't break out Easter on a revenue per passenger, but in terms of profitability within Easter roughly is now around 50 million in our profits, so about 50 million tends to move around and that's been one of the key drivers of the bumper kind of Q1 numbers this morning. Fleet growth I think is a little bit distorted. Remember we get a significant, most of our deliveries come, the big flow of our deliveries comes through January, February, March, April and May. We're taking about nine aircraft a month or eight or nine aircraft each month. So, the fleet growth is heavily skewed towards Q4 where the traffic growth is spread across the 12 months. There is nothing untoward in that we are still, we still believe our load factor will hold up at or slightly ahead of where it was last year which was what 95% or 94% for the full year. We expect that that would be repeated again. So, there's nothing we're not grounding more aircraft. In fact we would be flying, we will be grounding only as we did last month we'd only be grounding what we need for our winter maintenance program. So, there is no disconnects between the fleet growth and the traffic growth.

Okay, so it's all in the timing of delivery space. Michael O’Leary: Timing of the deliveries and as you can see this morning, we have raised traffic for the year, it's gone from 130 to 131, so there may be a little bit more in traffic.

Okay, thanks very much. Michael O’Leary: Thanks Damian. Next question please?

Our next question comes from the line of James Hollins of Exane. Please go ahead.

Yes, good morning. I've got three, first one is just on the UK inbound. Your highlighted terror attacks London, Manchester, I was wondering if you, you feel they are still seeing an impact just as it might impact the late booking market of this summer? The second one is the second one on airport handling charges. I just noticed on your video Neil these discounts coming forward, just wondering if you’re seeing an acceleration in airport charge discounting or maybe counterfoil that some point? And the third one is just on CapEx hedging, again on you video I think you said you are now fully hedged 21 to 24, partly hedged on 20, just wondering if you could say what proportion is hedged on 20 and what average rate you've got on 21 to 24? Thanks. Michael O’Leary: Thanks James. I'll do the first. Neil I'll get you to do part two and three. UK inbound, look whenever there we have terror attacks and we had that in Brussels and Paris last year, but Brussels and Paris are a smaller part of our overall traffic than the UK is. Our immediate response to those is to open up more cheap seats. So, you never see be impact of these terrorist events on traffic volumes. In Ryanair you’ll always see it impacting on yields. So there is no doubt we have had a London has had a difficult spring that is particularly prevalence into Q2 where post Manchester and the two attacks in London we opened up more seats to keep everybody flying at that point and in response to those. So, the response to the terror attacks is not a fall off in traffic, it's a fall off in pricing. And Neil, the handling charge…

On the airport handling we saw unit cost reduction in the quarter just and those points we were making is that we've got volume discount deals in place at both primary and secondary airports which will continue to deliver savings for us into the future. And then on the CapEx, as you correctly said, fully hedged on the MAX firm deliveries from FY21 to 24 and we’re about 70% now through FY20 at an all in blended rate of just over 120 against the euro-dollar on each of those years.

Okay, let me be, thanks a lot. Michael O’Leary: Thanks. Next question please?

Thank you. Our next question comes from the line of Robin Byde of Cantor Fitzgerald. Please go ahead.

Hey, Good morning guys. Just one actually, going back to the Brexit team in broad terms can you say how many of your flights is a proportion of the total of between the UK and the EU? Thanks. Michael O’Leary: It’s about 40% of the traffic operate between the UK and the EU that splits and slightly more UK originating than EU originating, but it's about 40% of the total capacity. Now as an EU airline post-Brexit we can still, in an Armageddon and one of our Armageddon events we would take up to 80 or 90 aircraft that are currently based in the UK and reallocate them across our remaining bases in continental Europe. We would have the capacity to do that in a hard Brexit we think we'll be doing that and taking up enormous opportunities that would arise because either IAG, British Air, Iberia won’t be flying in the subsidiary of BA, our easyJet’s Austrian AOC won’t be operating at all. But nevertheless, you know, well we are reasonably flexible in moving aircraft around. Moving the crews, the pilots and the cabin crew would be expensive and logistically difficult for us for that period of time. But I continue and I it's important that we front up on this issue. I mean what's been disappointing in the whole Brexit debate is the extent to which the other airlines have been kind of sticking their heads in the sand and say oh no, no, we don’t, oh no it won't be that bad, it won't be good. It will and if they were all a bit more upfront about it instead of kind of trying to mumble through it, we'd put more pressure on the British government to begin or initiate bilateral discussions on the, with the EU27. The problem is because the Brexit discussions haven't even got started yet they still have no, and they haven't even initiated discussions on either the exit bill, the rights of EU citizens and vice a versa. They cannot even start the bilateral with the EU27. And so I think there is a real likelihood at this stage that there will not be a separate bilateral and therefore if the British don't blink, which I ultimately think is what may well happen certainly as regards flights, but the idea that Gov and Johnson and some of the village idiots over there would have you believe that the European airports like the German car manufacturers would put pressure on their governments to do a deal with Britain to ensure that they continue to welcome British traveler, that’s simply not going to happen.

Thanks Michael, that's clear. Thank you. Michael O’Leary: Thanks Robin. Next question please?

Our next question comes from the line of Anand Date of Deutsche Bank. Please go ahead. Michael O’Leary: Hi, Anand.

Hi, good morning everyone. I was just wondering with the developers you've got in Dublin in Eastern Europe what are the metrics you’re using to analyze that performance? What are you actually tangibly looking to get out of them just interested in that? And then secondly, on the Business Plus and the Leisure Plus, could you just outline maybe what proportion of tickets are booked that way? Basically, I’m trying to figure out how much of what we might classify as ancillaries actually sitting in scheduled? Thank you. Michael O’Leary: Okay, thanks Lab - what we're trying to do here is pick out hire, talented IT developers who can quickly we can spool up quickly and give us more, what we call development teams so that we can actually implement more than one projects at a time. Here in Dublin we have about five or six development teams, I'm looking at Kenny, about five or six development teams. We have now in Vaclav [ph] replications, so we have a total between ten and twelve development teams and then we're looking for about another five or six in Madrid over the next 18 months. And if we saw that we can be very flexible very adaptive, but we, Kenny and John Hartley set the way we develop both mobile app and the penetration, then I think if you look at the way the penetrations are jumping it has been enormously successful. And I think that’s so, what we're looking for is to hire bright young development talent and the advantage of doing that in Vaclav [ph] and in Madrid is there it's cheaper there than it is in Dublin with far lower rates of turnover. I mean the problem here in Dublin is that the market is very hot. We bring in bright kids here you know both domestically and in from Europe and within two or within peer reasonably even let them 12 months they have been distracted or having their heads turned by working for the back office processors here for Google and Facebook and all these guys who in Dublin do no IT development at all. They are just issuing f******g invoices. But nevertheless they have all the sexy appearance of doing sexy stuff and they kids content. So, the advance primarily of [indiscernible] and Madrid is much lower rate of turnover of these IT development talents and lower cost. This is the major plus, the penetration is now all rising up around between the two we're now heading between 6% or 7% it will be quite difficult to break it out how much of ancillaries is in the underlying airfares although there is clearly some and it's a growing percentage is also the continuing growth of the Business Plus and Leisure Plus is also partly responsible for the decline in the checked bag revenues as well because they have bags included in them.

Yes, sorry can I just ask a quick followup? Michael O’Leary: Yes.

Just a bit longer term, the way concerning your competitors as well, the ancillary mix is permanently changing right because customers are behaving differently. Is the implication therefore that revenue growth on ancillary might be slower, but that actually margins are more likely to go up because the newer products are high margin? Michael O’Leary: I don’t think so, I mean look it depends. The problem is that with that is you’re trying to predict what is going to happen ancillary into the future and it’s a very fast changing area. If you look at what we talked about with Ryanair Rooms, Ryanair Rooms in the next two or three years could generate very significant revenues for us, but almost no profitability because frankly we’re willing to promote Ryanair Rooms on the basis that we get, we will make no money. Whatever commissions we get from the hotels, we would give away to customers in the form of either discounting below the prices being charged by Booking.com and the other GDS suppliers or we will give the discounts off their flights. So we’re willing to do hotel rooms for zero margins. So, but that could change again in 12 months time, so making predictions as to what is going to happen I think to the margins on ancillaries or profits via ancillaries is very dangerous in modern day very fast changing environment.

I would just add, it’s about driving the conversion rates. And I think if you go back over the past number of years, next number of years there are still loads to go far and getting a higher percentage of the customers who fly with us on various ancillary products, be that seats be a fasttrack and the kind of the owned ancillary products related on the flying product or be it car hire or as Michael said rooms, there is still plenty to go for in terms of the overall penetration rates.

Okay lovely, thanks guys. Michael O’Leary: Thanks Anand. Next question please?

Thank you. Our next question comes from the line of Johannes Braun of MainFirst Bank. Please go ahead. Your line is open. Michael O’Leary: Johannes, hi.

Yes hi, good morning, it’s just two from me. Firstly on the full-year guidance net profit on what sterling rate is that knowledge based on and did you hedge any of your net sterling exposure by now? And secondly again on costs, I mean I can see what you’re saying on your relative cost performance versus peers, but still I mean just looking at your moving parts here, you’re guiding minus 1% unit cost per passenger, so you still have the benefit of the weak Sterling, the benefit of higher load factors and you also have growth benefits of almost 10% growth, so I was just wondering or trying to understanding if there is any underlying cost inflation there, is it marketing, is it the wage inflation, you have growth costs and or is it just you being again conservative? Michael O’Leary: Well let me address the second question first Johannes. I would like to correct you. We don’t have peers. We have – that is the older people out there claiming to be peers, but when you analyze their cost performance it becomes pretty f*****g evident that we don’t have any peers in the marketplace. And I think - the point, I would make to you is in our cost guidance, unit cost guidance and it’s ex-fuel down 1% for the year, there's another super performance coming on the back of the year last year where we reduced unit cost by 5% ex-fuel. We're lower, these are meaningfully lower costs, I mean and I'd contrast, I mean there were some silly analyses produced recently by Bernstein, I believe who were writing their role as we move to primary airports, our costs will increase. We started moving to primary airports three years ago. We are now moving to year four of AGB and the whole analysis, oh as we move into Main Madrid, Main Rome, Main Brussels, Frankfurt Main our costs will explode, handling rooms, we have all these uncontrollable costs that easyJet and others seem to whine on about. We are now in our fourth year at a lot of those airports. I think the key message is, if you go through each of our costs by staff, airport and handling, room charges, maintenance and materials, even the others, we are there is unit cost reductions across all of those classes. There is one I think where we have cost inflation that is the continuing ramp and scamming of EU 261 claims and these f*****g ambulance chasers who we are trying to bury across Europe. I mean it is a complete note of scam that we have with an average fare of €40 have to pay out compensation €250 every time some bloody George thinks that the delay was our fault or we somehow should be are responsible for these delays, when it’s ATC and others who are man who are clearly responsible for the delays. We continue to believe that if there are going to be cause for compensation as in most other industries, it should at least reflect the air fare paid. So that's the only area we have cost inflation, but even that cost inflation which is included in our other is that on a per – on a unit cost basis close to flat because Kenny and their team are spending less money on advertising and more marketing as we use our lower fares, lower declining bag fees and the brilliance of AGB to continue to deliver a 9%, 10% traffic growth. And the Sterling impact on the full year guidance, Shane you want to take that or Neil? Shane O’Toole: Yeah, well first and foremost, Johannes we don’t give out our budget rates you guys. What we can say is that we had a positive impact of Sterling which I already indicated about 1.5% in the first half of the year. We would expect Sterling to go in the opposite direction as the comps get more difficult it is affecting the half of the year.

And you’re not hedged on your net exposure? Shane O’Toole: No we’re not hedged on our net exposure.

Can I just come back to the cost point? I mean the point I was trying to make is that given that you’re calculating unit cost on a per passenger basis and you do not adjust for currency, you do have tailwind from the currency side and you do have a tailwind from higher load factors. Shane O’Toole: Our load prices are flat this year, Johannes. Michael O’Leary: Yes, load prices are flat, they are not higher.

Fair, but in Q1 they were up still, so if you just piece out, you have teams that you would have some cost inflation underlying, I was just trying to understand this one? Michael O’Leary: No, we don’t.

Okay. Michael O’Leary: Okay, thanks Johannes. Next question please?

We have no further questions in the queue at this time. Michael O’Leary: Excellent. Well done everybody. That's the first time we've managed to get this bloody call down to under an hour. Look if anybody has any followup questions, Shane is here in Dublin, Neil is in London doing the press stuff. Again the underlying theme is our traffic is strong, yields would be weak into Q2. I would say we did - we're the only one for the last number of months who have been predicting fares would be weak this year when all about us were predicting fares will be up. Our unit cost discipline continues. We are continuing to deliver unit cost to clients when most and in fact all of our competitors are delivering unit cost increases and if that widening unit cost gap between us and the competition that will continue to enable Ryanair to succeed, particularly as we expand the amount of head-to-head competition we have with these so-called peers. The only other one out there is that clearly Brexit continues to be an issue. It's going to become more and more and in particularly as we get to the second later half of this year and we're less than 12 months away from September 2018. We will be trying to keep this issue front and center in the UK. I don't think anybody should get panicked, but you know until the UK begins to realize the weakness of their negotiating position particularly in this sector, there's a real risk of a disruption to flights from April 2019 onwards. Okay everybody, thank you very much and [indiscernible] back to Shane here in Dublin. Thank you. Bye-bye.

This now concludes our call. Thank you for attending. Participants, you may disconnect your lines.