Ryanair Holdings PLC Q4 FY2022 Earnings Call

Good morning, everyone, and welcome to the Ryanair Full Year Results broadcast. I’m Michael O’Leary, the Group CEO of Ryanair. Joining me today is Neil Sorahan, the Group CFO. We are pleased to share our full-year results for the year ending in March 2022. Over the last year, we reported a loss of €355 million, which shows a significant improvement from the previous year’s loss of over €1 billion. These losses are primarily due to the ongoing impact of COVID on our operations over the last two years. We’ve discussed this in detail in earlier announcements. I would like to highlight some key points from the past year and provide our guidance for the upcoming year. Some of the highlights include our climate protection rating, which improved from a B- to a B as part of our multi-year strategy to achieve an A rating, positioning us as a leader in environmental and sustainable air travel. Sustainalytics has named Ryanair the top EU airline for environmental and social governance performance. Our traffic has rebounded strongly, reaching 97 million passengers, although we are still about 35% or nearly 50 million passengers short of pre-COVID levels. Average fares dropped by 27% to €27 in the past year, again influenced by the effects of COVID, Omicron, and the Ukraine situation. While we are recovering, that recovery remains fragile, affected by a tighter booking pattern and negative news impacts. Nevertheless, we continue to invest for the future. At the end of the year, we received 61 new 737 Gamechanger aircraft. These planes carry 4% more passengers while consuming 16% less fuel, which is crucial for our operations and costs moving forward, especially given the sharp rise in oil prices post-Ukraine invasion. We see numerous growth opportunities ahead. This summer, we announced 15 new bases across Europe and will operate over 770 new routes. Thanks to our team's efforts, we are well hedged on fuel, with about 80% secured through hedges or caps until March 2023, at prices between the mid-$60s and mid-$70s per barrel, significantly below current market rates. This gives Ryanair a distinct competitive edge as we recover and expand across Europe in the next year. With the new Gamechanger aircraft, we will operate at about 115% of our summer 2019 capacity. Although load factors and fares are still slightly lower than pre-COVID levels, our recovery is robust. However, the recovery has proven to be precarious, as evidenced during the Christmas and Easter periods, when the impact of Omicron and the Ukraine situation adversely affected our numbers. We will continue to heavily invest in the environment. Apart from the Gamechanger aircraft, we’ve recently partnered with Neste in the Netherlands to uplift up to 40% of our fuel at Schiphol Airport. We are also making substantial investments in customer service, having received valuable feedback from our customer advisory panel, which will be implemented across our online and physical touchpoints at airports and in-flight. I'm pleased to report that our customer service scores are at record highs, and we aim to maintain this standard. On the topic of EU ownership and control, we have made notable progress in the past year. When Brexit took effect on January 1, 2021, our EU share ownership stood at 32%. This has increased to 41% over the last 15 months. We’ve been proactive in delisting and have reduced non-EU shareholders who mistakenly purchased standard shares instead of ADRs. We believe we are on track to restore our EU ownership to over 50% within the next 12 to 18 months. Our growth plans are exciting, with the introduction of 15 new bases and over 770 new routes. While the outlook on earnings carries some uncertainty due to the delicate recovery and negative news trends, we are gaining significant market share in major travel markets across Europe. In Italy, we expect to exceed 40% market share this year. In Vienna, our market share has jumped from 8% in the summer of 2019 to over 20% this summer. In Budapest, our market share has increased from over 18% to more than 30% within two years. We have also become the leading airline in the home market of one of our competitors. In Ireland, where we have a strong presence, our market share has seen a rise from approximately 48% to around 55-56% recently. We will continue to invest in capturing these market share gains. Now, I will hand over to Neil, who will guide you through the slide presentation and the financial results. Neil, please proceed.

Michael, thank you very much. So welcome, everybody, to the full year results presentation. As we've always said, we've got the lowest fares and lowest costs of any airline in Europe. And this year, we returned to growth with 165 million customers, up from 149 million pre-COVID. We remained #1 for customer service, on-time performance, 90% last year. And as Michael has already said in his lead-in, we've seen significant improvements in our ESG ratings with the CDP increasing our rating from B- to a B and indeed Sustainalytics giving us a very strong #1 EU, ESG rating. Balance sheet remains rock solid and it's this financial strength and lowest cost that makes us the long-term winner. We have the platform for growth in place with 89 bases and 225 airports across our network. And indeed, this summer, we're operating 15 new bases and 770 new routes. So this, coupled with the new Gamechanger orders, we'll see us grow to 225 million passengers by FY '26. We came into COVID with the lowest cost per passenger ex fuel. That gap is only widening between us and everybody else. So significant unit cost advantage ex fuel to all other players. On the year itself, we saw a significant recovery in traffic, a 253% increase to just over 97 million customers with an improved load factor of 82%. This, however, was stimulated through lower fares. We saw a 27% reduction, an average fare to just €27. But we did have a good performance on ancillary. And as a result, total revenue was up 193% to €4.8 billion. Operating costs despite a plus over 250% increase in traffic, only increased by 113% to just under €5.3 billion. So as a result, we saw a lower loss this year of €355 million, down from €1.02 billion last year. Balance sheet, very strong. And I think the key point here is the reduction in net debt, which despite €1.2 billion in CapEx this year, reduced from €2.3 billion at the end of last year to €1.5 billion at the end of FY '22. And with that, I'll maybe ask Michael to run through current developments.

Thanks, Neil. We are seeing a robust recovery in traffic as we approach the summer of 2022, reflecting strong pent-up demand for both business and leisure travel. We are well-prepared to take advantage of this recovery, having received over 70 Gamechanger aircraft for the summer peak. Traffic is indeed picking up, with recent months showing higher traffic and increased load factors, primarily driven by lower fares. In the first quarter, which corresponds to the June quarter, our fares are expected to be lower than in the June 2019 quarter. However, in April, we achieved over 40 million passengers and a load factor exceeding 90% for the first time since COVID, and we anticipate this trend will continue. There is a possibility that fares may rise in the second quarter, particularly in September, possibly exceeding pre-COVID numbers from summer 2019. However, this recovery is delicate and vulnerable to significant disruption from negative news stories, as seen during the holiday season with the Omicron variant and the impact of the Ukraine invasion on Easter. Ryanair maintains strong cost control and remains Europe's lowest-cost carrier, successfully keeping costs down, often lower than during the COVID period, while many competitors have experienced rising expenses. On the fuel front, we are 80% hedged through March 2023 at prices significantly below current spot rates. Many competitors are either unhedged or less protected. We are also committed to gradually restoring pay cuts agreed upon over the last two years. Restoration will commence in July of this year over three years, with discussions underway to potentially accelerate this for some pilot and cabin crew units. If we reach pre-COVID profitability by March 2023, we plan to fast-track the restoration of pay cuts. For fiscal year 2023, we have launched a customer program that has resulted in record customer service scores, and we intend to maintain this positive trend. We are cautiously ambitious, projecting to carry 165 million passengers. While we see strong recovery in traffic and load factors, we remain uncertain about fares and yields and the potential negative impacts from external events. Therefore, we cannot provide clear profit guidance for the next 12 months, aiming instead for modest profitability without a specific figure at this time. Regarding summer bookings, negative impacts from Omicron and the Ukraine invasion have been observed, but load factors are recovering despite lower fares. In December 2022, we plan to operate at 115% of our summer 2019 capacity and are targeting load factors back to 90%, which we achieved in April, and hope to sustain over the summer months. No other airline in Europe is expected to match this level of growth this year. While other airlines are fast-growing, Ryanair is poised to be the fastest-growing airline in Europe, even though we can't fully leverage all growth opportunities available. We anticipate ongoing staff shortages at airports and air traffic control, particularly at security during weekends, which need to be resolved for the peak summer months. We are making significant market share gains in key markets like Italy, Ireland, Austria, Hungary, and Poland. I believe Ryanair is uniquely positioned to thrive through any economic downturn or recession that may occur in winter 2022 or into 2023. In times of recession, consumers become more price-sensitive, often opting for the lowest-cost options, whether in retail or travel, and we expect to see an increase in passengers choosing Ryanair. Neil, could you share some insights on fuel hedging?

Thanks, Michael. Well, I think it's clear from this slide that Ryanair is the standout airline when it comes to hedging in Europe for this summer and indeed beyond. We've just broken out the numbers across the various categories. But you can see for the full year, we're 80% hedged on our jet requirements, 65% through jet swaps, about $63 a barrel or in metric ton, about €630 per metric ton, with 50% of our capacity hedged with caps. So again, about $77 a barrel or €770 per metric ton. And on carbon, we've got a massive advantage over everybody as well, where we're 85% hedged at €53 per credit, which compares very favorably to the €90 spot that we're seeing in the market at the moment. The strength of our balance sheet is why we've been able to hedge. The weaker carriers don't have the hedge lines. And I think that's very evident from the various statistics that you can see here at the bottom of the slide. Just on market share gains. Michael talked about the significant gains we've made. So you can see, for example, in Italy, we're now up at 40% market share from 30% pre-COVID. Poland is growing strongly under Buzz with a 35% market share at this point in time. Austria, as Michael already said, Vienna performance is exceptional for us, and indeed Ireland, has our largest ever schedule this summer with 33 aircraft.

Yes, let's address the concerns raised by shareholders about what happens to Ryanair during a recession. Historically, we perform better than any other airline in Europe during these times. Consumer spending tends to decrease, and during a recession, consumers gravitate towards the lowest cost option. In the airline industry, that option is Ryanair. While people will still travel, they will be more sensitive to prices. I expect Ryanair to grow more rapidly during a recession, as we have in previous downturns such as after 9/11 and during the Gulf War, because price becomes a primary factor. We are already observing competitors reduce capacity in markets where we operate. British Airways has significantly cut short-haul flights from the U.K., especially to Italy and Spain, largely due to labor shortages and inability to compete with our larger aircraft. Meanwhile, Wizz Air is looking to expand into regions like Saudi Arabia and India, which fortunately means they won't be directly competing with us. In markets like Austria and Italy, they are reducing their presence. We hold a considerable advantage in fuel hedging compared to our competitors through the end of the next fiscal year. Numerous airports are competing fiercely to regain or capture traffic with the limited capacity we can offer in the upcoming years. Our new Gamechanger aircraft are allowing us to serve more passengers at a lower cost, as they are much more fuel-efficient. We anticipate receiving at least 55 more Gamechanger aircraft next winter, enabling us to target over 180 million passengers in fiscal year 2024. If a recession occurs, we will grow faster and more profitably than any other airline in Europe. Our growth plans aim to reach 225 million passengers over the next five years. To facilitate this, we are actively seeking to acquire up to 50 second-hand aircraft and are in discussions with several lessors for low-cost options from both Airbus and Boeing. We are eager for Boeing to re-engage, as they need new orders to compete with Airbus. We see significant growth opportunities in Europe over the next five years. Neil, perhaps you would like to discuss the ESG aspects and conclude the presentation.

I will, of course, thank you very much. We've made significant strides in the past year on our environmental credentials. The carbon disclosure project upgraded us as a result of the good work that we've been doing to a B rating last December. Very pleased with that, particularly at a time when some of our other European airlines were being downgraded. Equally, in the last month, we saw Sustainalytics, one of the largest independent rating agencies for ESG in the world, ranked us the #1 European airline for ESG and indeed, the #2 airline globally, so a very strong position. But that said, we can't sit down and relax with those ratings behind us, there's an awful lot more to do. We've got very ambitious targets with our aviation or purpose plan to get to carbon neutrality by 2050. So we'll continue to execute on that plan. And you can see the kind of targets that we have here, we plan to reduce CO2 by 10% between now and 2030. We hope to improve our ratings with CDP to an A over the next couple of years, and we're working very hard, one, with the delivery of the Gamechangers coming in with a lower fuel burn, but equally with Trinity College in Dublin under the Sustainable Aviation Research Center to research into the right blends of sustainable aviation fuels to use. We've already partnered with Neste and Amsterdam to take a 40% blend out of that airport for this year. And so I think we're moving well along the tracks in improving our environmental credentials. So just to summarize, there continue to be significant risks in the market, underpinned by the invasion of Ukraine and the COVID situation, but particularly into the winter period. We would anticipate that we will grow to 165 million customers in the current financial year, but we will do that on a load active-yield passive basis. So low fares will drive that traffic recovery. In recent weeks, we have seen an improvement in bookings, but the curve remains still very close in and behind where we would typically have seen a pre-COVID in summer of 2019. So we think the market remains fragile, but we are hoping, cautiously optimistic that we'll deliver modest profitability in FY '23. As we look beyond that, we've put a phenomenal platform in place with 210 aircraft coming. That will see us grow to 225 million customers by FY '26. We've got a very solid balance sheet, which will underpin the fleet growth and the significant market share gains that we have. So as always, lowest cost and financial strength will be the absolute winner in this market. Thank you very much.

Thanks, Neil, well done. And now ladies and gentlemen, we'll move on to the Q&A, and we've asked Stephen Furlong, analyst from Davy to host that for us this year. So Stephen, over to you. Thank you, Neil, for that presentation. We've invited Stephen Furlong from Davy now to host a brief Q&A session with myself and Neil. So Stephen, you're welcome. And off you go.

Thanks, Michael. If you talk about your ESG and the environmental highlights from last year, I noticed you got a rating from Sustainalytics, for example.

Yes, we've made significant progress again this year. We launched our aviation with purpose document outlining our plan to achieve net zero by 2050. By the time we reach the summer peak this year, we will have taken delivery of over 70 Gamechanger aircraft. These aircraft are capable of carrying 4% more passengers while consuming 16% less fuel. Additionally, we announced an exciting partnership with Neste in the Netherlands, with the goal of ensuring that 40% of our fuel uplift at Schiphol will be powered by sustainable aviation fuel. We are also pleased to report that our efforts have been acknowledged by the Carbon Disclosure Project, which upgraded our environmental rating from a B- to a B this year, making us the leading environmental airline in Europe.

And Neil, can I just ask you about in terms of kind of the social since we're on this topic, what's the plans in terms of adding employment and what you've done, for example, with the aviation training centers?

Sure. Well, the plan over the next 5 years, Stephen, is to grow the fleet near 620 aircraft. So that's going to create about 6,000 new jobs for highly skilled aviation professionals all across Europe. Some of that will also be achieved through promotions of our own people within Ryanair. You talked about our aviation training centers. We invested €50 million in the new training center in Dublin last autumn, state-of-the-art and we're going to churn out about 1,000 cadets a year to those training centers. And indeed, another 2, we earmarked over the next 5 years and investment for about €100 million. At this stage, we're looking at the Iberian Peninsula, somewhere in Central and Eastern Europe. And we've already put orders in place for about 8 simulators to fit those out of costs of about $80 million for that. And then on the maintenance side, we're continuing to invest heavily in our maintenance facilities all across Europe. Recently we announced the new hangar facility in Shannon, got another 1 in Lithuania in Kaunas, and we hope to do more over the next couple of years.

Michael, can you talk about how you've tried to up the ante in terms of improving customer service and the initiatives?

Yes. I think the customer service is something we're investing heavily in. The new customer advisory panel had a second meeting in Madrid in April. We've taken their recommendations on board. You'll see a lot of those implemented over the coming months in both the website and also on customer engagement points at airports. We continue to invest heavily in on-time performance. We're delighted that we take an OTP for the last 12 months has exceeded 90%. Some of that was by virtue of the fact that you know a lot of flights had very few ATC delays last year because of COVID. And I think all of those efforts are reflected in record CSAT scores. Our customer service scores are running at record levels, high 80s with particularly positive feedback for both our checking people and our cabin crew on board.

Neil, what's the situation might be way in terms of the ownership of the shares, and how do you see that playing out?

Yes. We've made good strides on that, Stephen, over the course of the past year. We commenced the financial year with about 31% of our shareholders being EU shareholders. That's increased significantly to 41% at the back end of FY '22, so March 2022. And we did a lot of work last year. We focused very heavily on European Investor Relations. We delisted from the London Stock Exchange. And indeed, we had to engage in sell-downs. And so I think we'll continue to focus on EU shareholders over the next number of months and we'll also likely engage in some more sell-downs where necessary.

Mike, when we discuss the growth plans, I understand that we're aiming for a 50% increase over pre-COVID levels, reaching 225 million passengers, and this is not the conclusion of fulfilling our current order book. You may have mentioned how that will unfold.

As we move beyond COVID, the growth opportunities have significantly increased. This summer, we announced 15 new bases throughout Europe and will open over 770 new routes. We have received more than 70 of the 210 Gamechanger aircraft ordered this summer. We are experiencing remarkable market share growth in key European markets such as Ireland, Spain, Italy, Poland, and Hungary. We are tapping into the eagerness of airports across Europe to quickly recover from traffic losses and to establish a growth trajectory. Additionally, we have renewed long-term low-cost growth agreements at major bases, including Stansted, Brussels, Charleroi, Milan, Bergamo, and others. There are more growth agreements available to us that we can handle. We are looking forward not just to the 70-plus aircraft for this year, but also to the 55 aircraft we need, and we are in discussions with Boeing regarding more aircraft for the summer of 2023.

Can I ask Neil how the Boeing and A200 are performing? Earlier, you mentioned having 65 aircraft in the summer, but now it seems like it's 70. Did Boeing add some aircraft to the schedule?

Yes, we're delighted to take the extra aircraft in. As we said, originally planned of 65, that's going to grow to just over 70 aircraft peak summer, which gives us more opportunities to grow this year and indeed work on our operational efficiencies. Boeing, we're keen for us to take more aircraft into the summer. We were happy to do so. And as Michael said, we'd like to accelerate some into the summer of 2023. On the performance of the Gamechanger, we're very pleased with the operational performance. It's exceeding our expectations on the likes of the fuel burn, although we're only just starting to get to the 90%-plus load factors as we did in April in the numbers we announced in the past few days, the crew and the customers alike are very complimentary of the aircraft.

Mike, can I ask, when we're talking about Boeing, there's been a lot of recent certainly, let's say, negative commentary about Boeing and issues with their other aircraft and their production line. Could you talk about the MAX 10 and where we are there, if any?

I think it is no secret that the management of Boeing is facing significant challenges. We have been disappointed by their responses over the last 12 months. The negotiations on the MAX 10 order broke down last September, and we walked away. Since then, we have seen more Boeing customers signing up for Airbus aircraft. Boeing needs to fight back and regain some of that market share. However, they still produce very good aircraft. There are challenges with aircraft deliveries, and we continue to struggle to get them on time. As Neil mentioned, we have taken some extra aircraft from Boeing at our request, and we have the capability to handle that growth opportunity. It's important to emphasize that we do not need any new aircraft to achieve our target of 225 million passengers by 2026. Nonetheless, we remain open and available to explore aircraft opportunities to cover the period from 2026 to 2030. We are currently in the market and have submitted requests for proposals for second-hand Airbus and second-hand 737s. We'll see what comes from those discussions. However, Boeing definitely needs to improve on the commercial aircraft side, and we need to see more deliveries from them, especially for larger customers like Ryanair.

Could you discuss the different airlines within the group and how the aircraft is assigned between airlines like Malta Air and Buzz?

Both. Yes. I mean they're performing well, Stephen. And as Michael said, they've been basically taking aircraft over the past number of months to get ready for the summer. So we now have Buzz who looks after Central and Eastern European operations with about 60 aircraft in the fleet, and they'll be operating another 1 of those on charters this summer to put 8 aircraft on charters for summer 2022. If we then move on to Malta Air, over 140 aircraft in their fleet, they look after Italy, Germany and other large markets for ourselves. Performing very well. Lauda has opened up new bases this summer in the likes of Stansted, in Zagreb and Zadar that are on top of their Palma and Vienna bases. And then, of course, our smallest airline in the group, Ryanair U.K. have grown from 1 aircraft last year to 8 aircraft this year, which puts them in a very good position, particularly with APD starting to reduce on domestic flying into the U.K. next year. They're well placed to capitalize on the opportunities that will be available there.

Maybe, Neil, can you talk about the summer update. And basically, where you see I guess people are looking compared to summer '19, summer '22 versus summer '19?

Yes. Unlike others who are reducing capacity, we are operating at 115% of our summer 2019 capacity. This summer, we have added 70 Gamechangers to our fleet. Over the past two years, we have worked diligently to increase our market share, and this year we expect to achieve a 40% market share in Italy, up from 30% before COVID. We have our largest summer schedule from Dublin with 33 aircraft, holding a 55% to 56% market share in Ireland. Buzz, which operates 60 aircraft, is now the leading operator in Poland and has a strong presence in Hungary as well. In Budapest, we have achieved a 30% market share. We anticipate an overall traffic growth for the year to €165 million, an 11% increase compared to the 149 million we reached pre-COVID. However, we must acknowledge that we have faced challenges in recent months, including the invasion of Ukraine and the Omicron variant, which may lead to fluctuations in performance. As it stands, we are operating at 115% capacity this summer.

Michael, could you discuss the booking trend? Some other airlines have reported that customers are waiting longer to make their reservations. Does this complicate budgeting, or how do you expect this to unfold over the summer?

The booking curve is much closer compared to what it was pre-COVID. Bookings have been very strong since Easter, which has provided a significant confidence boost. However, forward bookings are still high single digits behind pre-COVID levels, indicating that the situation remains fragile. We've experienced surprises like Omicron at the end of November, which affected Christmas, and the Ukraine invasion in late February, which impacted Easter. While we are working to improve forward bookings, any negative news can have a serious impact. In Q1, we mentioned that average fares in the June quarter are lower than they were pre-COVID as we are leveraging our low-cost advantage to enhance forward bookings. There is a reasonable chance that fares in the second quarter will be higher than currently expected. However, any negative news could change that. I’m concerned that there's been some excessive optimism from competitors regarding summer. The peak summer looks promising, but it's fragile. As we’ve seen previously with events like Ukraine and Omicron, any negative news could significantly affect our outlook. We are gradually restoring the forward booking curve, but it remains at risk from adverse news. We hope for no further negative developments related to COVID or Ukraine. Currently, the second summer peak appears strong, but we’re approaching a winter where we may face adverse COVID news, potential Ukraine issues, and economic uncertainty, which could impact customer confidence. It's important to remain cautious.

Okay. If we go back to the summer, Neil, let's discuss any constraints in the system. Other airlines have experienced staffing issues and challenges within the supply chain. The infrastructure problems, whether related to air traffic control, airports, or ground handling, are worth mentioning because they raise broader questions about what capacity will look like this summer in light of these issues.

Sure, Stephen. Well, on Ryanair staffing, we're self-sufficient. We took a decision to keep our people current, and they were able to come back fairly quickly when things ramped up last summer and indeed into this summer. So we're actually self-sufficient for recruitment of cabin crew with the aircraft coming in for the summer this year. There were a couple of pinch points. The U.K. being an example, but that's well behind, no issues on that front. We've got very high retention within the airline, particularly with the growth and the promotional opportunities that people are keen to grow within the Ryanair family, and we're generating about 1,000 cadets a year. Outside of Ryanair, yes, there have been some issues. I mean we all recall the kind of security delays that we saw in Dublin and in Manchester at the start of that summer season. That's improving, and they've been recruiting up, and we would be hopeful that into the peak summer, those issues will have resolved themselves. I have some concerns on ATC despite the fact that we're looking at potentially 10% less capacity overall in the European short-haul market this year. Some of the ATC providers don't appear to have staffed up as well as they probably should have done. So there may be some pinch points there that would be the one concern I have at this point in time.

In terms of, Michael, the cost inflationary environment, there's a lot of commentary about this. How is Ryanair prepared for this? A lot of companies are, I guess, worried about the cost inflationary environment.

I anticipate it will be difficult. There are two key areas to consider. As Neil mentioned, both ATC and ASNP are aiming to recover their lost income from COVID; being government-owned monopolies, they should be compensating for this instead of passing the costs onto passengers and airlines for services not provided over the last two years. Therefore, it’s clear that ATC charges are likely to increase substantially. Additionally, fuel prices have nearly doubled since the Ukrainian invasion. We are currently 80% hedged until March 2023, which puts us in a strong position, much better than our airline competitors in Europe. However, we still have 20% that is unhedged, and we might have to pay up to $100 or $110 per barrel based on current spot rates for that remaining unhedged portion. Fortunately, we have some positive factors working for us. With over 70 MAX aircraft operating this summer, they are consuming 16% to 18% less fuel, and their performance is commendable. Our airport agreements remain solid. We are dedicated to restoring pay as quickly as possible. This July marks the beginning of a 3-year pay restoration process. We are negotiating with some pilot and cabin crew unions to expedite this, aiming for implementation in May or June in certain cases. Some unions are asserting that since COVID is over, they want full restoration now. While it’s not completely over, we do need to recover our pre-COVID profitability. However, we have assured them that if we achieve that profitability within the next 12 months through March 2023, we will advance the second and third years of those restorations to July 2023. Although there are cost challenges, we hold significant cost advantages over other airlines in Europe.

And in terms of Ukraine, capacity has been reallocated from there. It was a small amount of the overall network. Where was it reallocated? And how are those different regions performing?

There was no difficulty, Steve, in reallocating the capacity. A lot of airports are very keen to get access to Ryanair recovery and growth. So we're able to drop capacity into other markets. We had originally planned to put about 1 million customers into Ukraine this summer with no base aircraft. So as you said, it's easy enough to reallocate elsewhere. We did see an initial impact on the bookings over a 2- to 3-week period. But again, with price stimulation, recover that. So I suppose the big challenge remaining apart from the unknowns is the fuel volatility at this point in time, fuel trading well over $100 a barrel. But as Michael has already said, we're relatively well hedged on that into this year with just 20% unhedged, but we have to manage that for the balance of the year now.

And I think in terms of where you allocate the aircraft more like Italy, Spain or Greece. I mean is every market performing uniformly? Or would you say there's any difference between the different markets?

I see significant demand out there. Central and Eastern Europe definitely required more support in the initial days following the Ukrainian invasion. However, if you examine Italy, Spain, and other regions, particularly during the second quarter, there is strong demand. Easter was impacted, as Michael already mentioned, and we did not achieve the yields we had hoped for. We continue to push for demand in May and June, but afterward, we anticipate that not only will the demand remain strong—as demonstrated by the 14 million passengers we served in April—but ideally, pricing will also improve in the second quarter.

Yes. Let’s discuss the results briefly. You provided guidance at the beginning of April, and I see that the pre-exceptional loss was within the expected range, possibly at the upper end. However, could you explain the $355 million loss?

Yes. If we look at the key aspects of last year's performance, traffic rebounded strongly as we carried 97 million passengers, although this is still 50 million passengers short of our pre-COVID numbers. The load factor reached 82%, which is 14 percentage points lower than the pre-COVID level of 96%. We experienced a stronger traffic recovery than any other airline in Europe, but we still have a long way to go to reach our pre-COVID figures. Some challenges arose due to Omicron affecting Christmas traffic and yields because we lost late booking traffic. Additionally, the situation in Ukraine negatively impacted Easter. Although some of these effects will carry into Q1 of this year, they highlight the delicate nature of our recovery. While we are seeing robust recovery, it remains fragile as we work on increasing forward bookings. Ryanair's recovery has been driven by aggressive pricing, with average fares over the past year dropping 27% compared to pre-COVID levels. This is a significant reduction in prices, allowing us to carry more passengers, albeit at lower fares. Our investment in recovery at airports also plays a role, and ancillary revenues are performing well, with priority boarding, reserved seating, and the return of duty-free sales on flights to and from the U.K. expected to provide notable growth this year. Operating costs have been effectively managed, as revenues rose over 200% while operating costs increased only 115% in the last year. However, these lower costs do not compensate for the considerable revenue loss stemming from carrying one-third fewer passengers than we did before COVID.

Could you elaborate more on the hedging position, specifically regarding not only fuel but also the carbon cost?

Yes. We're well hedged, Stephen, into next financial year, about 80% of our fuel hedged, that's kind of a split between jet swaps, about 65% of the fuel covers with jet swaps, about €630 a metric ton or about $63 a barrel. We're looking at about 15% through caps, again, about €770 a metric ton. And we have a little bit of cover into the summer of next year about 10%. On carbon, we're particularly well hedged. I don't think any other airline out there hedges carbon at this point in time. We've 85% of our carbon locked in at about €53 a credit compared to €90 spot pricing at this point in time. So I think the strong hedge position that we have is going to be a big competitive advantage as we grow significantly on traffic into this year.

Michael O’Leary: You touched on earlier, like next winter, who knows, but a lot of people are calling out a recession. How are Ryanair positioned if there is a recession from a consumer perspective? I believe this is definitely an important area for investors in recent weeks and months. We are in a better position than any other airline in Europe to succeed during a recession. In tough economic times, people become more price sensitive, which favors the low-cost providers like Primark, Lidl, and IKEA, and in the airline sector, that's Ryanair. We maintain lower costs compared to all other European airlines. Our fares are lower, but people will continue to travel; they will just do so in a more budget-conscious way. We will still take delivery of 55 aircraft from Boeing next winter and plan to increase our passenger capacity from 165 million to 180 million over the next two years. Our new aircraft will carry 4% more passengers while consuming 16% less fuel. We acquired these airplanes from Boeing at an exceptional price during COVID, and we have secured substantial airport discounts to support our growth and recovery, enabling us to pass these savings on to our customers through lower airfares. In a recession, price sensitivity increases, and the lowest cost provider comes out on top. Ryanair is the clear lowest-cost airline in Europe. I believe we won't just perform well; we will thrive in the event of a significant economic downturn or recession in Europe, especially in areas where we have gained substantial market share. For instance, in Italy, we now have over 40% market share; in Ireland, we're close to 60%; in Poland, over 30%; and in Budapest, where we compete with another low-cost airline, we have surpassed them and are now the number one airline in that market. This clearly showcases the strength of the Ryanair model and brand during a downturn, which I believe will be very beneficial for our business.

Okay. I'll hand it over to Michael to discuss his views on the outlook and the key issues for investors, including any risks or opportunities over the next 6 to 9 months.

As we look ahead to the new year, we are adopting a cautious stance. We are observing a robust recovery in traffic during the first quarter, albeit at significantly lower fares. Currently, due to the pent-up demand, the second quarter appears to indicate a solid traffic resurgence. Although there is potential for pricing and fares to exceed pre-2019 levels, these gains could be mitigated by negative developments related to Ukraine and COVID. Moving into the latter half of the year, particularly the two winter quarters, we will remain cautious. It is becoming clear that we may face an economic downturn, if not a recession. However, I believe that Ryanair will prosper during this recession due to our lower cost structure and ability to maintain lower prices compared to competitors. We anticipate strong traffic recovery this year; however, it is impossible to forecast average fares for the latter half of the year. Therefore, we cannot provide accurate profit or earnings guidance for the next 12 months, as the situation is too volatile. While we believe our costs are under control, past experiences with Omicron and Ukraine show that we can be swiftly impacted by negative news. We expect a robust traffic recovery and strong cost management over the next year, but any profit projections remain uncertain. There is a possibility for modest profitability over the upcoming year. If everything aligns well, it could exceed expectations, but adverse news regarding COVID, recession, or Ukraine may hinder profits, which will likely remain below pre-COVID levels. It is premature to make definitive predictions until we reach the second half of the fiscal year, when we might have clearer guidance.

Okay. Thanks, Michael. Thank you, Neil.

Stephen, thank you. Good to see you again.