Ryanair Holdings PLC Q4 FY2023 Earnings Call

Welcome to the Ryanair FY '23 Earnings Call. My name is Maxine, and I'll be coordinating the call today. I will now hand over to your host, Michael O'Leary, Group CEO of Ryanair Holdings plc, to begin. Michael, please go ahead when you're ready.

Okay. Good morning, ladies and gentlemen. Welcome to the Ryanair full year results investor call. We have extensive numbers of teams all dialing in because we have an extensive presentation today, and I think 12 teams on the roadshow this week. So anybody looking for a meeting, please call any of our brokers out of Davy, Citi, or Goodbody. I take the results as read. We have an extensive presentation and Q&A on the ryanair.com website. While you're there, make some bookings; you'll need them this summer as prices are rising. To touch briefly on the last 12 months, we've seen a very strong recovery. Traffic grew to 168.6 million passengers, which is up 13% on our pre-COVID capacity in a European marketplace that was operating last year at less than 90% pre-COVID capacity. Ryanair has been taking enormous shares of market share in almost all markets across Europe. While our traffic has recovered ahead of COVID, profits are still marginally behind where they were pre-COVID at €1.4 billion. Nevertheless, it is a very strong performance at a time when most of our local competitors in Europe are still reporting losses for the last year. Underpinning that was a very strong fuel hedge performance last year, but that poses a challenge going forward over the next 12 months. Looking ahead a couple of broad themes I'd like to explore during the Q&A, particularly; we have embedded an enormous cost advantage over almost every other airline in Europe. A significant result of COVID has been a huge amount of capacity being weeded out of Europe. We've seen a huge number of airlines with considerable capacity go above the Tomago, VEs, and German Wings. The other incumbents that survived COVID have either structurally reduced their capacity or are operating at significantly lower levels; for instance, Alitalia is operating at 60% of its pre-COVID capacity, TAP at about 40%, and Lufthansa is still only operating at 80% of its pre-COVID capacity in the short-haul market, and yet prices have doubled. So there is heavily constrained capacity. Another feature of COVID has been a seismic movement in the unit cost gap between Ryanair and every other airline in Europe. We've worked extraordinarily hard to keep our ex-fuel unit costs down to around €30, €31 per passenger, while most of our competitors suffered significant increases in their operating unit costs. Many of our local competitors were already burdened with higher wages and labor costs before COVID, and they're even higher now. Their airport and handling costs have materially moved upwards, while we, thanks to our growth, have been able to maintain low and stable airport and handling costs. We've also widened our ownership and maintenance cost advantage over most of our competitors, which is crucial as we move into an environment where financing costs are increasing. Our competitors will be paying significantly higher aircraft and ownership costs going forward, whereas we will keep our costs low. Looking at our current position, we expect to continue gaining market share across Europe and in the upcoming year forecast an increase in traffic to 185 million passengers. In context, that is 25% more than our pre-COVID traffic in a market where short-haul capacity is at best 90 to 95% of pre-COVID levels. The demand outlook looks strong. We've seen our forward bookings stronger than pre-COVID and slightly higher forward airfares than they were last year. Our advance bookings are significantly higher than last year, reflecting a stronger demand environment as people look for travel options after being locked down for several years. The travel experience, including business and leisure travel, has become somewhat of a necessity rather than a luxury. We're seeing persistent robust demand from American visitors, encouraged by the strength of the dollar, as well as a recovery in Asian traffic. We also anticipate a higher fuel expense this year, approximately €1 billion more than last year, due to delivery delays. However, we are currently confident that we will receive all of the 51 aircraft by the end of July, despite some capacity disruptions expected in June and July. Overall, we have a strong growth strategy and anticipate taking advantage of competitors who are in retreat while expanding our capabilities to serve markets across Europe.

Sure, Michael. Thanks very much for that. I think it's important to call out the strength of the balance sheet. We've seen a good recovery in our balance sheet over the course of the past year. We finished with very strong liquidity of €4.7 billion and importantly, moved into a net cash position of just under €600 million, compared to a debt of €1.45 billion at the same time last year. However, we need to caution that this positive shift was influenced by the timing of aircraft deliveries, which meant that about €450 million of CapEx has shifted from FY '23 into FY '24. The balance sheet, however, remains extremely strong, and last week, S&P upgraded our rating to BBB+, which I think recognizes that nearly all of our balance sheet is owned and unencumbered, enhancing our financial gap with competitors. We will judiciously use that cash going forward to deal with CapEx of €2.6 billion in the next year and pay down €1.5 billion in bonds.

Thanks, Neil. Eddie, would you want to give us just some insight into the market trends in the summer and medium-term growth opportunities across Europe?

Yes. Again, as referred to earlier, fares are strong going into the summer. We continue to grow. Our new bases are performing well in Belfast and the Canaries. We've added aircraft to 11 bases, 2 aircraft to those bases. We’ve added one aircraft to 23 other bases. The only base that went backward was due to cost reasons. Across all market segments, we've seen all recover as traffic has recovered. We're seeing very positive signs in places like Spain, where the government has taken sensible decisions that feed into our cost base, such as lowering costs at airports and putting incentives for secondary airports while freezing costs until 2027. Likewise, with privately owned airports in Italy, many are dependent on Ryanair and we've pushed down airfares into secondary airports where we compete. We are seeing robust demand across all peak times, including the UK, Germany, and French regional airports.

Thank you. Our first question today comes from Jaime Rowbotham from Deutsche Bank. Please go ahead. Your line is now open.

Good morning. Two from me. Michael, point taken on the dangers of looking at the yield on a year-on-year basis for the next quarter. But compared to the same quarter pre-COVID, your March quarter fares were about 26% above. Can we think about them being at a similar premium to pre-crisis levels in the upcoming June quarter? The second one's on costs. Good to see the fuel largely locked in. In terms of the non-fuel unit costs, it sounds like it's mainly staff pay restoration and the on-route charges driving the expected increase. Are there any other cost actions you can take to offset aside from getting the 737 MAX in to improve the fleet mix? Thanks.

Two good questions. Firstly, regarding the yields, clearly, we can't predict what will happen yield-wise. I'd be more cautious; I don't think we'll see 26% replicated growth in the first half of next year. Currently, we have about 80% of seats sold for Q1 and around 40% for Q2. Average fares are running modestly ahead of where they were at this time last year, and bookings are stronger. So I think yields will be up modestly. We could have a very strong June through August. We aren't accustomed to this kind of environment as we haven't seen one for 25 years. We have capacity down net-net over a two-year period and demand surging, partly due to transatlantic and Asian traffic feeding into a very strong European intra-European travel market. Non-fuel unit costs, again, the only slide to look at is Slide 4 in our presentation. It's not so much what happened to our absolute unit costs; it's that the gap is widening between us and every other airline in Europe. We will have pay inflation over the next several years and have worked hard on pay restoration. Also, we have increased headcount significantly this summer, improving our crew ratios, which will help our overall performance but at an added cost.

Yes, we have the balance sheet in a good place and costs as well.

Okay, thanks, Neil. Eddie, anything you want to add on business travel?

Yes, just a bit in relation to the Amadeus query. It's too early to say, but it is encouraging. We've seen strong business traffic, particularly from small and medium-sized businesses. The domestic market is robust, and while we have launched a few routes during COVID and they're performing strongly, we are committed to maintaining our market share.

Yes. Although Amadeus volumes will remain reasonably small; we still overwhelmingly receive bookings through the Ryanair.com platform. Next question, please.

The next question comes from Alex Irving from Bernstein. Please go ahead. Your line is now open, Alex.

Hi. Good morning, gentlemen. Two from me, please. First, on cash returns. So you've got a net cash balance sheet, CapEx, and debt maturity that look fundable out of ongoing operations. What would you want to see before taking the decision to restart the buyback or implement a dividend? Second question around M&A. So a couple of deals coming in Europe - clearly not appealing to you. But how significant do you think growth opportunities could arise from potential antitrust remedies? And how many planes might you want to allocate to the opportunities arising here? Thank you.

Okay. Thanks, Alex. I think we should be cautious. We finished the year with €500 million of net cash. However, €400 million of that was due to Boeing delivery delays. Yeah, we expect significant cash flows over the next 2 to 3 years if profitability remains stable and we don't face further COVID curveballs. We've established a sequence of what we want to do. The first challenge was pay restoration, which we fast-tracked. We aim to repay debt aggressively and bring that down to zero by 2025. Shareholders will need to wait at least a year or two for some modest returns, possibly dividends.

Yes, regarding M&A, we see continued opportunities for growth. However, our growth will primarily come from allocating aircraft to core markets, where we believe we can capture market share effectively.

Yes. Our growth strategy is ambitious, and will drive our plans in the coming decade, particularly with our focus on profitability as well. But we remain cautious about M&A, given market conditions. Next question, please.

Thank you. The next question comes from Muneeba Kayani from Bank of America. Please go ahead; your line is now open.

Hi. So you mentioned positive Asian demand impacts this summer. Can you provide insights on what you've observed regarding Asian demand and how it's reflected in your bookings? Additionally, have you noticed a change in booking patterns compared to pre-COVID terms regarding the booking window?

Thanks, Muneeba. On Asian demand, we observe that there's unusually strong demand this year. For travelers looking to visit Europe, the dollar's strength has driven more American visitors, which has notably increased hotel bookings and tourism-related activities. This summer appears robust due to pent-up demand. As for booking patterns, Jason might comment.

Yes. Bookings are strong for summer. We're not fully back to pre-COVID booking curves but are trending towards it. There's a tendency for bookings to occur closer to the travel date, but leisure bookings are approaching pre-COVID levels. We are comfortable with current load factor metrics.

Thank you for your input. Next question, please.

Thank you. The next question comes from Harry Gowers from JPMorgan. Please go ahead; your line is now open.

If I can, two quick ones. First, just on the ex-fuel unit costs, appreciate the guidance for this year for the increase and the widening gap versus peers. But how should we think about it into the future, for example, March '25? Are you thinking it more mid-term? And then just on markets like Scandinavia or Germany, are you in discussions with airports to expand or add more aircraft, or are you waiting for them to approach you over the next 12 to 24 months to drive traffic?

Neil, why don't you take the unit cost question? Then Eddie or Jason might comment on the German and Scandinavian markets.

Yes. Harry, we expect some upward pressure on ex-fuel unit costs this year, mainly due to higher crewing ratios and route charges, but the gap remains the critical focus point. We'll look into maintaining a strong position as we see more Gamechangers coming in as we enhance operational resilience over the next few years.

Regarding the German market, we've observed significant disruption there. However, we are still hopeful about expanding our operations within strategic regional markets where cost structures allow for profitable growth.

Yes. Our primary goal is to ensure we're moving effectively in ongoing market conditions, and we're well poised for further growth in both the regional markets and our key areas. Thank you. Any other questions?

Thank you. This does conclude the Q&A session for today. I'll hand back over to Michael O'Leary for any additional or closing remarks.

Okay. Thank you very much, everybody. We recorded reasonably strong numbers this morning. Overall, the summer looks promising, but we must be cautious in interpreting overall market exuberance. We see forward bookings and average airfares higher than last year, but we are cautious about competing pricing models. We've resolved most of our Boeing delivery delays for this summer, which gives us more confidence going into future quarters. However, we must also note the substantial jump in our fuel bill, which will exceed €1 billion this year alongside pay restoration commitments. While we're anticipating strong traffic growth, we emphasize the need for caution amidst prevailing uncertainties. However, we remain optimistic about leveraging our strengths and delivering strong returns to shareholders in the future. Thank you all for your engagement today, and I look forward to discussing further developments with you soon.