Earnings Call Transcript - RYAAY Q1 2026

Operator, Operator

Hello, everyone. Welcome to the Ryanair Holdings plc Q1 FY '26 Earnings Release. My name is Nadia, and I will be coordinating the call today. I will now hand over to your host, Michael O'Leary, Group CEO of Ryanair Holdings, to begin. Michael, please go ahead whenever you're ready.

Michael O'Leary, CEO

Good morning, ladies and gentlemen, and welcome to the Ryanair Q1 results conference call. I'm joined by our usual team. Neil, the CFO, is in London along with Eddie Wilson, while the rest of us are here in Dublin. This morning, we reported a strong Q1 profit after tax of EUR 820 million, an increase from EUR 360 million in the same period last year. Traffic grew by 4% to 58 million passengers with fares up 21%. As we have mentioned, Q1 results are boosted by a weak comparison from the previous year, where we only had half of Easter in April and faced an OTA boycott during Q1 into Q2. Two years ago, we recorded EUR 660 million in Q1 2023, which dropped to EUR 360 million last year due to the Easter and OTA issues, and now we have rebounded to EUR 820 million in Q1 this year. Over the two years, Q1 profits rose by about 24% instead of the reported 128% due to weak prior year comparisons, which still indicates a strong performance. In Q1, traffic grew 4% to 58 million, although our growth is limited by Boeing's delivery delays. Revenue per passenger increased by 15%, and average fares saw an artificial rise of 21%. Ancillary revenues grew by 3% alongside a 4% traffic increase. I am particularly pleased with our unit cost control, with unit cost inflation rising by only 1%. Our cost gap with European competitors has widened significantly during Q1. We added 5 Gamechangers during the quarter, bringing our total fleet to 181 aircraft by the end of June. This summer, we are operating over 160 new routes within a total of 2,600. We also took the opportunity to purchase 30 spare LEAP-1B engines from CFM during Q1 at a significant discount, which helps ensure resilience as our fleet increases. We are proud of Ryanair's addition to the MSCI World Index in June and anticipate joining the FTSE Russell in September. I will not spend much time on the numbers as they are self-explanatory, but I want to emphasize that Q1 fares significantly profited from a full Easter holiday in April and a weak comparison from last year, along with slightly stronger than expected late bookings. Operating costs per passenger increased by 1%, with our jet fuel hedging mitigating substantial increases in ATC fees and environmental costs due to the unwinding of ETS allowances and the impact of SAF mandates. We are well-hedged for the next two years, with FY '26 nearly 85% hedged at $76 a barrel, and we have a 36% hedge for FY '27 at just under $66 a barrel, representing a saving of 13%. Our balance sheet remains robust, with a net cash increase of EUR 2 billion at the end of the quarter, positioning us well to handle two large bond repayments in the next ten months: an EUR 850 million bond due in September and EUR 1.2 billion in May of the following year, which we expect to repay using our strong internal cash resources. Regarding our fleet, we now have 181 Gamechangers, an increase of 25 aircraft from June last year, which will support our constrained growth of 3% this year to 206 million passengers. We remain optimistic that the remaining 29 delayed Gamechangers in our 210 order book will be delivered ahead of summer '26. Boeing recently confirmed that they expect the MAX aircraft, specifically the MAX 7 and MAX 10, to be certified by late 2025, thus aligning us for timely deliveries of our first 15 MAX 10s in spring 2027. Stephanie Pope reached out to confirm those first 15 deliveries, which is encouraging news. Overall, the ongoing trend of limited short-haul capacity in Europe, driven mainly by Boeing and Airbus lagging in aircraft deliveries, will likely persist for the next five years until 2030. Many European operators are working through engine repairs, while consolidation in the EU airline sector continues. These industry constraints paired with Ryanair's expanding unit cost advantage, strong balance sheet, low-cost aircraft orders, and superior operational resilience will support our controlled growth towards 300 million passengers by FY 2034. Looking ahead, FY '26 traffic is projected to grow by 3% to 206 million passengers due to ongoing Boeing delivery delays. We anticipate only modest unit cost inflation in FY '26 as we introduce more Gamechanger aircraft and benefit from advantageous fuel hedging and effective cost management, countering the increases in ATC charges and environmental costs. While demand for summer '25 travel remains strong, Q2 fare increases will be less than the exceptional ones in Q1. Last year, fares declined by 7% in Q2, but we expect to recover nearly all of that decline this year. Thus, our full-year expectations will likely reflect a more moderated fare increase compared to the 21% seen in Q1. Ultimately, the H1 results are contingent on the strength of late summer bookings in July, August, and September. As is typical at this point in the year, we have limited visibility for H2, with only 6% of our seats sold for the latter half of the year. The prior year’s weak delivery delays, which we received from Boeing last year, will not be present this year, making the second half more challenging. Consequently, it is too early to provide solid full-year profit after tax guidance. However, we expect to recover most, if not all, of last year’s 7% full-year fare decline, which should contribute to reasonable net profit growth in FY '26, aided by our strong control of unit costs. The final outcome for FY '26 will still face significant risks from external factors, including terrorism threats, trade wars, macroeconomic disruptions, conflicts in the Middle East and Ukraine, and ongoing challenges from European ATC strikes and staffing issues. With that, I will hand it over to Neil. Would you like to highlight anything in your MD&A before we move to Q&A?

Neil Sorahan, CFO

I'll probably just emphasize a couple of points that you made there. One, the balance sheet is a standout with strong liquidity and the fleet unencumbered. As you said, that places us very strongly now to repay those bonds, the EUR 2.1 billion bonds over the next 2 years. So I think we're in a good position there. Very pleased with the performance on costs, up 1% on a per passenger basis in the first quarter. So again, very much on track for modest unit cost inflation for the full year, somewhere between 1% and 3% on an annualized basis depending on where spot fuel goes and what the final schedule looks like over the balance of the year. Ancillaries, strong performance of 3% on a passenger basis. There was some Easter benefit in there. So again, no change to the guidance of 1% to 2% increase in ancillaries over the course of the year. And then traffic into Q2, we're probably looking at traffic coming in just under 61 million passengers, so about 2% growth in traffic there, 3% on a full year basis to 206 million. So the business is in good shape and a solid set of numbers in Q1. Thank you, Michael.

Michael O'Leary, CEO

And I'd like to ask Eddie Wilson to give us your current view on current trading as a CEO of DACH, current trading into the second quarter of the year, please. And I'll just ask Juliusz to give us some comments on the legal regulatory environment before we open up to Q&A. Sorry, Eddie, go ahead.

Edward Wilson, CEO DACH

In the second quarter, fares are strong across the board. We have been experiencing significant growth in markets where we've been receiving favorable tax quotes and expanding aggressively in regions like Italy, Sweden, and Hungary. However, we are encountering serious challenges in regions, particularly in Spain, France, and the U.K., due to uncompetitive costs. Overall, the fare environment remains robust across most areas.

Michael O'Leary, CEO

Good. And Juliusz, anything you'd like to raise on the regulatory side?

Juliusz Komorek, Regulatory Affairs

Thanks, Michael. Just maybe on baggage. So everyone is familiar with the big case we have in Spain in relation to cabin baggage, and a positive decision a few weeks ago where the court suspended the enforceability of that decision and also the payment of the big fine that we discussed in the last call. Helpfully also, there are discussions ongoing in Brussels about potentially regulating the minimum size of cabin baggage, and the dimensions that are being discussed are smaller than would be currently allowed, so that would obviously be helpful. Slow progress in Brussels in terms of overflights, and we would like to see more done on that front. A lot of talk about competitiveness on the back of the Draghi report in the European Parliament and in the European Council, but very little actual action. So we need to see more in that respect.

Michael O'Leary, CEO

Okay. Thanks, Juliusz. Just before I open up, I would draw everyone's attention, it might help to shorten some of the questions. We've seen in recent weeks, some of our competitors reporting slightly poorer outlook through the summer, price sensitivity on traffic, challenging prior year comps. I think they were on the opposite of our OTA boycott. This time last year, we were in the teeth of the OTA boycott. It now appears that some of the OTAs were moving some of that traffic across to our competitor airlines, although most of it went to the tour operators 2E and Jet2. As a result, this year we're having now resolved that with our approved OTA transactions, we're seeing the reverse of that. So while our competitors have tough prior year comps because they benefited from our OTA dispute last year, this year, they have challenging prior year comps and a tougher outlook on the environment. We're on the reverse of that. Usually for Ryanair, we have weak prior year comps through the first and second quarters last year. We are seeing robust demand into the summer this year. Traffic is modestly ahead as we would expect it, 1% or 2% up on the same day last year, but the pricing is reasonably strong. At the full year, we thought we would recover most but not all of the 7% fare decline last year. We've upgraded that slightly this morning. We now expect to recover almost all of last year's 7% decline. And that is because, I think, well, one, we have the two halves of Easter in April; and two, we fixed the approved OTA, and we're seeing those stronger forward bookings, holiday bookings coming through to us in the first half of the year, something I believe we had lost out to tour operators on some of our airline competitors last year. So we're on the inverse of what our competitors work, to some degree, campaigning about in recent weeks. Okay. With that, Nadia, if you could open up to Q&A and keep everybody to no more than two questions, please.

Operator, Operator

Our first question goes to Stephen Furlong of Davy.

Stephen Furlong, Analyst

Michael, okay, two questions. Maybe one for you, Michael, and one for Neil. How do you think, I mean, the speculation, but the tariff thing will play out? I saw there in the paper today, Embraer were saying that might add $9 million for the price of jet and their U.S. customer base won't pay us, and therefore, they'd almost have to slow or stop production. And then for Neil, I was just wondering what is needed for you to look at locking in this attractive dollar rate on the future aircraft deliveries, given that would be a significant benefit on the capital side for a longer term on depreciation, et cetera.

Michael O'Leary, CEO

Thanks, Stephen. Okay. Quick answer on the tariffs, nobody knows. What we suspect will happen is, I think, Trump will continue to probably delay the imposition of tariffs on the 1st of August into maybe September, October until a trade deal is agreed with the Europeans. There's increasing optimism certainly in Turkey and Washington that commercial aircraft, aircraft leasing will be exempt from U.S. tariffs. There is a risk, though, that the EU, Europeans, are going to looking at reciprocal tariffs, which might target pharma and commercial aircraft. That would be as damaging to Airbus' exports into North America, particularly on the long-haul aircraft side as it would be to Boeing, who don't have that many deliveries into Europe. But nevertheless, I think the risk is reciprocal tariffs. I think it's unlikely, but in our agreements with Boeing, Boeing are liable for the tariffs, not Ryanair. We have fixed price agreements on our aircraft with Boeing. We would, however, want to work with Boeing, though, to minimize the imposition of tariffs. And we have a number of things we could do. One, we could delay the deliveries through August, September, October. We don't actually need those aircraft until summer of 2026. So we might, working together with Boeing, delay some or all of those deliveries while the Americans and the Europeans resolve any tariff dispute. Secondly, there's a possibility we could take some of those aircraft onto the U.K. register where we have Ryanair U.K. and there's no tariffs on commercial aircraft in U.K.-U.S. trade agreements. So I think tariffs are unlikely. To the extent that they're imposed, I think they're likely to be short-lived. And while Boeing are liable for the tariffs, we would work with Boeing I think either by delaying deliveries or perhaps looking at taking some deliveries through the U.K., which will be a way of allowing Boeing to deliver aircraft to the Ryanair Group without attracting tariffs from the state. Neil, maybe you want to talk about the dollar, locking in the dollar on our aircraft order. So I might get Tracey McCann here as well then to add some commentary to that.

Neil Sorahan, CFO

Sure, Stephen. Thanks very much. Yes, the euro-dollar has obviously moved very much in the direction that we would like in relation to locking in the CapEx on the MAX 10. The one blocker is whether we get hedge accounting or not. So the number you asked, what do we need to do. We probably need to get some clarity with our auditors as to what they will need to see before they're happy that we can get hedge accounting, whether that's the certification of the TAMs or whether it's the greater certainty that we're getting from Boeing that they're going to deliver on time. But we've seen the dollar move from probably somewhere around 105, 106 when we placed the order back in May 2023 to somewhere likely over 120 if we were able to do something on it. So we would like to hedge. We won't do it unless we get the hedge accounting. That's important because we don't want the volatility and the noise on the P&L.

Michael O'Leary, CEO

Tracey?

Tracey McCann, Head of Finance

Just to add that, we are looking at other stuff, so not just aircraft, Stephen. So where we have opportunities and we can do anything to lock-in the dollar on the likes of the maintenance, like the recent engine deal, we have done so.

Operator, Operator

The next question goes to Jaime Rowbotham of Deutsche Bank.

Jaime Bann Rowbotham, Analyst

Two for me. Just coming back on the cabin bags. Juliusz mentioned the good news out of Spain but not the bad news from Brussels that the MEP voted in favor of legislation preventing you from potentially charging extra for hand luggage. So where do you think we'll get to on this? Will sense prevail when it comes to the ability to charge separately? Second one, we know where you're adding capacity, so Sweden, Hungary, regional Italy, Poland. I just wondered, has there been any reaction from airports or countries where you've been reducing capacity, like in Spain? Have any incentives been offered?

Michael O'Leary, CEO

We have cut some capacity, specifically regarding cabin bags. The parliament's suggestion has no legal status and is part of ongoing discussions with the commission about updated regulations. The initial proposal from the parliament is that every passenger should be allowed two free bags on board, which is not feasible due to space limitations on full flights. In practice, we can accommodate about 50% of passengers bringing a trolley bag if they are part of the priority boarding service. Any change that contradicts existing EU regulation 1008/2008, which allows airlines to set their own pricing and policies, is unlikely to happen. While there will be negotiations between the parliament and the commission concerning passenger rights, we support the commission's effort to clearly define what constitutes one free carry-on bag. The proposed dimensions for this bag are 40 x 30 x 15 centimeters. Our allowance is slightly larger at 40 x 30 x 20 centimeters, which is still a significant size that can fit under the seat. We believe this clarity would undermine the legality of recent fines imposed on low-fare airlines in Spain and hope to move past that issue. Nonetheless, there will always be some disagreements between the parliament and the commission on passenger rights. Ideally, the parliament should be more proactive about protecting flights during air traffic control strikes and addressing unjust environmental taxes on intra-EU travel while exempting the most polluting long-haul flights. Unfortunately, the parliament has a tendency to present less sensible proposals, which is not surprising.

Edward Wilson, CEO DACH

Just quickly, I suppose, like, I mean, it has taken some time for this message to trickle up post-COVID, where we're now seeing the sort of pinchpoint of there isn't short-haul capacity to go around. And while that's dull and daffier for some time, you can now see that playing out, particularly in regional airports like in France. They put up the taxes. I know you have the French Transport Minister saying this is a terrible thing even though he actually introduced it and they may actually have to go backwards. And I think they know that there is bad news coming for French regional airports. Same thing is playing out in Spain, whereby Aena has a monopoly there. And you've got the regional airports that are 65% underutilized, and that's going to be politically unsustainable in the medium to long term. Whereby Ryanair, while we're still growing in Spain at low single digits, that's at the larger airports, largely at the expense of the regional airports where we've closed the number of airports and there's more to come this winter. And on top of Germany, then you can see it also playing out in the U.K. with APV, which is going to go up 2 quid this year and then RPI thereafter. And that's going to hit the regions particularly badly, like places like Scotland and Northern Ireland, particularly out in the regions there, where they're just not going to be able to compete for the incentives that are elsewhere in places like Sweden, regional Italy and Hungary.

Michael O'Leary, CEO

And Juliusz, do you want to add anything on the parliament of rules on baggage or EU passenger rights?

Juliusz Komorek, Regulatory Affairs

Just one thing. The issue of cabin baggage came up in the EU Court of Justice in 2014, and the conclusion there was the only item of cabin baggage that must be free is an item that can accommodate the passenger's precious and indispensable items. And the court at the time did not put dimensions on it, but it's generally accepted that a bag that fits under the seat is big enough to accommodate precious and indispensable items. So that would be your personal computer, your wallet, some medications, a bottle of water, those kinds of things. Everything else that can fit in the cabin can be charged for. And that's what passengers want. Passengers don't want all passengers to bring a 10 kg bag to the gate because they know that this will delay the departure of their flight. So the policy which Ryanair currently applies and which has been copied by many airlines in Europe works. Consumers know it. And the European Parliament will figure it out just in their own time.

Operator, Operator

The next question goes to Harry Gowers of JPMorgan.

Harry J. Gowers, Analyst

Just first question. I noted you called out the better-than-expected close-in pricing in Q1. I was wondering, is that something you've seen continue as a trend into Q2 so far? And then second one, probably one for Neil. Total unit cost of tax plus 1% in Q1 and ex-fuel was plus 3%. Is that the rate that we should be extrapolating across the full year? Or is there any reason to highlight why those numbers are ones that we shouldn't be dragging outwards over Q2, Q3, Q4?

Michael O'Leary, CEO

Thank you, Harry. Regarding pricing, we are experiencing stronger close-in pricing. Our load factors are about 1% higher than this time last year, which means we have fewer seats available for close-in sales. There's been less discounting, especially as we progress through Q1 and Q2, likely due to the approved OTA distribution. However, I want to caution that average fares increased by 21% in Q1, with approximately two-thirds of that attributed to Easter and the OTA boycott. The year-over-year comparison of average fares in Q2 shows an increase of around 7%, which indicates a recovery from the 7% fare decline we saw last year. I hope this positive trend continues into Q3. As we mentioned this morning, we expect to recover nearly all of last year's full-year fare decline. While close-in bookings are strong as we enter Q2, this situation is delicate. Therefore, we remain somewhat cautious regarding our Q2 and full-year guidance. If any safety incidents or terrorist events occur in European cities, or if something unexpected or damaging happens, I don't anticipate tariffs will impact short-term booking patterns. In fact, we're currently experiencing heavy rain in Dublin, which should positively influence close-in pricing from that location in the coming weeks. The opportunity remains for strong close-in pricing and bookings, but we recognize this could change as we move through July, August, and September into the latter part of the year. Eddie, do you have anything else to add on close-in pricing before we turn to Neil regarding unit costs?

Edward Wilson, CEO DACH

No, I don't think so. Mike, you've covered that off comprehensively.

Neil Sorahan, CFO

Yes, sure, Harry. I'm going to go back to my opening comments where I indicated that we're still guiding modest unit cost inflation on a full year basis, somewhere between 1% and 3%. We were 1% in the first quarter, where we saw traffic grow by 4%. It will be slower traffic growth into Q2 and the second half to get to 3% on a full year basis. I mean, it all hinges on whether we're between, say, 1% and 3%. It hinges on what happens to spot fuel over the balance of the year. It depends on what happens on the final schedule that we load, where is that going to be, and indeed, staffing in advance of next summer. So I think it's fair to just stick with that modest unit cost inflation and it will be somewhere between 1% and 3%. And I won't be breaking it out more than that.

Operator, Operator

The next question goes to Dudley Shanley of Goodbody.

Dudley Shanley, Analyst

Two questions for me as well. First of all, possibly to follow up on Harry's question a little bit but to think about more longer term. Following the modest unit cost inflation this year, how do you think about the unit cost over the next few years? Obviously, you have a good fuel hedge in place, but it's the other lines like staff, maintenance, airport deals. How should we think about that? And then the second question is, Michael, you've been making a lot of noise again recently about ATC particularly in France. Have you seen any tangible signs of progress could be made there?

Michael O'Leary, CEO

Okay. I'm going to offer the first one over to Tracey McCann here on the longer-term, what's your view on longer-term unit cost. Neil, feel free to add in at the end of that. Then I'll talk about French ATC. I might bring in Juliusz as well on that. So Tracey, off you go.

Tracey McCann, Head of Finance

So I suppose end to end next year, Dudley, we're about 46% hedged on the field with significant cost savings. But again, it's important to point out that we are seeing increased environmental and staff costs offsetting that. Again, this year, we've seen a significant increase in ATC charges, but again, we will probably see modest inflation over the next number of years. But we will have, as we start to sample some of the delivery of the Gamechanger aircraft, we will get a benefit of the incremental seats and we will get the benefits of the fuel borne. I think the fact that we're financing the aircraft out of cash, again, unlike our competitors, we don't have them by financing cost, so I think the key is we will have inflationary cost increases, but the gap between us and the competition will continue to widen.

Michael O'Leary, CEO

Okay. Neil, do you have anything you want to add to that?

Neil Sorahan, CFO

The gap is the key point. Everybody is acutely aware of our Slide 4 on unit costs, where we've now seen the next nearest competitor move from what was over 50% of the gap to nearly 80% of the gap. I expect that to remain in place. We'll have a big competitive advantage when we build our engine shops over the next few years. We'll have a big advantage when we take in the Gamechanger aircraft with the extra seats. So I think, Dudley, we'll remain very much head and shoulders above everybody else when it comes to unit costs for the foreseeable future.

Michael O'Leary, CEO

Thank you, Neil. To illustrate, the French air traffic controllers went on strike on July 3rd and 4th this year, citing issues with old equipment and being short-staffed. Their chosen method of protest was to strike during the bank holiday weekend in June. This resulted in us having to cancel 700 flights and impact 130,000 passenger journeys because Europe hasn't taken measures to safeguard overflights. If overflights, particularly from the U.K. and Ireland, had been protected, about 90% of those cancellations could have been avoided. The average fare was EUR 65, resulting in an approximate revenue loss of EUR 8.5 million. While we did cancel flights, we also accrued some cost savings. Considering a 20% net margin on that EUR 8.5 million, our net profit loss over those two days is likely around EUR 1.5 million. Furthermore, we incurred additional costs for caring for those passengers as we couldn't recover expenses from the unions due to their legal immunity. There is a straightforward solution already adopted by Spain, Italy, and Greece, which is to protect overflights during air traffic control strikes. This approach wouldn't infringe upon the right to strike but would minimize the impact on flights. If the European Commission merely separated the upper airspace, EUROCONTROL could manage overflights over France during an ATC strike. It's disappointing that Ursula von der Leyen has yet to take action on this matter. Implementing this measure would likely be politically popular for the European Commission, especially in light of Brexit, showing their commitment to creating a single market. While it may upset some French unions, promoting their interests shouldn't come at the expense of efficiency. Von der Leyen speaks of enhancing Europe's competitiveness, particularly concerning U.S. tariffs and the Draghi report, yet when presented with a simple solution like protecting overflights during national strikes, there is no response. Are we making progress? Not much, although we're actively campaigning, having gained support from all European airlines under the A4E initiative for overflight protection during national strikes. However, concrete action from the commission has been lacking. If we keep up our campaign and clearly communicate how simple this would be, we might make some headway, but I can't point to any immediate developments as of now.

Juliusz Komorek, Regulatory Affairs

No, Michael. That's a great summary.

Operator, Operator

Next question goes to Alex Irving of Bernstein.

Alexander Irving, Analyst

Two for me, please. First of all, if I can come back on your fares. You say you expect to recover some but not all of last year's decline in Q2. If I'm looking at Q1 versus 2 years ago, you're up and Easter 2023 was well into April. So how confident are you that summer's fares will be down, not up on 2 years ago? Is it just you being prudent in the face of the external risks you've highlighted? Second question is around the investment in 30 spare LEAP-1B engines. Understand they were cheap, but why was this necessary at all? Are you concerned about underlying reliability issues? And therefore, should we be concerned about possible lower asset productivity or higher maintenance costs over the long run?

Michael O'Leary, CEO

Sure, let me address both points. First, regarding fares, they decreased by 7% last year. In the first quarter, we saw a 21% increase, and in the second quarter, we are currently tracking an increase of about 6% to 7%. My confidence in this projection is tempered by our reliance on last-minute bookings through the end of August and September. As of now, 73% of August is sold, but only 40% of September. If conditions remain stable, I am confident we can achieve a 7% increase in the second quarter. However, it is vulnerable to any negative external factors such as terrorism or safety incidents. Looking at the next 12 months, we are reasonably optimistic. Our outlook has improved since our full-year results call, where we noted we had recovered most of our previous losses. Now, we are nearly at full recovery, but we remain sensitive to factors affecting last-minute bookings for the rest of the year. In the second half, we currently have 6% of our seats sold, indicating our significant dependence on trends that could positively or negatively influence last-minute bookings. Regarding the acquisition of 30 LEAP-1B engines, we decided to buy them because CFM presented us an exceptional discount, likely due to their desire to close a deal quickly, possibly for financial reasons. With this purchase, we will have a total of 120 spare engines for our fleet of 181 aircraft. While we currently have more spare engines than needed, the growth of our Gamechanger and MAX fleets means we will likely need more spare engines over time. Taking advantage of the discount was a strategic decision, and we are confident this investment is sensible as we plan to take delivery of 330 aircraft over the next decade. We have no concerns regarding the LEAP-1Bs and are actively moving towards establishing one or two in-house spare engine maintenance, repair, and overhaul facilities, which we expect to announce by the end of the year. This capability will position us advantageously over competitors who will rely on increasingly costly third-party maintenance, which is expected to have lengthier turnaround times in the future, thus creating opportunities for us to enhance our fare pricing and profitability.

Operator, Operator

The next question goes to Jarrod Castle of UBS.

Jarrod Castle, Analyst

Well done here. A very good set of numbers. Two for me. I mean, one of your low-cost competitors, Wizz, is closing down their Abu Dhabi base. And they've spoken about putting that capacity more in Central and Eastern Europe. So just interested in your thoughts on how you see the competitive environment there going forward. And then secondly, maybe one for Neil. You said that CapEx is going to be EUR 2.2 billion, but could be higher on tooling. Is there any way you can maybe just give us a bit of magnitude depending on the scenarios on how much higher that could be?

Michael O'Leary, CEO

Okay, Jarrod. I'll address the first point and then let Neil talk about the CapEx. Firstly, Jarrod, I want to clarify that Wizz is not a low-cost rival to Ryanair; in fact, it's a high-cost competitor, which diminishes its position as a competitor. We were a bit surprised by the reasons they provided for leaving Abu Dhabi, mainly citing high costs associated with operating in a desert environment. We questioned why they’re not closing their base in Saudi Arabia, which is also a desert, if that’s truly a concern. Wizz has a history of being rather creative in justifying their commercial setbacks and changes in strategy. A few years back, they were aggressively expanding into Vienna and Italy to challenge Ryanair but have since quietly pulled back to focus on the Middle East, which now represents a third of their traffic. They now seem to be retreating from the Middle East back towards Central and Eastern Europe while announcing a growth deal at Modlin that aims to triple traffic over the next five years. Wizz announced last Friday that they will base two aircraft in Modlin, which I believe is a positive development for that airport. We are open to Wizz basing more aircraft in Central and Eastern Europe, as this will only accentuate the significant cost and price advantages that Ryanair maintains over Wizz and our other competitors. In every market where Wizz has tried to compete with Ryanair, they have ended up failing and withdrawing. I expect this trend to persist. The real challenge for Wizz in trying to grow or compete in Central and Eastern Europe is that they have expensive aircraft which they purchased from their main shareholder and later refinanced under questionable terms, resulting in inflated profits on their balance sheet that they are now mortgaging over the next several years. As they expand, the disparity between their costly aircraft financing and our lower depreciation costs will only grow. Additionally, we have reduced aircraft costs, labor costs, and overall lower costs across the board. We will also be debt-free by mid-2026, while Wizz has significant debts. Their net debt was around EUR 6 billion against a market capitalization of roughly EUR 1.1 billion to EUR 1.2 billion. I believe the ongoing consolidation in Europe may lead to Wizz being acquired, potentially by a venture capital firm, and I find it surprising that some Middle Eastern airlines haven't pursued Wizz, especially given the decline in their market cap. They may have a fleet of aircraft, albeit costly, and that hasn't deterred Middle Eastern investors in the past. However, I don't think Wizz will continue to operate in Europe as an independent carrier in the next 3 to 5 years, especially if they aim to compete more directly with Ryanair. We welcome the competition, as it would likely lead to their quicker decline than we've seen in the Middle Eastern markets. Now, Neil, would you like to address the CapEx?

Neil Sorahan, CFO

I will. Jarrod, it's a cautionary note that there could be upside on that EUR 2.2 billion depending on the timing of tooling or otherwise for the engine shops. That very much depends on where we get to in negotiations. If there's a benefit, for example, in taking stock sooner or paying sooner for some of the plants and equipment to get deep discounts. We may look at it, but we're in the midst of negotiations at the moment, don't have any numbers, don't have any timing at this point in time other than a cautionary note that you may see a little bit of upside on the CapEx. And if you do, it's because we've locked in an advantage on the MRO going forward long term.

Michael O'Leary, CEO

Thanks, Neil. Tracey, anything you want to add on CapEx or Neil covered it all?

Tracey McCann, Head of Finance

I think that's pretty much covered, yes.

Operator, Operator

The next question goes to Savanthi Syth of Raymond James.

Savanthi Nipunika Prelis-Syth, Analyst

You called out on the video call environmental costs going up from like 4% pretax to 5.30%. I realize your cost gap should be widening, but is there a risk that you end up getting a larger share of a smaller pie? Or is demand strong enough, it can absorb all these costs going forward? So a bit of a longer-term question. And then the second one is just a quick follow-up on CapEx. I wonder if you could kind of give an update to some of the comments you made on fiscal year '27 and beyond just related with this engine CapEx coming in.

Michael O'Leary, CEO

Okay. We'll come back to you, Neil, on the CapEx. Thomas Fowler here, who's our Head of Fuel and Enviro. Thomas, do you want to tackle Savanthi's question on enviro cost? Will demand over time, our fares cover rising in enviro costs?

Thomas Fowler, Head of Fuel and Environmental

In the short term, no. However, over time, I believe it will because I think the competition faces fare increases to cover environmental costs. We've had this cost for the last 12 years and have still grown. Yes, our costs will rise, but I believe the costs for our competitors will increase even more, especially since, over the last four years, ETF fare-free allowances have shielded them from ETF exposure, while we haven't had that advantage. As a result, we will likely see increases in crude oil prices and surcharges, whether in environmental surcharges or fare hikes. As long as we maintain our cost line advantage, I think we can manage these increases effectively.

Neil Sorahan, CFO

Yes. No real change to what I would have said back in May. So I would still anticipate, Savi, that the CapEx dips below EUR 2 billion next year and then the year after that will be somewhere between EUR 2.5 billion and EUR 3 billion as we start to ramp up PDPs and deliveries of the 10s start to come in. So no, I wouldn't have much more to add than the commentary I gave back in May, other than we've taken the engines in now for this year, where you're seeing us at the EUR 2.2 billion for the current year. And we should still be below EUR 2 billion into next year.

Operator, Operator

The next question goes to James Hollins of Exane BNP Paribas.

James Edward Brazier Hollins, Analyst

One for Eddie, one for you, Michael. Eddie, on Israel, maybe just run us through your plans there and whether kind of the situation there has led to some pockets of overcapacity this summer, like you saw in the Canaries in the winter and whether you expect that to normalize. And then Michael, maybe just take us behind the scenes of your conversations with Stephanie Pope or Kelly buying on the MAX 10 certification. You seem way more confident than you have for a long time that it will get certified pretty soon. Maybe just run us through where that confidence is coming from.

Edward Wilson, CEO DACH

During the peak of summer, we faced escalating tensions, particularly with Iran, which led us to prioritize safety in our decision-making. Following a thorough risk assessment, we recognized the need to reallocate our capacity. However, once that capacity is put on sale, it is challenging to reverse the decision, even if the situation appears to stabilize. Throughout July, August, and September, we decided to maintain that allocation until the end of the summer season. We have been in discussions with the Jordanians, who are eager for us to return, and we are currently engaged in talks with them. We had previously planned to operate around 100 weekly flights into Tel Aviv, with fewer flights into Jordan, although Jordan remains a strong market for the winter season. We are currently evaluating winter allocations and finalizing our decisions for a few airports and countries. Our focus will remain on cost considerations regarding capacity distribution, and both Israel and Jordan will be included in our plans for different reasons. As of now, we have not yet finalized our winter schedule and continue our discussions.

Michael O'Leary, CEO

Okay. In relation to Boeing, I believe Kelly Ortberg and Stephanie Pope are doing an excellent job, particularly Stephane Pope. The quality of production for the hulls in Wichita and the aircraft in Seattle has significantly improved. We've scaled back operations and no longer have engineers based in Wichita. Hulls with any defects are not allowed to move to Seattle, ensuring that every hull is defect-free. This change is accelerating production in Seattle and enhancing the quality of the output. Originally, we expected to receive 29 delayed aircraft in spring 2026, but they've asked if we could take them early in August, September, October, or November 2025. We agreed to this, even though it isn’t ideal for cash flow, because securing the aircraft ahead of summer 2026 is beneficial. I believe they will deliver those early. Stephanie has been very dedicated, taking only about a week off recently and even went to India after the 787 crash to support operations on the ground. If there's an issue in Seattle, you can call her directly. The morale and attendance have improved significantly since they implemented a 40% pay increase. They are effectively delivering aircraft, and in the short term, progress on certification is crucial. The new administration seems to support Boeing, and while the new Head of the FAA is awaiting Congressional approval, we expect it soon. I was initially concerned about aircraft certification; however, Stephanie has confirmed in writing that we will indeed receive the MAX 10s. They are scheduled for delivery in the first five months of 2027, and we will be getting those MAX 10s. Some of their customers, like United, have deferred some MAX 10 deliveries and converted to more 800s, which might have assisted their situation. They have achieved a production rate of 38 in May and June and expect to increase to 42 by the FAA's approval come September or October. While there are challenges, such as potential issues during production, the efforts of Kelly and Stephanie Pope over the last year have been commendable. The quality of delivered aircraft is now exceptional, and I feel much more optimistic about Boeing's future than I have in the past few years. Although challenges remain, they are progressing well and are prepared to ramp up production.

Operator, Operator

The next question goes to Muneeba Kayani of Bank of America.

Muneeba Kayani, Analyst

Most of my questions have been answered. However, I wanted to ask about your current thoughts on returning cash to shareholders. I understand you have buybacks in place, but you had EUR 2 billion in net debt as of June. Considering the bond repayments and CapEx commitments you've mentioned, what are your thoughts on initiating another share buyback at this time?

Michael O'Leary, CEO

I believe we are maintaining our current approach. We've introduced a share buyback program totaling about EUR 750 million, which is expected to take place over the next 12 to 18 months. The Board and I are somewhat concerned as the share price has increased significantly, attracting many new shareholders. We prefer not to drive the share price higher in light of this demand, allowing the market to handle it. The current buyback is anticipated to continue until mid-2026, and I don't see a reason to consider additional shareholder returns beyond this. We face significant challenges, including over EUR 2 billion in bond repayments within the next year and opportunistic capital expenditures such as acquiring 30 spare LEAP-1B engines. It's essential for us to maintain a solid balance sheet to manage these commitments. After paying down the bond debt, we expect to have around EUR 2 billion in gross net cash, and I hope to see that increase to EUR 3 billion or EUR 4 billion in the next year or two. As we begin fulfilling Boeing MAX 10 orders, our capital expenditures will likely rise. However, the Board reassures shareholders that any excess cash identified will be returned through dividends or share buybacks. We have a share buyback already planned through mid-2026, and another dividend payment of about EUR 200 million or approximately EUR 0.22 to EUR 0.23 per share is due in September, pending AGM approval. Our commitment to returning excess cash to shareholders remains strong, but we will continue to manage cash carefully and uphold a conservative balance sheet due to the cyclical and capital-intensive nature of our business, which is vulnerable to unforeseen disruptions. Having substantial cash reserves positions us to take advantage of favorable deals on distressed assets as they arise.

Operator, Operator

The next question goes to Ruairi Cullinane of Research RBC Capital Markets.

Ruairi Cullinane, Analyst

Firstly, would you be able to quantify the contribution of lower crewing ratios to the impressive staff unit cost performance in the quarter, where they stand or where can they get to? And secondly, it looks like you paused fuel hedging in the quarter, which looks well-timed. So when should we expect you to resume fuel hedging for full year '27?

Michael O'Leary, CEO

Okay. Maybe, Tracey, I'll ask you to address maybe the lower crewing ratios. It's more by reference to the fact we had higher accruing ratios last year because of the Boeing delivery delays, and they're coming back into. And then I might ask actually Thomas Fowler to touch on fuel hedging and when we expect to increase our fuel hedging position. Tracey, crewing ratio.

Tracey McCann, Head of Finance

The crewing ratios fell in the fourth quarter, mainly because they were too high due to delays in aircraft deliveries. Recruitment was slower, but we expect it to pick up again as we prepare for next summer's aircraft deliveries. Additionally, we will implement moderate pay increases.

Michael O'Leary, CEO

Thanks, Tracey. And Thomas, do you want to touch on fuel hedge and I might ask Neil to come on the back of your remarks.

Thomas Fowler, Head of Fuel and Environmental

Yes. When we assessed the situation at the end of May, we engaged in significant hedging while oil prices were low. As you pointed out, there has been some price volatility recently. We plan to revisit our hedging strategy in the coming months in line with our policy. We made considerable progress with hedging in May, which put us ahead compared to last year. Moving forward, we will take advantage of opportunities to hedge again when oil prices stabilize.

Neil Sorahan, CFO

Exactly what I was going to say. Tracey mentioned earlier on, we've been building on the euro dollar, and we've been taking advantage of the weaker dollars, which also plays into our fuel line. We're in the peak summer period. Spot oil for jet is elevated at the moment. We've got big volumes that we can move the market against ourselves. So I think we'll happily cease until we see the opportunities again in the market and go back in at that time, as Thomas said.

Operator, Operator

The next question goes to Jaina Mistry of Jefferies.

Jaina Mistry, Analyst

Two questions, please. Just first, is there anything in particular that's driving strength in your ancillaries per passenger in Q1? And then the second question, it's related to an earlier question around medium-term OpEx inflation. But let's just say that unit cost inflation over the medium term is positive with staff coming on, EU ETS, et cetera. Would you feel comfortable adopting a price growth strategy against the backdrop that's slightly higher than average cost inflation?

Michael O'Leary, CEO

Sorry, adopting our price strategy, was it?

Jaina Mistry, Analyst

Yes.

Michael O'Leary, CEO

Okay. Maybe, Eddie, would you want to comment on ancillaries in Q1 and the trend in ancillaries? We were up 3% in Q1 against traffic growth of 3%.

Edward Wilson, CEO DACH

Yes, I believe much of this has been addressed. The work being done in Labs alongside the adjustments to pricing models has been significant. Additionally, we have made good progress on the mobile app, which now plays a crucial role in our bookings. Recent changes in how we present bags and priority boarding have shown positive results. We are experiencing improved product penetration and better alignment with customer demand. As we often mention during these calls, this is an ongoing incremental growth process as we refine our models based on market demand for these specific products.

Michael O'Leary, CEO

Tracey, would you like to elaborate on any of these comments?

Neil Sorahan, CFO

Just a comment there I would say as well, Jaina, we did have a positive impact from the ancillaries, which helped on that 3% uplift on a per passenger basis. I'd go back to my opening comments where I indicated, on a full year basis, I still think it's kind of 1% to 2% per passenger growth for all of the reasons that Eddie has set out there and in what Labs are doing and everything else.

Michael O'Leary, CEO

Tracey?

Tracey McCann, Head of Finance

Just I think it is important to highlight that Q1 is extremely strong. The same is fair because of that Easter impact as well from very low comparable.

Michael O'Leary, CEO

Okay. And the longer one, Jaina, on the unit cost inflation, firstly, I think I've been generally long-term bullish on unit cost inflation. Whereas you have easyJet and Wizz and others have already upgauged in recent years. We're about from spring '27 onwards to get into a major upgauging as we move into the MAX 10. The bigger capacity aircraft will undoubtedly put downward pressure on fares and yields. But with capacity generally across Europe heavily constrained out to 2030, I think fares will hold up reasonably well, if not continue to rise, particularly in markets like Germany or Dublin, where government inaction means they're not allowing us to use the additional capacity that already exists. So I think we won't need a pricing strategy. I think pricing will modestly rise between now and 2030 because of the overall capacity constraints.

Operator, Operator

The next question goes to Gerald Khoo of Panmure Liberum.

Gerald Khoo, Analyst

Two for me, if I can. Firstly, what's happened to stage links in Q1? And what do you think is going to happen for the remainder of the year? And secondly, some of your competitors have been talking about seeing later bookings. I was wondering whether you had seen the same. Reading between the lines, I don't think you have, maybe you're seeing the reverse. I was wondering if you could give some view on where the timing of bookings is falling, please?

Michael O'Leary, CEO

Yes. I'll address the second point and ask Neil about the stage links. Our competitors are discussing later bookings, which seems to be a reversal of last year's situation when we faced an OTA boycott and our competitors' OTAs booked more with tour operators. This year, thanks to our approved OTA agreement, we are witnessing a significant recovery in our OTA bookings. These bookings generally occur further in advance and are often related to holiday packages. Consequently, we are experiencing stronger advance bookings and higher fares this year, although this is partly in comparison to a weak prior year's performance. In contrast, our competitors are experiencing later and closer-in bookings this year, which is influenced by a better prior year due to our OTA boycott. That's the difference between us and them, and we anticipate this trend will continue through the rest of the first half of the year. Neil, can you provide insights on stage links for the first quarter and for the remainder of the year?

Neil Sorahan, CFO

There's nothing notable to talk about there. And in the quarter, we saw our flight hours at 4%, which is in line with our sector growth of 4% and traffic. Unlike a number of our competitors, we're not moving into longer sectors to drive it. So I mean, the average last year was just over 2 hours. It's not going to be usually dissimilar on a full year basis this year for the sector.

Operator, Operator

We currently have no further questions. So I'll hand back to you, Michael, for any closing.

Michael O'Leary, CEO

Okay. Just before I close, if I'll ask you Jamie might just update us on where we are on the share buyback program as of last Friday on the current program. I forgot to touch on that. Jamie Donovan, our Head of IR, where we are on the current update on the share buyback program.

Jamie Donovan, Head of Investor Relations

We're about EUR 60 million through Q1 as at the end of June and so at about another 6% or 7%, and still EUR 750 million buyback.

Michael O'Leary, CEO

Thank you for joining the call. We had a strong Q1, but let's be cautious and not get overly optimistic. The Q1 results have been inflated due to a weak comparison from the previous year. I anticipate that Q2 will reflect a more typical year-on-year comparison, and we expect to recover nearly all of last year's 7% fare decline, although it's a significant difference from the Q1 average fare increase of 21%. For the full year, as long as the close-in booking trend remains positive and we do not face any unexpected issues related to safety, terrorism, war, disease, or political instability, we are poised for a solid profit recovery in the first half, which we hope will extend through the rest of the year. The second half could be more challenging due to tougher comparisons on revenue since we performed better last year after resolving the OTA boycott. Additionally, we had some minor supplier compensation last year that won’t occur this year. Overall, we remain cautiously optimistic about achieving a good profit recovery for the year, with much depending on Q2. We will share Q2 results at the end of October, which will be reflected in traffic results for July, August, and September. We also plan to maintain strict cost control, which distinguishes us from other European airlines. We look forward to repaying two bonds, EUR 850 million in September and EUR 1.2 billion next May, making Ryanair debt-free moving forward. We are committed to returning excess cash to shareholders, with another dividend pending AGM approval in September, and our share buyback plan will continue. We anticipate taking delivery of 29 aircraft from Boeing without tariffs between now and Christmas and hope for the certification of the MAX 7 and MAX 10 by year-end, which gives us confidence in taking those MAX 10 deliveries in 2027 and 2028, along with hedging related to that capital expenditure. I have nothing further to add. Neil, do you have anything else to mention before we conclude?

Neil Sorahan, CFO

No, I don't have anything Michael.

Michael O'Leary, CEO

Okay. Nadia, thank you very much, your help. Thank you, ladies and gentlemen. If anybody has any individual queries, feel free to call Jamie and the team. We're not doing a road show as is normal on the Q1. But if anybody has any query, please fire them into Jamie. If you want to come visit us at some stage over the summer, please feel free to do so. As long as you're flying with Ryanair and not one of our competitors, you'll be very welcome. Thank you very much, everybody, and we'll all go back to work now. Thank you. Bye-bye.

Operator, Operator

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.