Earnings Call Transcript - RYAAY Q3 2020

Michael O'Leary, Group CEO

Good morning, ladies and gentlemen. You're welcome to the Ryanair Q3 Results Presentation. I am Michael O'Leary, I am the Group CEO, and I'm joined this morning by Neil Sorahan, our Group CFO. You will see the strong Q3 numbers we published this morning on the ryanair.com website. We reported a Q3 net profit of €88 million, up from a Q3 loss in the prior year. We’ll take that as a win and we’re going to roll through the slide presentation, which will move to now. So, as you can see Ryanair's remains Europe’s favorite airline group. We have the lowest cost, we have the lowest fares of any airline operating across Europe. We’re number one in traffic, 154 million guests, up 8%, number one for coverage. Lower growth is driving slightly higher fares, both this winter and we think that trend will continue into the summer of 2020. EU airline failures and the sales reorganizations are accelerating. We’ve seen that trend over the winter period. Ryanair's proud to be Europe’s greenest, cleanest airline, and we're about to invest upwards of €20 billion in the fleet of new Boeing aircraft which will significantly increase the number of passengers we carry per flight by reducing fuel consumption. Ryanair is and remains the lowest cost operator in Europe and we will be the structural winner. This slide is familiar to everybody. It sets out our 82 bases, 241 airports, and I would draw your attention that in summer of 2020 we have new routes in Katowice in Poland, Zadar in Croatia, and a new country in Armenia. In total, we'll have opened 111 new routes this summer. We continue and commit ourselves to offering Europe’s lowest airfares, which is why other airlines, our competitors can't compete with Ryanair's prices, nor can they compete with our costs. Other airline chains have lower costs on some RASM or CASM basis; it’s simply not true. If you look and compare us on a unit cost basis per passenger excluding fuel, we beat everybody. We’re significantly cheaper, for example, than easyJet, on airports and handling, about one-third of their costs. And in aircraft ownership, we’re significantly cheaper than Wizz. In total, however, our unit costs ex-fuel are more than 34% lower than our nearest competitor, which enables Ryanair to continue to grow, offering lower fares than any other airline and sustaining those low fares. Neil, the results?

Neil Sorahan, Group CFO

Yes. Q3 showed a strong performance. Guests were up 6% to 36 million customers. Revenue per passenger performed strongly, a 13% improvement, thanks to strong close-in bookings on Christmas and New Year. We saw a 9% increase in average fare. Our priority boarding and reserved seating continue to drive a strong performance in our ancillary revenues, which were up 21%. Unit costs, despite the fact that we haven’t had any MAXes in our fleet, were only 1% higher in the quarter. And as Mike already said, we recorded a profit of €88 million in the quarter, which compares with a loss of €66 million in the prior year. Interestingly, our earnings per share is tracking ahead of that, thanks to the buybacks that we’ve been doing over the past year.

Michael O'Leary, Group CEO

Turning to current developments, the MAX-200s are experiencing delays. Boeing has indicated that they expect the grounded MAX to return to service in June, while certification for the MAX-200s will take at least two months longer. As a result, we are reducing our summer 2020 schedule and removing the 10 MAX aircraft we anticipated receiving. This will lead to slightly lower growth next year, but it should improve our airfare competitiveness this summer. We are maintaining our cost leadership. Even without the 55 MAX aircraft this winter, we’ve shown strong unit cost discipline, with only a 1% increase. We expect slower capacity growth from Ryanair and our competitors, combined with higher fuel prices, to drive ongoing consolidation in the industry, as evidenced by the failures of Thomas Cook and Adria among others. We foresee some increased loan losses due to the price competition with Lufthansa subsidiaries in the German and Austrian markets, where they appear to be selling below cost, but we remain the lowest cost operator and will continue to compete on pricing. We're making notable strides in environmental initiatives and are pleased to announce the appointment of our first Director of Sustainability, who will focus on achieving our ambitious environmental goals. Out of the €700 million share buyback program, we've completed €440 million, with around €260 million remaining, and we anticipate extending this program to complete it by the end of July. In early January, we raised our full-year guidance from €800 million to €900 million, with a new range set at €950 million to €1.05 billion. Regarding the MAX update, we have 210 aircraft on order which will now arrive later than expected, affecting our FY21 growth. We are projecting a decrease from 162 million to about 156 million over the next year, with most of the growth coming from the additional A320s at Lauda, which has led to some regrettable base closures this winter due to limited capacity. Bases in Gran Canaria, Belfast, Hamburg, Las Palmas, Nuremberg, Stockholm Skavsta, and Tenerife South have closed. We have paused our payments to Boeing until we receive clarity on the MAX delivery schedule. Despite the current challenges, we regard the MAX as an excellent aircraft that carries more passengers with lower fuel consumption. Our pilots have had positive experiences in the simulators and are confident in the aircraft's performance. The delay in deliveries has pushed our guest target of 200 million to FY25 or FY26. Consolidations in the market are continuing, highlighted by recent airline failures, with several airlines currently for sale or receiving state aid. Additionally, we are observing cutbacks from various carriers. The losses at Lauda have risen slightly this winter from €80 million to €90 million, primarily due to lower than anticipated average fares amid price competition. This year, Lauda serviced approximately 6.5 million guests, which we expect to grow to around 10 million in the next year, with an increase in our fleet from 23 to 36 aircraft, mainly in Vienna, and the opening of a fifth base in Zadar. Hence, we expect losses to increase as we make these long-term investments. The Lauda management team is undertaking a detailed cost review and implementing cost-cutting measures that we believe will extend into next summer. In terms of our environmental efforts, we are the first EU airline to publish our monthly CO2 emissions and have appointed a Director of Sustainability to fulfill our ambitious targets. We are one of Europe’s greenest airlines, enabling passengers switching from higher fare legacy airlines to potentially reduce their emissions by up to 50%. We aim to further cut emissions by an additional 10% over the next decade, much of which will come from the upcoming Boeing MAX aircraft deliveries. We are committed to being plastic-free within five years and have already achieved 60% plastic-free status in our operations. Starting this summer, we will increase voluntary carbon offsets from €1 to €2 per flight. Although this doesn't completely offset our carbon emissions, it allows customers who wish to contribute to carbon offsetting to do so. We are on the verge of receiving 210 new Boeing 737 aircraft, which will help reduce our fuel consumption and noise emissions, while accommodating 4% more passengers. Neil, would you like to discuss the guidance?

Neil Sorahan, Group CFO

I will, Michael. Thank you. So, as guided to the market on the 10th of January, we expect processing a new range of €0.95 billion or €1.05 billion. There are moving parts in there. We would see our guests traffic increase by 8% or 154 million. Revenue per passenger, thanks to the strong performance on ancillaries and slightly better than expected average fares, will be up approximately somewhere between 3% and 4%. Unit costs, ex-fuel will be up just 2%, and that’s with MAXes in the base this year. Our fuel bill at current spot prices will be somewhere in the region of about €440 million higher than last year. So, a good performance for the year. This of course, as is always the case, is very much dependent on close-in bookings for the rest of the quarter in the absence of security events. Before anybody asks, we won't be giving any guidance this morning. We will give it on a full year in May.

Michael O'Leary, Group CEO

Okay. Now, we will open it for question and answers.