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Ryanair Holdings (RYAAY)

Q1 2013 Earnings Call

July 30, 2012 9:30 am ET


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Michael O'Leary - Chief Executive Officer, Executive Director, Member of Nomination Committee, Member of Executive Committee, Chief Executive Officer of Ryanair Limited and Director of Ryanair Limited

Howard Millar - Chief Financial Officer and Deputy Chief Executive


Mark Manduca - BofA Merrill Lynch, Research Division

Stephen Furlong - Davy, Research Division

James D. Parker - Raymond James & Associates, Inc., Research Division

Gerard Moore - Merrion Stockbrokers Ltd., Research Division

Peter Hyde - Liberum Capital Limited, Research Division

Geof Collyer - Deutsche Bank AG, Research Division

Tim Marshall - Redburn Partners LLP, Research Division



Good day, and welcome to the Ryanair Q1 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael O'Leary. Please go ahead, sir.

Michael O'Leary

Okay. Good afternoon, ladies and gentlemen. Thank you for participating in the Ryanair Q1 Conference Call. As it's the Q1 numbers, I'm going to run through it very quickly, and I'm going to spare you all and you'll be pleased to know how we're reading the MD&A. The results release, the MD&A and the investor presentations is on the website, Please feel free to have a look at it and download it as you wish.

So just to summarize today, we announced our Q1 results as we had previously guided at the full year results. The earnings were down 29% to EUR 99 million. Overall, revenues increased 11% as traffic grew 6% and average fares rose by 4%. This led positively [ph] because of unit cost increase of 10%, which is mainly due to a substantial fuel cost increase of over EUR 170 million but Q1 profits declined by EUR 40 million.

As previous -- as I said, as we've previously guided, the significantly higher fuel costs caused the Q1 profit to fall by EUR 40 million. Nevertheless, the growth continues our 6% traffic growth, combined with a 4% rise in average fares, led to an 11% increase in revenues. Ancillary sales grew by 15% to EUR 286 million, and now account for 22% of total revenue. Operating costs for the quarter rose 10%, primarily because fuel increased 27% or an increase of EUR 117 million to a total bill for the quarter of EUR 544 million. Fuel in Q1 accounted for 47% of total operating costs. We were hedged at $820 per barrel -- or per tonne rather in Q1 last year compared to $1,000 per tonne this year, a price increase of 22%. As a result, the Q1 numbers suffered the largest fuel costs rise in the coming FY '13 numbers as the pricing differential narrowed significantly over the remaining 3 quarters of the year.

The Q1 yield increases were dampened by EU wide recession, austerity measures and some heavy fare discounting, particularly at new base launches in Cyprus, Denmark, Hungary, Poland and in provincial U.K.

Excluding fuel, Q1 unit cost rose by 3%, despite a 2% -- which was largely result -- largely caused by a 2% rise in average in flight crew pay, higher charges at certain airports and the impact on cost of stronger sterling against the euro.

More recently, developments on the 1st of July, the Spanish government more than doubled airport taxes at Aena's already high-cost airport in Madrid and Barcelona. They also announced smaller tax increases at other Spanish airports. These tax increases have already led to a winter capacity cut by Ryanair and many other airlines in Spain, and we think will result in traffic declines at the major Spanish airports, which is exactly what the Spanish government deserves for this kind of economic stupidity.

What's more importantly, last week, we warmly welcomed the U.K. Court of Appeals, the dismissal of BAA/Ferrovial seventh appeal against the 2008 Competition Commission recommendation that Stansted be sold. We know the BAA intends to appeal that again to the Supreme Court but believe that, that appeal has little chance of success, particularly given the competition Court of Appeals have taken to refuse the right of appeal last week. Nevertheless, we think they will go ahead with the appeal, but we think the Supreme Court will dismiss the appeal.

We were somewhat concerned by the BAA's comment last week that traffic rose -- that, that traffic declines at Stansted was due to low consumer confidence. This report is complete rubbish and the same low consumer confidence hasn't affected traffic growth at both Heathrow and Stansted, Heathrow and Stansted airports. The real reason why traffic is declining at Stansted is because BAA monopoly has been gaining the regulatory system, raising airport prices, presiding over traffic declines so they can fatten up the P&L for the inevitable sale of Stansted. And as soon as these regulatory gaming is brought to an end, and Stansted -- Ferrovial forced to sell Stansted, the better it will be.

We believe that BAA -- Stansted Airport will return to growth, and Ryanair is keen to grow our traffic at Stansted but only when there's a new management or a new owner in place committed to lowering the costs of the airport and working with Ryanair, the airport's largest airline to grow traffic.

Looking forward, we're 90% hedged -- fuel hedged for FY '13 at approximately 1,000 barrels -- $1,000 per tonne, a 21% increase on last year's price. We've recently hedged 50% of our half 1 FY '14 requirement at a lower price of $940 per tonne. However, these lower fuel prices would be more than offset by lower euro dollar exchange rates. The outlook for the remaining -- throughout the year remains cautious. We expect full year traffic to grow 4%, which will be a combination of 7% growth in the first half and 1% in the second half Q2, a repeat of last year winter significant capacity costs.

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