Ryanair Holdings plc (RYAAY)

Q1 2012 Earnings Call

July 25, 2011 9:30 am ET


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

Neil Sorahan -

Howard Millar - Chief Financial Officer and Deputy Chief Executive


Eamonn Hughes - Goodbody Stockbrokers

Neil Glynn - Crédit Suisse AG

Andrew Light - Citigroup Inc

Gerard Moore - Merrion Stockbrokers Ltd.

Jonathan Wober - Societe Generale Cross Asset Research

Peter Hyde - Liberum Capital Limited

James Parker - Raymond James & Associates, Inc.

Tim Marshall - Redburn Partners LLP

Brian Devine - NCB Group Limited

Stephen Furlong - Davy

Bob McAdoo - Avondale Partners, LLC

Geoff van Klaveren - Deutsche Bank AG

Joe Gill - Bloxham Stockbrokers

Jarrod Castle - UBS Investment Bank



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

Michael O'Leary

Okay. Good afternoon, ladies and gentlemen. You're all very welcome to the Ryanair Q1 results call. I'm here with my colleagues in Dublin. Howard Millar is joining us on force [ph] at the moment on the mobile phone from London, but we'll push on. As you have seen, the results this morning are on the website, the Investor page and the homepage. This morning, we announced Q1 net profit of EUR 139 million, a slight increase of 1% on Q1 last year. Revenues were up 29% to EUR 1.15 billion, as traffic increased 18% and average fare rose 11%. Unit costs rose by 40% due to a 49% increase in fuel costs. Excluding fuel, sector length adjusted unit costs fell by 1%.

The traffic growth in Q1 was flattered by the air space, the volcanic ash airspace, closures in April and May last year, which caused the cancellation of 9,500 flights and the loss of almost 1.5 million Ryanair passengers. So our 18% traffic growth combined with an 11% rise in average fares led to a 29% increase in revenues. Significantly higher revenues were largely offset by higher costs, principally fuel, which rose 49% to EUR 427 million. Despite essentially higher fuel costs, we still recorded profit after tax of EUR 139 million, slightly up on Q1 of last year. Our robust result is testimony to the strength of the Ryanair lowest fares, lowest cost model.

Ancillary sales grew 22% to EUR 248 million, somewhat faster than traffic and amounted to 21% of total revenues. We've recently started trials of reserved seating for the 21 extra legroom seats on selected routes for a fee of EUR 10 per seat. And if these trials are successful, particularly during the peak period, we'll roll out reserved seating across more of our longer routes in the network this winter.

Unit costs increased 14%, primarily fuel account for biofuel, which increased 49% to EUR 427 million. Excluding fuel, sector length adjusted they fell 1% as we rigorously controlled costs despite a 2% increase in basic pay for all staff from early April at Eurocontrol charge, which rose 34% in the quarter and substantially higher and adjusted by the airport charges at Dublin Airport, which largely accounted for the 31% increase in airport fees.

Our new routes and bases at summer are performing well. We recently announced a 45th base in Manchester, which starts in October with 2 aircraft and 17 routes, rising to 4 aircraft and 26 routes in summer 2012. A combination of recession and competitive capacity cuts continues to create significant growth opportunities across Europe as numerous airports aggressively compete against each other to attract Ryanair's growth. We expect Dublin Airport's traffic to fall in 2012, which will be its fourth consecutive annual fall due to the DAA monopolies on a justified 40% increase in airport charges. This has led to winter capacity cut by Ryanair and many other airlines. And we believe we'll see traffic again, as I said, for day 2011 fall again at Dublin.

Traffic in Dublin has plummeted by some 30% to just over 18 million passengers in 2011 from its 2007 peak of 24.5 million. We believe the Irish government can only reverse its downward spiral in air traffic and return to tourism in Charles de Gaulle when the DAA airport monopoly is broken up and replaced with competing term of the Dublin and competing airports at Cork and Shannon, which will lead to a much more competitive airport charges and more efficient terminal facilities at the expense of white elephants, to which the DAA have delivered over recent years.

We've recently submitted a proposal to the Irish government to deliver 5 million extra passengers annually over the next 5 years to kick start the Irish tourism and job creation. This will create about 5,000 jobs in the Irish airport directly. This growth proposal is based on airport charges falling to return to competitive levels here in Ireland and the government's scrapping the remaining EUR 3 tourist tax. And we still await the government's response to our proposal.

The latest U.K. Competition Commission's confirmation of its original 2008 recommendation that the BAA airport monopoly should be forced to sell Stansted and at least one Scottish airport will we hope finally end the BAA policy of using legal appeals to delay the sale. These delaying tactics have not stopped the BAA at Stansted overcharging airlines, generating excessive monopoly profit by losing even more routes and traffic. We call on the U.K. government to force the early sale of Stansted and one of the Scottish airports, and allow a competition between the U.K. airports in order to deliver better facilities and lower cost for airport users. We intend to shortly launch legal proceedings against the BAA Stansted seeking a recovery of the substantial overcharges, which Ryanair believes it and other airlines have suffered at the BAA Stansted monopoly's hands in recent years, and which have been used to fund Ferrovial's acquisition and operation of Heathrow.

Fuel prices remain stubbornly high as spot is trading at around $116 a barrel. We're 90% hedged for FY '12 at about $86 per barrel, an 18% price increase on the previous year but significantly below current prices. We've taken advantage of recent price dips to hedge about 20% of Q1 of FY '13 at an average price of just over $100 per barrel. Higher oil prices though are forcing competitors to further increase fuel surcharges and fares, which makes Ryanair low fares even more attractive. It will also drive further consolidation and more airlines will exit the industry this winter. This would generate further growth opportunities for Ryanair because we operate the most fuel-efficient aircraft and at the lowest operating costs.

The recent reason Brighter Planet survey ranked Ryanair as the greenest, cleanest airline in the world. And that survey is available to you, if you care, on the ryanair.com website. In June, we signed an MOU with COMAC, a Chinese aircraft manufacturer, to enter discussions on the development of a new 200-seater, short-haul aircraft for Ryanair that should be available from 2018 onwards. We believe this aircraft, which will be a larger version of the C919, would be a real alternative to the existing short-haul duopoly of Boeing and Airbus. Real competition in the aircraft manufacturing industry will deliver more choice and lower cost for airlines and passengers. We also believe it will make economic sense for Ryanair to become, in time, a 2-aircraft operator if the present Boeing fees economies can be matched or improved by another aircraft manufacturer.

Read the rest of this transcript for free on seekingalpha.com

If you liked this article you might like

Worried About the Weak Dollar? Look at These Euro-Exposed Stocks

Worried About the Weak Dollar? Look at These Euro-Exposed Stocks

Las Vegas, Facebook, Monarch - 5 Things You Must Know Before the Market Opens

Las Vegas, Facebook, Monarch - 5 Things You Must Know Before the Market Opens

U.K. Airlines Stock Surge on Monarch Bankruptcy

U.K. Airlines Stock Surge on Monarch Bankruptcy

Ryanair Customers Take Their Complaints to Social Media

Ryanair Customers Take Their Complaints to Social Media

Ryanair Could Face 20 Million Euro Fine Over Flight Cancellations

Ryanair Could Face 20 Million Euro Fine Over Flight Cancellations