Ryanair Holdings plc
Q1 2018 Earnings Call Transcript

Published: 31 Oct 2017

[Michael O'Leary:]

Good morning, ladies and gentlemen. Welcome to the Ryanair H1 Results Conference Call. I'm joined as usual by Neil Sorahan, our CFO, and we're going to go through the usual format of couple of introductory comments, investor site presentation and then a Q&A. So, as you will have seen in this morning's numbers, Ryanair cut H1 fares by 5% and as a result had 11% growth in traffic. Profits have risen by 11% in the first half of the year. This is a robust set of results produced by Ryanair at a time covering a period in which we suffered a material failure in our pilot rostering function in September. However, the underlying business continues to perform admirably. We opened three bases in the half year, 80 new routes, we took delivery of 35 new Boeing 737-800 series aircraft in the first six months of 2017, and it's that additional capacity that has allowed us to lower fares and increase traffic by 11%. Ancillary revenue grew by 14% in the quarter with customer spend up 2%, as more and more of our customers are selecting optional services. Unit cost per passenger fell 5% in H1. Excluding fuel, it was flat, but it would have fallen 2% in the first half without the exception of the EU261 costs we've included in September, which would be referred to later. Our balance sheet remains very strong. Operating activity in the half year generated over €930 million of net cash, and we used this to fund net CapEx of €675 million, share buybacks of €640 million and debt repayments of €200 million. Net debt has risen slightly at the end of the half year to about €600 million, but we expect to finish the year at 31 March 2018 in a zero net debt position. During the half year, we continued to roll out customer experience improvements. Ryanair.com is now the world's largest airline Web-site with an impressive 94% of passengers visiting the Web-site directly rather than coming through search engines. MyRyanair has grown to over 30 million members by the end of November. We expect that to rise to over 40 million at the end of the year. Over half of our customers now choose their preferred seat and our Plus fares are running at almost 7% of all sectors sold. In the first half, we launched and are successfully piloting flight connections across Ryanair flights in Rome Fiumicino and Milan Bergamo airports. The most notable development in the first half of the year was the continuing trend towards consolidation among European airlines. Monarch, with 5 million passengers a year, went bankrupt in September. It was followed by Air Berlin with 29 million passengers in October, and Alitalia which carries about 24 million passengers annually remains in bankruptcy. We are adding more aircraft to our U.K. provincial bases in Germany and in Italy in summer 2018 so we can take advantage of these cuts in capacity which are leading to improved airport deals and also a flood of pilots making applications to join Ryanair in recent weeks. Just to update you on Brexit, we remain concerned at the continuing uncertainty surrounding the terms of the U.K.'s departure from the EU at the end of March 2019. There remains a worrying prospect of a disruption to flights to and from the U.K. if there is not a bilateral agreement negotiated between the U.K. and the EU27. And the delay in the divorce talks which drives on leaves less and less time for such a bilateral to be negotiated. I will draw your attention particularly to the comments made by Air France's CEO, Jean-Marc Janaillac, in The Observer on the 22nd of October in which he clearly warned that the U.K. government should be preparing for a grounding of flights to and from the U.K. in the event of there being no deal by the end of March 2019. I now want to address the pilot rostering failure and our recovery from it, which took place in September. We suffered a material failure in the management of the pilot rostering function. It left a short of crews temporarily in the first couple of weeks of September, despite the fact that we were able to crew the full summer schedule during the peak months of July and August. This was a perfect storm of one-off pilot shortages due to; an over-allocation of calendar months of leave to pilots in the months of September, October, November and December; high 30-day rolling duty hours of those remaining pilots who were available to fly, as a result of frequent ATC staffing delays during the summer peak; a backlog of more than 200 newly recruited pilots who were stuck in base training because we had taken, our rostering had taken some of the training captains to fly line flying; and an insufficient focus on pilot recruitments during the year to take account of the exceptional one-off exceptional annual leave that has to be allocated to our pilots in September, October, November and December in order to transition from a nine-month annual leave period in April to December 2017, so that we can by agreement with the IAA move our calendar leave to a January to December period starting on the 1st of January. The impact of this in the first two weeks of September was extremely damaging on our punctuality, which fell to below 75%, we never have seen in recent years. We immediately responded to that to try to protect the 98% of passengers who would not be affected by those delays or cancellations. To do so, we cancelled some 50 daily flights during a six-week period for the remainder of the summer schedule at the back end of September and October. But in so doing we disrupted the flight plans of about 300,000 of our customers. On the 27th of September, we then announced that we were going to ground approximately 25 of our aircraft for the winter period. This again would affect less than 0.5% of the passengers we would carry over that winter period, but it doesn't in any way lessen our regret and our apologies for the disruption we caused those passengers. However, having made those very small adjustments, we have now returned stability to our schedules, to our rosters, and I'm pleased to say our punctuality in recent weeks has returned to our normal, at or close to 90%. The customers that were affected by those cancellations have now all within a period of 18 days received re-accommodation on alternative Ryanair flights, a full refund of their air fares, in some cases accommodation on other comparable transport providers, and in all cases we have sent those customers a travel voucher of €40, being more than our one-way airfare, or €80 return, and we hope to welcome them back on a free Ryanair flight during the winter period. This experience of management failure in the rostering area has caused us though to revisit some of the issues that we had taken for granted. While our pilot pay was competitive, it is ahead of those of other 737 operators, the gap has closed in recent years. So we have responded to that by significantly improving our pilot pay. We are also in many cases taking it to 20% higher than competitors like Norwegian or Jet2. We are also operating in an environment where because of the bankruptcy of Monarch, the bankruptcy and stringent pay cuts being imposed on Air Berlin pilots as Lufthansa tries to transition them into Eurowings, we've had a deluge of applications from new pilots coming to join us from Monarch, from Air Berlin, and increasing from Alitalia as well, and we expect that trend to continue. We have no shortage of pilots here in Ryanair. At the moment we have a waiting list of over 2,500 pilots who are ready, willing to join, and in the current year to date we have now hired just over 900 new pilots, all of whom are joining and are going online over the winter period. We have also changed the management of the operations team. Mick Hickey has departed after some 30 years of great service. He will be replaced by Peter Bellew, who returns to Ryanair after a successful stint as the CEO of Malaysia, and Peter will be charged specifically with establishing a better interaction with, better communications with, and responding more quickly to the needs and requests of our pilots. Having put that to one side, I think again it's important to focus on the underlying business. The underlying business continues to grow, it continues to grow traffic, it continues to grow profitability, and it continues to deliver an unmatched unit cost performance within the industry. In terms of outlook therefore, having grown the H1 traffic by 11%, the grounding of 25 aircraft for the winter period means we will slow H2 growth to approximately 3% or 4%. As a result, full-year traffic will slow this year FY 2018 from 131 million to about 129 million customers. We are 2% better booked at this time for the remainder of the winter than we were at this time last year. We expect based on limited visibility into H2 that average fares will fall by between 4% to 6%. That's slightly better than our previous guidance which was minus 5% to minus 7%. And we continue to expect ancillary spend per customer to rise maybe by 1% over the full year. Ex-fuel unit costs will be adversely impacted by we're taking a €25 million non-recurring provision for these exceptional EU261 costs in September, and we expect that the new deals we are offering to pilots, which has now been accepted by more than 10 of our pilot bases, it has been rejected by Stansted, but we're continuing to engage with the Stansted pilots in order to persuade them to accept these significant pay increases, we expect that it will add about €45 million to our pay and salary cost for the remainder of this fiscal year, and in the full fiscal year we expect this will add about €100 million to our operating costs. We now expect the full-year unit cost will fall by approximately 2% this year. Ex-fuel unit cost will now rise by about 3% because of these exceptional provisions and higher pilot pay scales. Based on these numbers and with the usual caveat on limited H2 visibility, we see no reason at this time to alter our full year profit guidance, which remains in the range of €1.40 billion to €1.45 billion. This guidance, as always, remains heavily qualified and dependent on the strength of close-in bookings in the second half of the year, the absence of any further security events across Europe, and air-traffic controller strikes or negative short-term Brexit developments. With that, I'm going to hand you over to Neil, who is going to take you through the slide presentation.

[Neil Sorahan:]

Thank you very much. Ryanair has the lowest fares and the lowest cost of any airline. We will grow to 129 million customers this year, an 8% increase on last year. We are #1 for choice and coverage and with our growing order we will see ourselves grow to 200 million customers per annum by March 2024. Following our pilot rostering failure in September, we have now rapidly recovered, and while this will lead to slower growth in FY 2018 and FY 2019, we are still guiding a similar profit range of €1.4 billion to €1.45 billion for the full year. Ryanair has the lowest fares. Our average fare of €41 is significantly cheaper than everybody else. And the reason why we can have such low fares is because we have the lowest costs. Our cost per passenger ex-fuel last year of €27 is way below the competition and we expect the gap between ourselves and everybody else to continue to be extremely wide. We have a unique offering to our customers. We have 87 bases around Europe, over 200 airports, the majority of which are primary airports. We operate in 33 countries and our customers can choose from over 1,800 different routes in the network. We enjoy strong market shares where we are typically #1 or #2 in the key markets around Europe. And with the bankruptcies and restructurings that are going on around Europe, we see great growth opportunities in the U.K., Germany, Italy, and elsewhere where there are many other financially challenged airlines at this time. In the half year, our profit after tax was up 11% to €1.29 billion. A 5% reduction in average fare helped drive an 11% increase in passenger numbers to 72 million and record load factors. Our balance sheet remains one of the strongest in the sector. After investing €675 million in aircraft CapEx and returning almost €640 million to our shareholders and paying down €200 million debt, we had a €600 million net debt position at the end of the period. We expect to [indiscernible] broadly flat net cash/net debt position by year-end. Our low fares and AGB continue to drive traffic at record load factors. Consolidation continues at pace across Europe. Following our pilot rostering failure in September, we have now recovered this, albeit that it leads to some lower growth for the remainder of the year. And we remain somewhat concerned by Brexit and the lack of certainty that remains in the market. So looking at our passenger numbers for the next number of years, we will slow down somewhat in FY 2018 and FY 2019. However, as we start taking delivery of the MAX-200 aircraft in FY 2020, we'd be back on target to our 200 million customers per annum by March 2024. Our customer initiatives are working very well. We are the world's largest airline Web-site with in excess of 60 million visits to our Web-site in August alone. Our MyRyanair customers now are up to 30 million and we expect this to grow to 40 million by the end of the year. And our initiatives in relations to Plus Products and reserved seating are working very well, along with our connecting flights and the rooms [indiscernible]. European consolidation continues at pace. We are seeing great opportunities on short haul routes in the likes of the U.K., Germany and Italy, as Alitalia, Air Berlin and Monarch, who account for 60 million customers between them, are in bankruptcy or indeed have already gone bankrupt. We are seeing opportunities to get more airports, low cost volume airport deals as capacity comes out of the market, and indeed we have had a raft of pilots applying for jobs in Ryanair as they look for superior pay, 5/4 rosters, and of course job security. While we withdrew from the Alitalia bidding process in September to concentrate on the fixing of our pilot rostering system, we remain available to feed the long haul operations of Alitalia, and of course we would be happy to sell their long haul flights on our Web-site, as we already do for Air Europa. So, what happened in September in relation to our pilot rostering failure? We had a strong summer where we had operated with high load factors of 97% and over 12.5 million customers in July and August. We are in the process of transitioning our flight time limitation annual leave here over a nine-month period from 1 April to 31 December, into a new calendar year from the 1st of January 2018. We over-allocated annual leave in blocks of one month to in excess of 50% of our crews during the period of September to December, inclusive. This led to a shortage of standby pilots. We are not short of pilots in Ryanair. There just was a temporary shortage on the standby front. We made a number of hard decisions which included cancelling 2,100 flights over a six-week period between the back-end of September and October. We also took the hard decision of grounding 25 aircrafts this winter to slow down our growth to 129 million customers. Unfortunately, these decisions impacted 700,000 of our 129 million customers, and for this we apologize. We have however re-accommodated or refunded 98% of these within 18 days and all now have been looked after at this time. We also issued them with €40 vouchers and hope that they will travel with us again over the winter on a Ryanair flight. We have now fixed the rostering issue. We have beefed up the management team. We have a new COO coming to join us from Malaysian Airlines, Peter Bellew, who was the Chief Executive there and formerly from Ryanair, is coming back. We also have appointed Eddie Wilson, our Chief People Officer, to look after pilot recruitment and rostering. In addition, as Michael said in his previous presentation, we have increased the pay and some of the terms and conditions have improved for our pilots and we are talking to our ERCs about this. So the impact on the business as a result of all of this is that we will slow down our growth into FY 2018 and FY 2019. There is a one-time nonrecurring cost of €25 million which is included in our H1 results. We also expect to see a downward pressure on fares into the second half of the year as we run seat sales and €40 vouchers are redeemed. We expect higher pilot costs as a result of the increased pay deals that we have in place for our ERCs and our pilot groups around Europe. This will add approximately €45 million in this financial year and could be up as much as €100 million in the next financial year, assuming of course that all ERCs accept the deal. There may be some negative PR over the next number of months as the unions try to attack our ERC process and gain recognition within Ryanair. As we have already said, we are now moving on to a new flight time limitation year from the 1st of January, which will add great stability in the rosters. We have a new operations team coming onboard. We are slowing down the growth into FY 2019 by having 10 additional spare aircraft over the summer. And as such, we don't believe that this issue with the rosters will reoccur. As we've said to our shareholders on many occasions, management discipline is extremely important. We made a mistake. We took the hard decisions and fixed it and I believe we have learned an awful lot from this process and our guidance still remains unchanged. This is a snapshot of the kind of pay increases that our pilots can enjoy, the likes of Dublin, Stansted, and indeed elsewhere around the network, where they are up to 22% ahead of competitor Boeing 737 captains and FOs in their respective bases. Brexit continues to be an area of uncertainty. Apart from currency volatility, we are still unsure as to what's going to happen in relation to the European open skies. It looks like the U.K. will leave open skies, which means we now need a bilateral in place or at least we need certainty around what's going to happen with the bilateral before we launch our summer schedules in September of next year. This is a big issue for not just Ryanair, but for all airlines, and it was interesting to note the CEO of Air France recently commenting that in a worst case scenario this would mean flights between Britain and the continent could be grounded because U.K. will no longer be a member of the European Common Aviation Area, so a concern for all airlines. Guidance, while we are still leaving our guidance unchanged in the range of €1.4 billion to €1.45 billion net profit this year, which is an 8% increase at the midpoint, we believe our customers will now grow by 8%, somewhat slower than previously guided, to 129 million customers. Average fares will be down approximately 4% to 6%. We do have limited visibility at this time of year to close-in Christmas and Q4 bookings, however we are guiding minus 4% to minus 6%. Following the strong performance in the first half of the year in ancillaries, we now think that ancillary spend will be approximately up 1% per customer. We had previously guided broadly flat. Our unit cost, which benefit from our strong fuel hedging, will be down 2% in the year. This is after a €70 million charge in relation to EU261 €25 million and increased staffing costs €45 million. These numbers of course are highly predicated on close-in bookings, the absence of security events, ATC strikes, and of course negative commentary around Brexit. With that, back to Michael for Q&A.

[Michael O'Leary:]

Thanks Neil. Well done.

[Unidentified Analyst:]

H1 profits rose 11% to €1.29 billion. Why?

[Michael O'Leary:]

Traffic was up 11% to 72 million, thanks to stronger Easter, but average fares fell in half year by 5%. Load factor is up 1% to 96% and unit costs including fuel are down 5%.

[Unidentified Analyst:]

Average fares fell 5%. Why?

[Neil Sorahan:]

We had a strong Q1, thanks to Easter falling in Q1 this year. However, as previously guided, fares over the summer were down 9%. Number of reasons for this; weak sterling meant that we had to encourage U.K. passengers with lower fares and we also had to stimulate the market significantly in Spain, Italy and Portugal where there was excess capacity from Northern Africa and the Middle East in those markets.

[Unidentified Analyst:]

Ancillaries rose 14%. Why?

[Michael O'Leary:]

Spend per customer was up 2% and traffic was up 11%.

[Unidentified Analyst:]

How many MyRyanair members do you have?

[Neil Sorahan:]

Over 30 million at the moment and we'd expect that to grow to about 40 million by the end of our financial year in March.

[Unidentified Analyst:]

How are the Plus Products and reserved seating performing?

[Michael O'Leary:]

Going very well. Plus Products are now averaging about 7% of total customers. So we expect to get that to 10% over a five-year period. We are now in year three. So we're running slightly ahead of target. And reserved seats, now about 50% of customers, including the Plus Product customers, are choosing their preferred seat.

[Unidentified Analyst:]

Is there any update on your feeder plans?

[Neil Sorahan:]

Yes, our connections onto Ryanair flights in Rome Fiumicino and Milan Bergamo are going very well. We continue to talk to Aer Lingus and Air Europa in relation to providing feed onto their long-haul operations, and of course would be available to offer feed onto Alitalia in time as well.

[Unidentified Analyst:]

How is Ryanair rooms progressing?

[Michael O'Leary:]

We have been working hard to increase the availability of capacity. We have five inventory providers working with us now, offering over a quarter of million hotels and more than 7.5 – sorry, over 250,000 hotels and 7.5 million rooms worldwide, and we hope to roll out travel credits in December whereby customers using Ryanair rooms will receive discounts off their next flight bookings.

[Unidentified Analyst:]

What impact will the Air Berlin, Alitalia and Monarch bankruptcies have?

[Neil Sorahan:]

Collectively these airlines account for about 60 million customers between themselves in the U.K. and we are getting opportunities to grow in the U.K. provincial airports, and indeed we are hiring Monarch pilots who are very keen to get job security, following the bankruptcy of that airline in Germany. We are having discussions with many airports down there, as is Lufthansa. We'll take capacity out following the takeover of Air Berlin. And we expect it to be a big beneficiary in Italy as Alitalia bankruptcy progresses. We would also see an opportunity to provide feed into Alitalia for the long-haul operations in the future.

[Unidentified Analyst:]

Has the Brexit situation changed?

[Michael O'Leary:]

No. If anything, I think it's getting worse. There is still no progress on either the divorce discussions or on a bilateral between the U.K. and the EU27, and it is the issue of flight rates after March 2019 that is the concern. I would be contrast the recent remarks made by Air France CEO where he clearly warned that flights to and from the U.K. would be grounded in April 2019 without such a deal, and you contrast that with the statements coming from the U.K. government which continues to somewhat optimistically believe that there will be an agreement. I think they don't, they underestimate the extent to which particularly French and German airlines are actively lobbying against any such deal on flight rates.

[Unidentified Analyst:]

Did you open any new bases and routes in H1?

[Neil Sorahan:]

Yes, we had a busy first half of the year where we added an additional 80 routes into the network and three new bases including our base in Frankfurt which started off with three aircraft in March now has grown to seven aircraft in September. We started flying into Naples, one of the few airports in Italy that we hadn't been serving prior to that. And indeed we added a new base in Memmingen just outside of Munich.

[Unidentified Analyst:]

Why has net debt risen to €600 million at period end?

[Michael O'Leary:]

We generated about €940 million net cash and free cash flow from operations, but we spent about €1.5 billion on net CapEx in the half year, shareholder buybacks in the half year and debt repayments. However, we still expect to reduce that €600 million net debt position to approximately zero by the end of the fiscal year.

[Unidentified Analyst:]

What is your fuel hedge and position?

[Neil Sorahan:]

Well hedged, we are 90% hedged for the current financial year at about $490 per metric tonne on the Euro-dollar. The other side of the hedging, we are hedged at about 1.12 on the Euro-dollar. As we look into next year, we have about 50% of H1 hedged the stage at similar levels on the Jet and at about 1.15 on the Euro-dollar where we have 90% of our cover in place for the year.

[Unidentified Analyst:]

Any update on future shareholder returns?

[Michael O'Leary:]

No. We've just completed 600 million share buyback and I think we will reassess for the shareholder returns once we have returned the net debt position to zero at the end of the fiscal year.

[Unidentified Analyst:]

What will CapEx be for FY 2018 and FY 2019?

[Neil Sorahan:]

I think it will be somewhere in the region of about €1.5 billion. We spent €675 million in the first half of this year and as we look into next year, it will be something similar, maybe a little bit less.

[Unidentified Analyst:]

The guidance range is unchanged with profit after tax of €1.40 billion to €1.45 billion. What are the drivers of this range?

[Michael O'Leary:]

Slightly slower traffic growth to 129 million for the year; slightly better second half yields; we now expect fares to decline by between 4% and 6%. Originally we were predicting minus 5% to minus 7%; 2% decline in unit cost including fuel; ancillary spend up approximately 1% per customer for the full year; but all of this is heavily qualified by the final yield performance in the second half of the year which will be subject to there being no terror events, close-in bookings, Christmas holding up reasonably well, and there being an absence of ATC strikes and further negative Brexit developments.

[Unidentified Analyst:]

How are forward bookings?

[Neil Sorahan:]

Strong. We are on average about 2% ahead of where we were last year, albeit at slightly lower fares.

[Unidentified Analyst:]

Does the slower growth in H2 FY 2018 and FY 2019 mean fares will rise?

[Michael O'Leary:]

No, but certainly the slower growth in FY 2018 is one of the reasons why we think the fare decline in the second half of the year would be slightly better than we had originally predicted. It's too early yet to make any predictions for our affairs in FY 2019. We expect to continue to grow but expect our customers to continue to enjoy the benefit of lower fares as we grow with lower unit cost.

[Unidentified Analyst:]

I'll now ask you about the September pilot rostering failure. Have all affected customers been re-accommodated or refunded at this stage?

[Neil Sorahan:]

Yes, I'm pleased to say that they have.

[Unidentified Analyst:]

What are the extra costs associated with these cancellations?

[Michael O'Leary:]

We have included about €25 million of provision for EU261 costs in the half-year numbers. We don't expect there to be anymore there, but we also expect that there will be an increase in staff costs if all pilots accepted new pay increases from November of about €45 million in the current half year or in the second half of the year.

[Unidentified Analyst:]

Was the initial communication badly handled by Ryanair?

[Neil Sorahan:]

Yes, I'd have to say that it was and I think we definitely could and should have done it better than we did, and we definitely learned a lot of lessons for the future on how we will handle issues as we grow over the next number of years.

[Unidentified Analyst:]

How many pilots have left this year?

[Michael O'Leary:]

In the current year, less than 100 Captains have left and less than 190 First Officers, and during that period of time we have recruited more than 700 new pilots. So, as you can see, there is no shortage of pilots and we continue to have a pipeline of new pilots joining us.

[Unidentified Analyst:]

Has the pilot turnover increased this year?

[Neil Sorahan:]

It's probably slightly ahead of where it was in prior years. That said, we have seen a lot of applications in previous weeks, particularly as a number of airlines have gone out of business, and more importantly, as we have increased the pay and conditions at our various bases where they have the highest-paying Boeing 737 operator across the network. So, I think we'll see a slowdown on that.

[Unidentified Analyst:]

Are you having difficulty in recruiting pilots?

[Michael O'Leary:]

No, we have a waiting list of over 2,500 qualified pilots who want to join. We have recruited more than 900 new pilots since January. We have also, as Neil said, seen an uptick in pilot applications, qualified 737 pilots applying to join us from Monarch, others are applying from Air Berlin where they are suffering big cuts to their pay and conditions, and Alitalia in recent weeks as well.

[Unidentified Analyst:]

Does the grounding of aircraft in FY 2018 and FY 2019 change your long-term target of 200 million passengers per annum by 2024?

[Neil Sorahan:]

No, not at all. In fact, we into FY 2020 start taking delivery of the MAX-200 Gamechangers. We are back on track and we're well on target for the 200 million customers by March 2024 per annum.

[Unidentified Analyst:]

Has there been any changes to the pilot rostering management team?

[Michael O'Leary:]

Yes, we have changed the entire pilot rostering management team in the end of September or early October. We are now producing rosters for four weeks in advance with all duties covered and standby pilots rostered. And I think we are also going to address the wider operations management team, which is why we are welcoming back Peter Bellew from Malaysian Airlines. He is joining us in December. But I think the failure has clearly addressed that we had some weaknesses within operations, so we'll need to address those over the coming months.

[Unidentified Analyst:]

What's the next step for the Stansted pilots after they voted against the new pay deal?

[Neil Sorahan:]

We will clearly continue to engage with them. We respect their vote, which unfortunately means that they won't enjoy pay increases in November of this year. But we are engaged to find out what their concerns are and the door remains open. We do have however 30 new recruits joining in Stansted in November who will benefit from the increased pay, which is 23,000 ahead of the likes of Norwegian and indeed up to 25,000 ahead of Jet2 at the same base.

[Unidentified Analyst:]

And what about other bases?

[Michael O'Leary:]

We have more than 10 of our other bases have already accepted the new pay increases. Stansted and Madrid at this point in time have turned them down. And as Neil has explained, all of the bases are already on five-year pay deals. So they will continue – if they reject the pay increase, they will continue on their existing base deals until those base deals expire typically in 2020 or 2021. The only way to amend or change those existing deals, which were voted on in secret ballot and approved in secret ballot by our pilots, is to negotiate directly with us through the ERCs.

[Unidentified Analyst:]

Will you meet with the so-called EERC?

[Neil Sorahan:]

No, we have no plans to meet with competitor pilot unions regardless of what they are called. We engage with our people through our own employee representative committees, which our Supreme Court has ruled is the correct form of collective bargaining to do with them and we look forward to talking to the ERCs.

[Unidentified Analyst:]

What risks exist to [proven numbers] [ph] for the summer 2018 schedule?

[Michael O'Leary:]

We don't believe there is any risk for the summer 2018 schedule. We have grounded or where we have taken out 10 of our peak summer 2018 aircraft, that's to provide more resilience and backup to the operation. But we have already said, we are recruiting pilots at the rate of about 40 to 50 per week and we have seen a flood of applications from pilots who were made redundant out of the Monarch bankruptcy, pilots who are facing redundancy out of the Air Berlin bankruptcy now applying to us, and as we have increased pay rates to more than 20% higher than Norwegian and Jet2, we are beginning to see a reversal of the outflow of pilots who left us to join Norwegian in particular now seeking to return.

[Unidentified Analyst:]

Have you cancelled or delayed any of your aircraft orders with Boeing?

[Neil Sorahan:]

No, absolutely not. And as you know, back in June we actually increased the order by 10 MAXs to 110 firms and 100 options. So we are looking forward to taking the first one in April 2019.

[Unidentified Analyst:]

How is on-time performance?

[Michael O'Leary:]

It has righted itself since we took those painful decisions in September. As Neil said, in the first two weeks of September, punctuality fell to below 75%. In recent weeks, as we produced the rosters and fixed the problem, it's returned to kind of seasonal average of about 90% on time, first wave departures on a daily basis and that running typically at 98%-99% on-time.

[Unidentified Analyst:]

Will the [indiscernible] ruling affect your employee contracts?

[Neil Sorahan:]

No, the [indiscernible] ruling has nothing to do with employee contracts. It's about jurisdiction and our employees are on Irish contracts of employment which are derived from EU legislation. Now there may be a requirement in some jurisdictions to incorporate some local minimum, for example in Germany it would be typical to have a six-month probationary period, whereas in Ireland up to 12 months would be the norm.

[Unidentified Analyst:]

Will your pilots go on strike?

[Michael O'Leary:]

We don't expect so. Although our pilots under Irish legislation are free to join unions if they so wish and are free to go on strike if they wish to go on strike. I think the fact that we are now paying our pilots more than 20,000 or 20% more than competitor 737 pilots, I think as they begin to see the flood of pilots joining us from Monarch and other airlines in bankruptcy, I'm not really sure what they would wish to strike about. But if they have concerns that they want to raise, we have made it quite clear, our door is open and they can continue to raise those concerns directly with us through their ERC structure, which has been confirmed by the area Supreme Court as meeting all of the tests established for collective bargaining. There is a bit of a misinformation campaign out there by the union saying that the pilots don't want to participate in the collective bargaining within Ryanair. That's fine. That's their right. But if they don't want to participate in it, if they want to achieve change, it can only be done through that collective bargaining process.

[Unidentified Analyst:]

How many contractor pilots do you have?

[Neil Sorahan:]

The majority of our captains at this point in time will be employees and minority of first officers. However, we would expect by the end of 2017 that it will be majority of all pilots will be direct employees.

[Unidentified Analyst:]

Stansted and Madrid rejected the base deals. Have any other bases?

[Michael O'Leary:]

Not yet. Some may. A majority we expect will approve these pay increases. But I think the challenge for those, a base like Stansted, is what do they do next. They have been somewhat misled by unions like PALPA who have presided over the bankruptcy of Monarch and [indiscernible] within Monarch. The difficulty is that these unions are unable to indicate to our Stansted pilots what they can offer them. We are offering them pay increases, significant pay increases, better terms and conditions, and we are bringing Peter Bellew in to resolve the communications issues. And if they have some concerns, then they need to raise them directly with us. So, we believe that we will continue to engage with the Stansted ERC and that ultimately it is in the best interest of our pilots in Stansted and at all other bases to accept better pay increases. You have to wonder about the bonafides of unions who try to persuade our pilots 'don't vote in favor of pay increase because there is some better deal on the table'. There isn't.

[Unidentified Analyst:]

How long until you reach agreement with the pilots?

[Neil Sorahan:]

It is going to take a number of months. We have 86 bases and we are trying to engage with them all.

[Michael O'Leary:]

But having said that, we are continuing to recruit, I think it's an important point to make. We are recruiting new pilots into all of these bases on the new terms and conditions. So pilots are joining in Stansted, joining in Dublin and joining in Madrid are at the higher pay rates, and we believe that itself will encourage our existing pilots to accept the new pay deals and accept the improved terms and conditions that are now on offer within Ryanair.

[Unidentified Analyst:]

What is the Board's involvement in this?

[Michael O'Leary:]

I think we're very closely involved obviously in the rapid response to the pilot rostering failure in September. They approved the very painful decision that we took to cancel 50 daily flights for that six week period of September-October. They have approved, understood the need for and approved the grounding of the 25 aircraft into winter period, and our Board are four-square behind the management in identifying why the pilot rostering problem took place and what steps we are taking to make sure it never happens again. And I should also say the Board is four-square behind the steps we have taken now to increase pilot pay, to make Ryanair a more attractive place for pilots to be employed, and the Board are 100%, in fact if anything, more supportive of our determination that we will not be bullied or intimidated by competitor pilot unions into offering union recognition to people who tell lies about Ryanair safety, about our employment structures, we intend to continue to negotiate directly with our pilots. And I think if anything, the Board is absolutely united on that issue.

[Unidentified Analyst:]

Thank you, Michael. Thank you, Neil.

[Neil Sorahan:]

Thank you very much.