Ryanair Holdings plc
Q4 2020 Earnings Call Transcript

Published: 18 May 2020

Operator:

Hello, and welcome to the Ryanair Full Year Results Conference Call. Throughout the call all participants will be in a listen-only mode. Afterwards, there will be a question-and-answer session. And just to remind you, this conference call is being recorded.Today, I'm pleased to present Michael O'Leary, CEO. Please go ahead with your meeting.
Michael O'Leary:

Good morning, ladies and gentlemen, you're welcome to the full year results conference call. You'll have all seen this morning we released a result 7 AM together with a Q&A video with myself Neil Sorahan, the Group CFO. So we'll take a look at this way.I'm joined here in Dublin by the full team and pleased to welcome Tracey McCann, here who's also been appointed in recent weeks as the CFO of Ryanair Dac. Tracey, you are welcome and congratulations on the much deserved appointment.Couple of quick thoughts on this. You're seeing today or this morning's numbers, we were heading for terrific full year to the end of March 2020, had March had not been disrupted by the COVID-19, it's likely we would have seen traffic grow to about 154 million passengers. And full year net profits would be towards the upper end of the range somewhere between 1 billion and 1.5. As it was with COVID, as the government mandated groundings of the fleet through from essentially mid-March meant that we carried 149 million passengers or 4% of the previous year, and profits came in at the higher end of the current range a tad over €1 billion. However, what happened last year is obviously now historic, so I won't dwell on it.Couple of things on the COVID situation, just a couple of key thoughts. Clearly we're grounded and expect to be grounded fully through April, May and June. We're guiding that they -- [indiscernible] significant cost savings and cash preservation measures. We think there'll be a Q1 loss somewhere above 200 million, but under 300 million. We are already though have announced that we expect to go back to some level of flying from the 1st of July. We are pushed promoting at the moment about 1000 flights daily, which will be about 40% of our normal operations. We took considerable comfort from the evolving situation over the weekend where the Italians have returned or opened up the economy to tourism again from the 3rd of June. They have removed in its entirety the overly ineffective and nonsensical 14 day isolation, which nobody -- no government has yet been able to explain how it operates or how they would even police it.We are pushing hard over effective health measures and we think back to prices generally facemask in all public transport situations, busy train stations, undergrounds, airport terms and onboard aircraft, facemasks are effective at eliminating about 98.5% of the risk of the spread of COVID-19. And it seems to be is the only way you can allow most of our economies to record some kind of activity during the summer months.Already last week, since we announced that we've seen a significant spike up in bookings now, I wouldn't want to get too excited. But, this weekend, for example, our tokenings were up 60% over the previous weekend, but that was off a very small base. But we are seeing a significant number of hits in searches over the weekend, particularly I think from families looking at going on the two weeks summer holiday from Northern Europe to places in Italy, Spain, Portugal, et cetera. And in all of those countries we've seen the cases of COVID-19 are significantly lower in the beach and the resorts than they are in the heavily populated city.So we would hope there will be a reasonable relaxation of restrictions and that they wipe out -- they completely remove the things like 40 day isolation which are bonkers and don't implementable anyway over the next couple of weeks and that would be a reasonable and return to a passenger movement from 1 July onwards, is still six weeks away. We haven't yet begun to aggressively price promoters, or we're doing at the moment from last week and this week is encouraging a health measures, health prevention measures, hand sanitization and facemasks.The concern to put this into context period is going to be a lot of short-term pain in the airline industry. We will be lucky I think if we see a 50% loan factor through the second quarter. We are expecting maybe a 75% load factor in the winter, but we are guessing and are making this up as we go along.We are seeing now that the traffic for the full year will be less than 80 million passengers but we really can't put an accurate figure on at the moment. Our [indiscernible], it's something we share generally is that once people begin to move is that the traffic will return pretty quickly because there will be aggressive price stimulation both by the airlines, by the tourism providers, the resorts, the hotels, across Spain, Portugal, Italy and Greece. They will try to rescue with less of their tourist season on the back of price.But that also means that while we're looking at a reasonable returns traffic volumes. We think it will be on the back of much lower airfares in the year. So we're really flying blind at the moment. We hope to be able to go back flying in the 1st of July, we think that's reasonable. We think that the traffic volumes will return pretty quickly but on the back of pricing. And that's why honestly and I know the first 15 questions on this call are going to be what do we think the yield outcome will be for the year and the profit loss, we have proposed no vision. So please don't ask us, but we can give you -- all we can give you is what we think we're doing on guidance.Over the medium term, we see this is the huge opportunity. Ryanair has entered this with a number of other airlines in a well-managed situation we had 3.8 billion in cash on the balance sheet at the end of March. We're up to 4.1 billion of cash today, merely most of that 600 million drawdown from the U.K. government and transparent loan scheme.Our cash burn is about 60 million a week. About three quarters of that over 45 million of that is the fuel hedge payments. So I've actually just stripped that out, I think its declined as we moved through the year. In actual fact, the cash part is down to almost zero, not quite but close to zero, which means we can continue this in this environment for a year or two at this point in time.Obviously we want to get the business back moving. We think as long as we could get to a 50% or 60% load factor on flights, we'd be operating close to breakeven. But again that most depends on what assumptions you make on yield and ancillary sales as we return to fly. Other than that the big challenge though, so over the medium-term, there's a huge opportunity here, we're going to face into a number of years of trading where we have much lower oil prices, airports are being -- will be very aggressive because they've lost a huge amount of traffic, they will be introducing very significant discounts for growth.We're already in active negotiations with the airports on those stimulus measures. Our payroll bill will be a lot smaller. One of the tragedies of this is, I think it's inevitable. We are facing very significant job losses at the front-end pilots and cabin crews. And we only carry 80 million passengers this year. That would be about 50% of our normal volume. There are simply no way that we can continue to employ the number of pilots and cabin crew we do and they are going to be broad spread redundancy, pilots and cabin crew in countries all over Europe, the U.K., Spain and Italy and some of the other large countries have already initiate that process. The Union's usual are they are going to stick their head in the sand and looking for more information. There is a lot more information you need, we're facing an existential crisis in the airline industry. So there's going to be job losses and pay cuts and if we don't get agreement on pay cuts quickly, there will be even greater job losses that will be accentuated later on this week when in Vienna. We've already announced that we will close the Vienna base, A3 20 base, if the Union and [indiscernible] don't agree to revise T's and C's for pilots and cabin crew in Lauda.We don't expect them to because at the moment they represent about 6000 members in Austrian Airlines and we had a first meeting with them last week which was a shambles. They wasted 40 minutes arguing at [indiscernible], proposals were in English language is not in the German language. So we explained that we don't have time to be pissing about over languages, 300 job losses and the base closure, whether it's in English or in German, but still have the same impact on our cruise, pilots and cabin crew in Vienna.We're pleased and in fact heartened by the support we received from our pilots and cabin crew in Vienna. As of this weekend, over 95% of the pilots and more than 66% or two thirds of the cabin crew have already signed up for these changes. The tragedy though is that the structure of labor agreements in Austria means unless its signed up by the Union. The labor and individual, they say the price at cabin crew can't agree these changes.So we have massive and overwhelming support from the Lauda pilots and the cabin crew with the changes. But an Austrian Airlines union can effectively block and eat those concessions which means in our view, it's inevitable that the Vienna A320 base will close on at the end of May. The decision will be made on Thursday when the Verde union don't sign its agreements. The only reasonable close because the Verde union will sign the agreement. Sorry Vida union my apologies, Verde, sure they're German cousins. The Vida union will sign the agreement and what will happen in that situation is we will not withdraw from Vienna. Vienna will be -- we still have three Ryanair 737 space in Vienna. When Vienna reopens, we will fly the base using the Ryanair aircraft and we will backfill an awful lot of the routes of flights on Ryanair aircraft based elsewhere that will now flying to serve Vienna.So they will -- in actual fact which puts us in better shape to compete in the future with the state needed Austrian Airlines will be competing with a much lower cost Ryanair operation than the high cost Lauda operation, but we hope that even now the Vida union in Austria will agree these changes which will save the pilot and cabin crew jobs in Vienna.That came up so back onto the -- fundamental issue is there is a medium term huge opportunity here we will have lower cost fuel, lower cost labor, lower cost aircraft. We are renegotiating aircraft leases for Lauda. We're also discussing with Boeing pushing back any deliver, so deliveries on the Max aircraft. We probably extend some of our 737 NG leases. And those descriptions are continuing and but Cathy finalized Boeing until the Max goes back to service. But I think you're going to see enormous cost opportunities here for the next four or five years and Ryanair, well boys take advantage of that.The downside is, we'll need to take advantage of those costs, though, because we are facing a massively distorted market across Europe. I think for the next four or five years. The strong well run airlines like Ryanair, EasyJet, BA go into this crisis are going to emerge much more weakened and facing competition from state aid airlines, massive state aid is being given to SAS, Alitalia, Air France and Lufthansa. Airlines that couldn't make any money before the crisis, but will now emerge out of COVID-19 vastly stronger with unlimited phones to engage in low cost selling or M&A activity where they just bailed the competition in their domestic or regional markets. And that I think is going to be a real challenge for us going forward.I think we're facing a very strong return to passenger volumes, but in a very weakened pricing marketplace and that's why it's critical that we work with the unions, we work with all our other suppliers, airports, aircraft, et cetera because there's going to be a fairly torrent pricing environment going forward over the next number of years. Alitalia this morning was approved an Italian airlines by the way that has never made money for 75 years. That's teetering on the edge of bankruptcy for the last three or four years, has now been all been nationalized but this morning received 3 billion in state aid from the Italian government. And to put that in some context, the Italian government award 1 billion of aid to the Italian education system. So they seem to think that protecting the jobs in Alitalia far more important than educating the children of Italy and shows how distort it is going to be.Lufthansa, Air France, KLM and by the way, it's not that we are opposed to all forms of state aid. We accept and we hold our hands up. We have participated in job payrolls for support teams for the last number of weeks. We're very grateful for those teams and all across all EU countries. We've also drawn down the load that we're entitled to in the U.K., arm's length transaction. We got 600 million because we're triple BBB rated operator in the U.K., or certainly with those supports, that they're transparent, they're available to everyone, or manifestly unfair is for example, in France, the French government issuing some edict that says they would refund the French taxes, aviation taxes, but only to French airlines. So Air France receives back hundreds of millions of aviation taxes whereas we Ryanair, we're the third largest airline in France, EasyJet and others are not alone received nothing, but we're told we have to keep paying these aviation taxes.We have the bizarre edict coming out recently last week, not lower the Italian government could give the Alitalia 3 billion in state aid, but they're also now attempting to impose these Alitalia, terms and conditions, labor pay rates on all other airlines in Italy. Massive distortion of the level playing field, a massive distorted competition and a flagrant abuse by the Italian government of not just the state aid rules, but also breaching or tearing up the competition or the level playing field rules in Italy. We have no choice that we and other airlines would continue to oppose these kind of measures. And because they aren't going to distort the market for the next three or four years. However, Ryanair with a 4 billion in cash and a net weekly cash burn of about 10 million to 15 million a week excluding fuel surcharges. And with a fleet of aircraft, we have about 250 aircraft entirely unencumbered revenue about 7 billion on the balance sheet. We're very strongly positioned to weather not just the COVID-19 pandemic, but also to emerge out of that pandemic stronger with a lower cost base with far more growth opportunities. But those growth opportunities will be in a marketplace for the next year or two where I think fares [indiscernible] and use will be significantly lower as we're forced to compete with at state aid junkies like Air France, Lufthansa and Alitalia, who will use this money on top of the payrolls aboard schemes that the tax refunds are already getting to engage in below cost selling or in massive M&A activity.A quick touch on the Boeing Max as I said, we now expect Boeing tell us now that the Max return to service will take place in North America sometime in Q3. That is between sometime in August or September. We said this is a reasonable prospect that they -- they would be able to deliver some of our Max aircraft to us in the calendar fourth quarter and the first quarter of next year. These are still great aircraft. I mean, they have 4% more seats, they burn 60% less fuel. We are great fans of the Boeing, the Max 200. It will be critical, I think as well to our growth detail also being able to exploit growth opportunities into the summer of 2021 that we have additional aircraft deliveries. And I think certainly David and his commercial team are in active negotiations with airports, who are very concerned about the amount of traffic they're going to lose either to failures or capacity costs among the legacy carriers. And we create more opportunities for growth going forward.And other than that again, as I said, for the remainder of this year, we can't give you any guidance on traffic and we can't give any guidance on the full year outturn other than we expected Q1 loss of about 200 million. Q2, based on our current assumptions could be a breakeven more loss. But again, that's really in the lap of the gods. And but the more we see European governments roll back on restrictions in the next couple of weeks up to about the middle of June. And we believe that we will see further developments with the Spanish, Portuguese, Greek government's not imposing 14 day isolation. We think U.K. governments will also be embarrassed into withdrawing their 14 day isolation. I mean, when they ask questions like how do you ask international air passengers arriving into Heathrow and Gatwick to set them in isolation for 14 days, [indiscernible] get an underground train or a Gatwick Express into the center of London. Are you not going to ask all the passengers on the Gunnery Express at the London Underground isolate for 14 days and of course, it completely falls apart.They generally move back on to -- it's all science based until you ask them more about, the science that says the Irish and the French can be exempted from the 14 day, lockdown. Now we think the Irish are incredibly special. But even we can't find any science that would exempt the Irish from the 14 day lockdown. So it's all just nonsense is being made up on the hoof by the U.K. Government. It's completely ineffective. The concern is they're using this to give the illusion or a fig leaf or taking some scientific action, when really the action that we're calling for that would be effective is encouraging people using public transport, the London underground commuter trains, airports and aircraft to wear facemasks.Face masks, why do you use facemasks will eliminate about 98.5% of the risk of the spread of COVID-19. And we think that's the way forward not just for mass transport, but also for retail and for allowing people to move about more freely over the next couple of months. So we're encouraging that and try to discourage idiotic ideas like 14 days isolation, which you have completely unimplementable and the U.K. Government can't even explain where the [indiscernible] likely in the first place.Sorry, that was a little longer than I thought. I'm going to hand over to Neil, who will give us a couple of quick thoughts or themes on the finances.
Neil Sorahan:

Thanks, Michael.As you said, relative [indiscernible] last year, I'm not going to dwell too long on this 13% profit after tax before exceptionals and balance sheets in very good shape was 331 unencumbered Boeing 737, with a book value of just over 7 billion in the market value well in excess of that cash. Very strong at 4.1 billion and the work that we've been doing over the past number of months to get the cash burn down as seen us go from 200 million per week all expenses, including CapEx and everything else out the door down to 60 million per week.Currently going out the door on average, a slight clarification on the fuel figure, it's somewhere just under about 25 million a week going out based on the mark-to-market and depending on the spots on an individual day.Hedging effectiveness, because we hedge 90% of our fuel coming into FY'21 pre COVID a big chunk of that has now gone ineffective as we're not going to use that fuel. So we have a exceptional charge of about 390 million on jet fuel offset by currency -- favorable currency, primarily on delayed CapEx aircraft, offsetting that giving a net charge of about 353 million in the FY'20 accounts.There'll be a little bit of volatility on the P&L this year as in mark-to-market those ineffective hedges but that will run off over the next number of months as the hedges settle. And that's pretty much the key things I wanted to highlight Michael.
Michael O'Leary:

Okay, great. Thank you very much. And Juliusz, do you want to say anything on state aid before we open it and head off a lot of questions on.
Juliusz Komorek:

Maybe just a word to add that we have been in touch with the European Commission for two months. We almost feel sorry them facing pressure from capitals, Berlin, Paris, Rome and so on to bend existing rules and allow significant amounts of state aid to flat carrier airlines. So we will be assisting the EU Commission with appeals of those decisions to European court and hoping that the court will accept our requests to deal with this matters in an expedited manner.
Michael O'Leary:

Thank you, Juliusz. It's just before we open to questions, any wisdom that [indiscernible] gives a quick couple of thoughts.
Unidentified Company Speaker:

Yes. I mean, we've been working over the last number of -- last few months on minimizing the payroll cost with the payroll supports. And now we're starting the discussions with the unions so more realistic than others. And but we have to get ahead of this. We have we announced 250 job losses in our offices in Dublin, Bratislava and Madrid and in Stansted as well, Friday last. And we now get into the sort of formal processes with each of the unions. And we're going to have to deal with this. Some of them are already sticking their heads in the sand, as Michael said, like that. Some of the things is just going to pass and it's all going to be over by July, it's not going to be over and we're probably heading into a very, very deep winter in terms of costs, and we hope that we will. And I suppose use the backgrounds in negotiations that we had in locking away most of the CLAs.We're also working on the airport deals. And some airports haven't come back to us yet, but we are getting real savings there. So and we're working on those where the savings are not up to what we think.
Michael O'Leary:

Okay, thank you. Okay, we'll open it up for Q&Q. Can we please everybody, we zip through the questions we have to be gone around 11 o'clock. So, one or one and a half question each. Please don't ask me any questions on both traffic and yield plus P&L for the rest of the year we'll be disbarred because we don't know.
Operator:

[Operator Instructions] Our first question comes from the line of Daniel Roeska from Bernstein. Please go ahead.
Daniel Roeska:

I hope everybody on the call and the families are safe and well. I'll limit myself to one then. I guess in principle, your commitment to buybacks is unchanged. And I'd like to ask under which circumstances you would consider reinstating the buyback program, kind of can that happen while you're still restructuring? And how are you thinking about that next year, if there's a trade off between possibly accelerating growth to capture that medium term opportunity highlighted, and the buyback program on the other side, kind of how you're thinking of capital allocation, if you're faced with that question -- couple of months when we're closer back to normal.
Michael O'Leary:

As you've seen, we cancelled the buy back in mid-March, we've done about what 580 million to 700 million buyback, we immediately cancelled the remainder of the buyback. We've already signaled to the market that there wouldn't be a buy back in the next 12 months because our next big issue was -- we have a one point with bond repayments coming up in June 21, whatever 850 million. So that was going to be our next uses of cash. So frankly, the issue of buybacks is off the table -- was off the table before we entered COVID-19. And we would be very determined to pay down debt next year, we still think even with the impact of COVID. We will be able to repay that you don't have 850 million bond in June of next year, assuming some returned to normality this winter and into the summer of 2021, cash flows is very strong.I would also to the second part of your question, always be in favor of accelerating growth and exploiting opportunities to lower costs over share buybacks or distributions to shareholders. Shareholders and I think I'm the fourth largest shareholder in the Group can wait in line while we work our way through what has been an unprecedented event in the industry. And to put in some context, the 911 -- attacks of 911 grounded flying for four days. COVID-19 has grounded flying for four months, so this has been unprecedented. Shareholders understand that that's why I think we've always generally favored fair share buybacks over dividends because we can always pull back ourselves suspend the share buyback program without annoying lot of shareholders. But this is an opportunity in the next year or two and I believe there will be -- we will be working closely with Boeing on the Max delivery. And I think certainly if you look around Europe as many of the other airlines who have announced very substantial aircraft deferrals, capacity, cutbacks, failures of Thomas Cook, Flybe and others.I think there is going to be significant opportunity into the summer of 2021 for Ryanair to grow strongly. In fact, if anything, I would try to accelerate our growth into 2021 because it's just going to be opportunities there with airports. There certainly going to be a huge surplus of available pilots and cabin crew all over Europe. And those pilots and cabin crew will be zero, we will be making redundant and whose jobs will be lost in Ryanair over the next number of months, we would want to at least be able to offer those people the chance of coming back to employment in Ryanair, maybe in the summer of 2020, want to get them back working as quickly as possible they want to come back to work. And it's not true as many other airlines will be offering people any new jobs for the next month or two or next year or two in Europe, Ryanair will.
Operator:

The next question comes from the line of Savanthi Syth from Raymond James.
Savanthi Syth:

Hey, maybe two half questions just on the cash burn. I know, Neil, you mentioned everything. Can I include it in there, I'm guessing, including debt. I was kind of curious what you're seeing in terms of refunds in there. And then just a follow-up on Michael, I know, you mentioned that you were probably going to extend kind of some of the Boeing NG leases. We're kind of curious what the -- why that was given that you probably need less of a fleet at least in the near term and the Max will probably come and flying for next summer.
Michael O'Leary:

Neil, you take the cash portion, I will do the aircraft situation.
Neil Sorahan:

Great, Savi. As I said the cash burn includes everything from OpEx to debt repayments to critical CapEx, within the business, talking on payroll, software, et cetera. We have about 300 million of refunds included since the start of this financial year that will be a combination of refunds out the door, vouchers and free changes. So that's in the numbers that we have given there in the cash burn.
Michael O'Leary:

And on the aircraft, wouldn't we would need all of the fleet of aircraft we have at the moment remember, we expect to carry 150 million passengers probably in the last 12 months. And the growth opportunities that are out there at the moment are -- will be I think, almost once in a lifetime. We will need we're looking at extending those aircrafts are coming off lease but you're talking about lease rates now that are down at 150,000 or 175,000 a month these will be very cheap aircraft, if we decide to extend those leases.We are also looking in new aircraft. And I think, you take -- my view is that sadly the Vienna A320 base would be closed at the end of May. If that happens, I think it's inevitable, we advanced our planning over the next four years to take the Airbus aircraft out of Lauda moving it altogether and we will replace those aircraft as they come off lease with new Max aircraft, which will be much lower cost, more seats, lower cost.And I see nothing but opportunity here for accelerating fleet growth in the next year or two because there's going to be opportunities if you do get -- take a look around the marketplace. Norwegian is clearly going to reemerge as a tiny domestic carrier up in Norway. It has a large presence in Ireland, Spain, Italy, Gatwick that's just gone -- going to be gone. Easy shares have already confirmed that their chair differing huge numbers of aircraft deliveries. And Lufthansa has significantly cut back those to German wings. So and even Alitalia with the benefit of $3 billion of state aid, still cash cover serve the Italian market.So there's going to be opportunities there for an airline, those airlines that have the lowest costs. And I think it's going to be a race for growth in the next couple of years between that really low airlines which there's only one in Europe, Ryanair. And then the airlines who have received mostly billion dollars worth of state aid subsidies. But I think the problem with state subsidies is they all come with chemicals on them that will prevent those airlines from engaging in meaningful labor reform or productivity gains or efficiencies over the next number of years. So if you compare and contrast, what really was to the team in IAG are doing, taking out large numbers of jobs and driving efficiency gains, which is the right way forward, compared to what the subsidy junkies Air France and Lufthansa are doing, they just take billions of state aid, but there'll be no labor reform there be no productivity reform.And so but going forward, we at the lowest cost airline than in Europe, we'll need more aircraft if we are to get our pilots and cabin crew back into jobs and take advantage of these once -- I think obviously, once in a lifetime airport discounts.
Operator:

The next question comes from the line of Duane Pfennigwerth from Evercore.
Duane Pfennigwerth:

Can you talk a little bit, Michael about the sequence of reopening in Europe and your network planning lead times, which countries do you think will be the first to reopen aviation which will be the slower ones to reopen? And how much lead time do you need to relaunch a market including things like crew bidding lead times?
Michael O'Leary:

I mean, it's really hard to tell like I mean, I think what we're likely -- we see a lot of European countries over the last week, 10 days reopen in Germany, Austria, the Portuguese has been lifted Switzerland easily at the weekend. And it almost becomes like a domino effect, the Spanish and the Portuguese are looking at the Italian tourist destinations reopening. And the Spanish hotels and Portuguese hotels, Greek hotels, we lose our tourists if we don't do something similar. Also we look across those countries many ways the Italians and the Spanish were the first into the COVID crisis and therefore emerging faster than other countries.I think I would be reasonably optimistic that there will be significant movement in --passenger move in relaxation of citizen restrictions over the next two weeks or something about the middle of June. I think they're largely the Pan European and started Commission is pushing for Schengen wage, we have similar treatment across Schengen. Similar treatments on movement of passengers and it's so hard to come up with to restrict air travel when people can move by train, bus and car across Europe borders anyway. So we are kind of, off the view we announced we were going back on the 1st of July 10 days ago that was based, our predicate on the thought much of the movement restrictions will be eased across Europe early to mid-June.We think we can simulate an awful lot of bookings. But firstly, this huge pent-up demand in there already anyway, for particularly families who want to go on the kind of two week school holiday July, August. We think the business traffic might be a little bit slower to move and probably that's where these two week restrictions really meditate not just to get business traffic, but also, normal commuting traffic. I mean, the example, this morning Boris Johnson's nursed back to health with a Portuguese nurse from Porto, he gets to and fro between London and Porto flying on Ryanair. So if you want your health services to continue to operate, you're going to need to allow low cost air travel within Europe to operate but operate in a healthy base which is with facemask and temperature checks not to have non-sensitive two week restriction.So the answer to the question is, we think once people start to move that it will be largely Pan European on a Schengen basis, and then at the other countries will also move to similar kind of restrictions, which I think if you're sensible will be facemask and move away from non-sensible restrictions like two-week isolations that are only implementable and unpalatable. Anyway, I but are largely redundant when you get your isolation addressed by using underground or commuter trains in any event. But the challenge for us is, we've no idea what the load factors will be in July. We've no idea what the years will be. All we're trying to point and guide our shareholders with the general -- the lazy assumption from the usual, the journalists and those who wouldn't be the [indiscernible] in the sandwiches, is that, they'll be very low too because people be afraid to travel.I think actually be the opposite is that there will be higher than expected loads because the pricing will be very aggressive discounted, we will have very low air fares. You will have hoteliers in Spain, in Italy, in Portugal, in Greece, really trying to grasp hold of what's left of their summer trading 2018. So you see huge discounted offers out there. So I think that the volumes will be higher than we expect, but the pricing will be lower. And that's the message we're trying to communicate today.
Duane Pfennigwerth:

Just for a quick follow up, Michael. Obviously, the markets been totally focused on COVID. But is there any progress going on behind the scenes on Max return to service? Is there anything recently, from a technical or regulatory perspective that has increased your confidence? Thanks for taking the questions.
Michael O'Leary:

We've worked closely with Boeing and where the asset, the European Safety Agency, I think there is a much higher degree of confidence that they that the return to service will, I think take place in August, September of this year. As the information, the feedback we've had for the regulators has been much more positive. Boeing seem to address much as most of the software issues, the return to service issues. And that's not to say that it will be bumpy but I think there's a reasonable. And Boeing themselves I think now we're talking about going back into production. I think sometimes, again, at the end of the second quarter, maybe the early part of third quarter.We know we have about 20, 25 of those aircraft already made and produced and sitting on ramp. We are waiting for delivery to Ryanair. We want to take them and but I am much more hopeful or optimistic now that we will see that Boeing return to service in the third quarter. Certainly that we will have a meaningful number of additional new Boeing Max aircraft in advance of summer of 2021, which is obviously our next design anyway.So I think there's a reasonable prospect that we will see 20 or 30 of those aircraft flying for Ryanair in summer of 2021. And we will urgently need them both to replace Airbus aircraft that we're not taking or that we're not taking delivery of it to create that room for growth in the summer of 2021. When we think Europe will -- [indiscernible] will rebound strongly, as long as there isn't any second wave outbreaks. And, all the evidence in Asia at the moment suggests that there is much of a risk of a second wave outbreak and there will be certain that risk will be further diminish, if we can persuade government to introduce facemasks for people travelling in mass transport, whether that's underground, trains or planes.
Operator:

Next question comes from the line of Mark Simpson from Goodbody.
Mark Simpson:

Just want to clarify just comments you made, I think you said and I know it's pure guidance at the moment, 50% load factor in Q2, 55% load factor in the winter. Do I hear that correctly?
Michael O'Leary:

You didn't know. I think you, I don't want to be stuck on any numbers. And the number we're forecasting for the rest of the year is under 80 million. No, it's too early, we would be hopeful. Again, we would get 50% traffic in the month of July, which is the first month back, a month guiding you into August or September yet. Second half of the year, I think we will be holding, this load factor will be significantly higher than 75%. But the year will be weaker. So I'm not getting into a forecast today. I'm guessing you're getting we don't know. A reasonable number for the full year is going to be under 80 million, which we're looking at a 50% reduction in traffic over this year.
Mark Simpson:

Again, just a follow on though, except the factories abroad, but you're indicating circa £20 million for Q2, 50% load factor, you're flying there for 40 million seats, which is only down 12% year-on-year and saying breakeven, possibly that can only come with much better pricing. So I'm not quite sure where your negative pricing commentary is coming from. Unless these are just throw the darts and put the numbers out there.
Michael O'Leary:

We are throwing darts.
Mark Simpson:

Okay. Final question, exceptional restructuring charges, Neil is to come in the quarters coming down the pipeline is to go through right sizing the business.
Neil Sorahan:

The exceptional costs are really going to be, if there's any more in effectiveness, I wouldn't anticipate a huge amount of restructuring cost or maybe some redundancies but that's about the height of this. We would anticipate that we're going to see cost reduction on a unit labor basis going forward. Similarly, on the airports and handling charges we would anticipate unit savings coming in over the next 12 months as we negotiate new deals at our airports. And equally, you're going to see unit reductions coming in at the Max starts to deliver. So there won't be hugely significant restructuring costs Mark.
Michael O'Leary:

Remember too, I don't want to get into too much optimism as well, because the short-term is bleak. By the time we get to the second half of the year, you have the prior year competencies in March where, we can read only half of our past numbers this year, so that there is an upside in the back end of the year, with some return to normality. But, what I'm trying to kind of urge everybody away from the specifics now on pricing volumes, load factors of the rest of the year, we really don't have any idea. We would hope to have so much better sensitive by the time we get to the Q1 results, which would be the first week in August and then we'll have some sense of where we are. It's impossible to predict at the moment other than, I would be reasonably optimistic is that a lot of the kind of the lockdowns will have eased significantly over the next I'd say reasonably two weeks.By the end of the first week of June, I think you're going to see a lot of the European economy saying, the kids can go back to school, they've already been back in school in Denmark for weeks. Your kids are not the problem. They don't get it. They tend not to be the spreaders of this. But if the kids are allowed back to schools across Europe, retailers allowed to return, I think you're going to see, almost a huge pent-up demand for people who've been locked up at home for in their apartments and houses for the last 12 or 15 weeks going focus. We're heading -- we're going to Spain, Portugal, or wherever it's going to be, and all this non-sense, but vacations, you don't have the capacity in Bognor Regis, our south end of the [indiscernible] to be able to cope with the volumes of people who generally would be going to Spain, Italy, Portugal or elsewhere to get two weeks of sunshine.And the risk of the spread of COVID-19 on a beach in 30 degrees heat in Spain, Italy or Portugal is practically zero. And it would be zero if you're all wearing facemask, which might upset the tan line, but in fact, it isn't going to upset your health.
Operator:

The next question comes from the line of Stephen Furlong from Davy.
Stephen Furlong:

Just questions on Boeing or comments on Boeing. Would you see your negotiations? Do you think the Boeing deal could be an even bigger number of aircraft? Given, we're talking about maybe taking out the Airbus. I'm assuming Airbus aren't at the races. So just let me, just talk about Boeing versus Airbus. And then, by just asking one of the things, we've got some questions, in terms of nothing that has been talked about would impede your ability to turn around the aircraft in 25 minutes. That's great, Michael. Thanks.
Michael O'Leary:

Okay. I will work back on that Stephen, 25 minutes or so. We see nothing impacting 25 minute turnarounds. In fact, if we're running at a 50%, 60% load factor through August, June, July, and the load factor might be less than 50%. But if it is, I think you'll see as we go back in mid-June and take out some of those flights that we moved from an empty flight, so we can avoid it. 25 minutes for us will be no problem.The challenge here and you're pushing hard for temperature checks at the entry to the airport terminal, and facemask, nobody would be getting on-board an aircraft without a facemask, certainly in July and August. And those measures are important in building customer confidence. On Boeing pricing. Look so there's an ongoing dialogue with Boeing and I've said this probably before it's a three phase discussion. There's clearly a negotiation, compensation for delivery, there is a negotiation around pricing on our Max order, and there's negotiation we're also talking about a possibility of the Boeing 10 -- an order for the Boeing 10 aircraft. Those negotiations continue, but, they can't be concluded, until we have some certainty when the Max will return to service or when we can get deliveries of our aircraft.And there's all in many respects all three conversations are kind of interlinked. But all I can say is, we are working closely with Boeing, we are very impressed with the new management team in Boeing and what they've done particularly on the return to service project over the last number of months, there's been a lot less blind optimism coming out of Boeing, and there is a much more frank dealing with challenges particularly with both customers and regulators.I think from Boeing perspectives in the order book collapse, leasing companies have cancelled orders. You're flaky airlines, like Norwegian orders, I'm sure going up the smoke, they will disappear that does help the return to service or at least eliminating some of the backlogs. And yes, I mean, Airbus are no where at the moment, we have repeatedly use it with too loud and try to interact with Airbus, we're getting nowhere with them. And I think the COVID-19 has kind of, if anything crystallized the decision-making here. We haven't been able to attract any significant offers from Airbus. It's likely now we did that the Lauda fleet which did summer was, we originally expected to take delivery of 38 aircraft. We will not take at least eight of those aircraft in the final season between 26 and 28. And at this point in time, while I said we haven't given up on Airbus entirely, I think we're not far away from just giving up on Airbus. We don't seem to be at the races in terms of pricing. Certainly not with the Max, the pricing we have on the Max 200 they're nowhere near close to where we are on the pricing on the Max 200.And if that continues to be the case and frankly, we still see a lot of value in Lauda, [indiscernible] Vienna. Their presence in the German and Austrian marketplace but I think that value will be enhanced by flipping out of Airbus aircraft into the seventh -- into Boeing aircraft to the next number of years.The big challenge facing Lauda, we have tried not to underestimate is, Lauda is in the teeth of the -- if there was ever, Lauda feels like it's in methadone treatment center at the moment in Germany and Austria, we will be competing in Stuttgart, Düsseldorf with Lufthansa getting about 9 billion of state aid from the German government. Austrian Airlines, which is owned by Lufthansa is into the Austrian government looks like 800 million of state aid. And Lauda in teeth of both, that Lauda will get state aid from the German government or from the Austrian government. And even the German government remarkably, in the last couple of weeks, had approved Lauda for the payroll support scheme in Germany. And then four days [indiscernible] went through the payroll support scheme. So we're engaged in legally corresponds with the German government we have our Lauda pilots, Stuttgart and Düsseldorf, who are paying their social taxes in Germany are entitled to exactly the same payroll support as Lufthansa pilot.But somehow denied this stroke of a pen having originally been approved. So maybe the only way forward for us, I think it's inevitable that the Austrian unions will refuse to sign the new pay here in Vienna on Thursday this week, despite the fact that it's been signed up by 95% of the pilots and over two thirds of the cabin crew. And then therefore, it's likely that we will have to go through the closure of the A320 base in Vienna will have probably 14 or 15 spare A320 aircraft. They won't fly certainly for the remainder of this summer. We may deploy them to other countries for the winter, but we'd have to see what the employment situation is like, the flu situation is for recruiting and training Airbus pilots and cabin crew in other countries.And so I think going forward, if anything, this crisis would have taught us. No, we're not there yet with Boeing. But I think we're making much more progress with Boeing than we are with Airbus, that the future will lie on deepening the relationship with Boeing. I don't think at this stage, we're looking at any increased orders for Boeing. And that's not to say if they came up with very attractive pricing that we wouldn't look at taking more aircraft. But certainly, why we have firm orders for 135 Max 200s over the next four years, we clearly need to rework the delivery program with Boeing on those aircraft, because they're all running 12 months late on the delivery date. But no, I think it would be optimistic. I don't see any rationale at the moment to increase the quantum of that order, given that we're in the middle of the COVID-19 crisis. But if there was a pricing incentive there for Boeing, we certainly [indiscernible].
Operator:

The next question comes from the line of Jarrod Castle from UBS.
Jarrod Castle:

Two questions. One, I think you've got seven planes available for sale. So just interested in terms of, is it realistic that you can sell them in this market in the next 12 months? And then just secondly, just coming back to state aid and the legal action that you're taking? Would you hope to achieve a reversal of the aid that's been given penalties that you and others receive from these airlines or indeed governments, but what would success look like for Ryanair in terms of the legal action?
Michael O'Leary:

The seven aircraft per se that you're like all of our presale, so the practical pricing, we don't see a case for price setting now for the next 12 or 18 months. And I would be much happier to operate those aircraft, probably 7 more for sale. We've already sold those aircraft that were forward sold. And but I don't see, we would be selling any more aircraft for the next maybe 12, possibly 18 months because we want. And we'll need those aircraft ourselves. And our deliveries of the seven aircraft we sold are later on in the autumn of this year. So they're from October onwards anyway, which again emphasizes why we will need more aircraft from Boeing just to be able to even to stay in a steady state fleet into the summer 2021.On the state aid side, what we would hope for is to encourage the commission and I was heartened by [indiscernible] Tigers comments this morning where you know, she's seriously concerned that the extent to which the French and the German government, the richer, EU countries are massively distorting state aid. The German government alone accounts for 52% of approved state aid at the moment in Europe. So the richest governments are the ones who were engaging in the most state aid doping and what's ironic of that is, it's usually the Germans and the Dutch telling everybody else to obey comply with the rules, unless it applies to them. And, you're good to seriously distort not just the air transport market, but also many other industrial markets across Europe.If the Germans in a crisis can just allow late level state aid to their operators, whereas, the Spanish, the Irish, the U.K., and the other countries are playing by the rules and not participating in this illegal state aid. Again, you go back. again, the question is, why does Lufthansa need another 12 billion on top of the payroll support scheme, on top of the aviation tax refund schemes? Like really if the German government was interested in the industry, what we're hoping would happen is there will be transparent and non-discriminatory state aid to everybody, like by all means the German, why don't you just refund or waive the environmental taxes on it air travel for the next 12 months, 24 months which the vast majority that would go to Lufthansa. But it could also go equally to other airlines like EasyJet and Ryanair operating in Germany.If the French government want to refund aviation taxes, do it to all airlines equally in France. But don't just do it to the French registered airlines, give them payroll support scheme and then another 9 billion on state aid on top of it, and just because of Air France. Juliusz, if you want to add any more, hope to achieve on state aid, side?
Juliusz Komorek:

No.
Michael O'Leary:

Just to eliminate illegal and discriminatory state aid, by all means, if you want to do something, European governments want to do something, do it on a transparent and non-discriminatory basis. Use your aviation taxes, your payroll support schemes or your environmental taxes on air travel. I mean, let's face it, there's no further morale of Europe. anything between ETS and APD in the U.K., and at least then you're applying the schemes equally to every airline and the first thing, we as airlines, we will pass it on to our customers in the form of lower fares and get the tourism industry unemployment back moving I guess.
Operator:

The next question comes from the line of James Hollins from Exane.
Jamie Hollins:

Neil, just actually on the cash burn. As far as I'm hearing you're doing 60 million a week, of 25 million is fuel ineffective hedging cash going out the door. And then I think you said 300 million financial year to-date it's going to refund [indiscernible] nothing left on other cash burners, I was wondering if you could maybe give more detail on how you got it so low. Just wondering, how would you give Lauda existing in 2021, if they don't, don't sign up the deal this month.
Neil Sorahan:

On the cash burn as I said earlier, the 25 million on average related sorts of fuel with various other things going out like debt repayments, salaries and other operating costs on the refunds approximately 300 million settled so far that's a combination of vouchers that have been accepted by customers, cash refunds, and of course free flight changes across the business. So it wasn't all cash out the door.
Michael O'Leary:

And that's accepted vouchers that's not just accepted vouchers and free moves and I started to see a significant surge in free moves over the last seven days as people now realize that actually they can now travel in July and August a lot of them are taking the free move options. And we try to explain to the various consumer this way like which magazine in the U.K., we are, there is no restriction on if you want to cash refund for money, you get a cash refund. But you must understand we're dealing with a historic backlog of [indiscernible] that have been imposed upon us by European governments having basically three months of flying.Our refund team has been reduced by 75% because of social distancing in the office restrictions here in Madrid, Dublin and in Wroclaw. So you will get a cash refund but I'm afraid you'll have to be patient and wait for it, it's going to take some weeks and months to eliminate this backlog of refunds.Lauda existing in 2021, Lauda will exist in 2021. I don't think it will exist in Vienna. I think it's inevitable that the Austrian Airlines union will close the Vienna base with a loss over 300 pilots cabin crew jobs on Thursday, Lauda will still be operating and Stuttgart and Dusseldorf and Parma, and I see a future for Lauda into the future as probably an Boeing 737 operator, operating [indiscernible] services for Ryanair for both and Malta Air across different bases and countries. But I suspect the one country you were allowed will not be operating as a brand will be in Austria where frankly, if the employment, say if the employment regulations and the labor structure is that doubt, that people who want to vote for pay cuts, preserve their jobs are told by a competitor's union that they don't care, they're losing their jobs because the union won't sign the agreement then frankly, we don't want to operate in a country that has such a corrupt labor market or labor legislation as Austria has at the moment.It is beyond my comprehension why people can't vote for themselves to save their own jobs even if it means that the shorter taking a pay cut. And I'm I feel enormous sympathy for Lauda's pilots and cabin crew who were voted in their overwhelming majority in favor of these pay cuts. They recognize the crisis. And yet, the Austrian airline union consider, we have a stroke say no, we're not finding this disagreements, and condemned those pilots and those cabin crew to long-term unemployment because it's quite clear that Austrian Airlines won't be creating any job for pilots and cabin crew for the very foreseeable future, despite the fact they'd be getting 800 million of aid from an Austrian government to Lufthansa, it's owned and controlled subsidiary.
Operator:

The next question comes from the line of Jaime Rowbotham from Deutsche Bank.
Jaime Rowbotham:

Just one for me, obviously, don't have a crystal ball. But it's helpful that you give a working scenario for your guests in the current fiscal year, but the sub 80 million, is there a working scenario for fiscal '22? And one of the reasons I asked is on Slide 11, you tell us that your 31% fuel hedged for fiscal 22, which implies there's a denominator to that calculation. So just any working assumption, so your planning would be helpful.
Michael O'Leary:

I think it's really -- at this point in time, we will be operating on a return to normal traffic volume now that's less than, say the aircraft that we sell, or that it depends on how many aircraft that come off lease that we can extend to the end of this year at reasonable terms. It depends how many aircraft Boeing can, but on the assumption that we take between 20 and 30, Boeing Max next year, I mean, I think that our numbers will return next year to kind of normality I mean, it would be north of 150 million passengers. And now that clearly assumes that COVID has been tested by the time you get to April of next year, I think next summer of 2020 will be incredibly strong for holiday traffic for people who this year have cancelled their holidays or weren't able to get to go on holidays.I think it would be incredibly strong. There will be a dramatic rebound in volumes, but I call it again all of that volume growth will be at lower or discounted prices. Yes. I think I have seen various numbers, but our projections here that we will return to traffic volumes normality in our year at March 22, summer of 2021. And then I think that by summer of 22, you'll be returned to kind of normal pricing, as long as [indiscernible] no further return or second waiver, thirdly to COVID-19.And, but that doesn't have to be a huge existential shock the industry has suffered in 2020. We're in discussion with unions where they say, yes, but your numbers will return to normal in 2021. So we're going to say, yes, they will, but they're not going to return to normal, summer 2020 or the winter 2020. We can't keep your pilots and your cabin crew on the payroll. And in fact, even those we can keep on the payroll will be receiving 20% less because frankly, I think that our yields are going to fall. You will begin to really adverse pricing for the remainder this year and the early part of next year, competing as we will be forced to with, state aided dopers like Lufthansa, Air France and Alitalia would be able to do pricing. I mean, let's face it, at a time it's been engaged in below cost selling for the last 75 years they've never made profit. Now they have 3 billion to continue to below current engagement or below cost selling for the next three to five years. So they only account for 20% of the Italian market, we account for 35% of the Italian market.And it's no doubt that in Germany, in Austria, even in Belgium where you're competing with Lufthansa subsidiaries, who are running around hovering up state aid, the [indiscernible] face really aggressive pricing from Brussels Airlines and others who have limitless cash resources at their disposal, thanks to this crazy state that this crazy state aid doping. So, I think in terms of volumes for FY 22, you should be -- we are planning at the moment of normality in terms of volumes, but just go up in pricing, whereas for the rest of the summer of FYI 21 radically reduced volumes and also reduced price.
Operator:

The next question comes from the line of Muneeba Kayani from Bank of America.
Muneeba Kayani:

So, for the July to September schedule, how should we be thinking about unit cost based on your capacity plans? Yes, if you could talk about that and the cash burn.
Michael O'Leary:

Yes. Impossible to talk about. And we've no idea what our unit cost would be until we know what the volumes will be. If we were -- as we demonstrated in the last three months, we were incredibly flexible cost base here. We basically with the exception of fuel hedging collapse, the cost base and almost nothing are now actually there, along with those backup payroll support schemes, and we're very grateful for. And we're able to continue through July and August and the question is, how much volumes can we restore and how pricing. But the volumes will be -- the unit cost would be what the unit costs will be. But we can't give you any forecast prediction on that. I'm afraid whatever gets you big on your model will be actuals wherever we come up with.
Muneeba Kayani:

Can I ask one more on cash refund, the 300 million that you had cash refund of vouchers. So what about the rest?
Michael O'Leary:

We're working our way through the rest. I mean, the challenge we face -- we know on a normal month we will refund about 10,000 tickets. So, we're geared up. We're staffing for over 10,000 tickets. At the moment, three quarter of our staff can't even come to the office and they must come to the office. These are cash refunds. It can't be automated. We get about 25%, 30% of bookings come through OTAs and third parties, don't know who will not be in. We cannot issue refunds unless we get in direct correspondence with the individual passenger. So we're geared about 10,000 refunds a month. Currently, we're trying to process something of the order of 25 million or 30 million refunds over the next couple of months. So the 300 million that Neil has talked about, effectively about a quarter of the backlog of refunds we have at the moment from March, April, May into the first half of June.And we will continue to process that if we're allowed and we are hoping that the offices will return to full staff here from the 1st of June onwards in Dublin, that will significantly increase our ability to process refunds. And I think going forward [indiscernible] the 60 million. As we move through the summer and the fuel hedge kind of the fuel cash outflow decline, the refunds cash outflow will increase. And one will substitute for the other, but if we get back to some kind of normal flying in July, even if it's only 40%, the cash flow then will begin to be very positive because the forward book is into July, August, September, October. And we can handle cash refunds. But we're trying to communicate with our customer base just please be patient with us we're not denying you a cash refund or trying to sit on it. We just can't process these numbers automatically. We can automate vouchers that easy because not cash out the door. We can automate free moves, we can't automate the payment or the cash refunds because most of -- a lot of cash refunds will disappear into somebody else's bank account, like a travel agent and not the end customers account.
Operator:

The next question comes from the line of Gerald Khoo From Liberum.
Gerald Khoo:

Two questions from me. Firstly, on the Max deliveries, whenever they're due to arrive. I'm just wondering whether you can clarify what's finance you've arranged for those? And secondly in terms of refunds to accept that they are being fulfilled. Can you give us a rough indication of the split by sort of method cash versus vouchers versus rebooking? I know that's probably a dynamic issue. But if you can give us a rough indication, please.
Michael O'Leary:

No. I wouldn't give any indication on the refund, at the moment it's 300 million and include cash refund vouchers, et cetera, carries a lot more vouchers, and there's a cash refund. But as the cash refund increased, the number of -- I think vouchers will decline. But as we move back to flying, there'll be a much greater up tick. We think of three moves anyway. But we can't break it up, we can't predict where it's going to go.On the Max delivery instantly, we haven't paid any PDP since about the middle of last year. So we still have quite significant volume of PDP is already in place with Boeing. And so, we would expect to fund certainly if there's 20 or 30 aircraft delivered, but this side of next summer along with that funding is already in place with the PDP that we've already paid. We have the cash reserves to be able to fill in the balance of those deliveries. But obviously financing and the speed and rate of PDP is one of the key elements of our ongoing negotiation with Boeing.And Boeing to be fair have been very sympathetic -- have been understanding of the need. I say Ryanair is one of the few airlines in the world talking to manufacturers about taking aircraft deliveries and it needs to be ordering new aircraft at the moment. And so it's a reasonably easy discussion to have with Boeing. Boeing themselves have done a stellar job in the last couple of months, they've raised more than 25 billion in the bond market without the need for government intervention, which would again mark them out against Airbus, when we're fairly sure would be on the French government and grist in the not too distant future.At Boeing has to catch and we are in the easiest part of this because Boeing actually is the financing and funding for the next -- for the summer 21 deliveries. What we're really focused more on at the moment is their return to service days and then how many aircraft can they deliver to us? And remember what the [indiscernible] Max simulators in place that we can manage the return to service with an in house ourselves on our own Max simulators.
Neil Sorahan:

The only thing I'd add t that, Gerald, that we are BBB rated high investment grade, the bond markets remain open albeit at elevated levels. We've received a number of sales and leased back proposals and indeed we've received a number of them come into this proposals for security. We've got lots of options on how we finance ourselves going forward, if not from cash.
Michael O'Leary:

And, we don't take the profit from data at leased back through page a P&L or other costs. We also, but at the moment, we have more than sufficient internal resources, cash agitated reserve those aircraft without the need for external financing, but if we needed external financing and new deliveries of Max, I think we would find it very easy in the current marketplace, although these elevated financing rate.
Operator:

The next question comes from the line of [Carol Dorris] [ph] from Morgan Stanley.
Unidentified Analyst:

I have two questions. The first one is even though you can -- you may still be able to do quick turnaround, this probably higher hygienization and cleaning standards which will probably slow down overnight and around the fleet. So do you think you can still operate or transport 150 million passengers with the same number of aircraft or do you need to increase the number? And the second question is how much of your short-term payables is due to Boeing's?
Michael O'Leary:

I will let Neil answer the second half. There is no effect on quick turnarounds at the moment, we've put in place extensive health measures but the return is on the 1st of July. We're disinfecting all the aircraft, all aircraft, 90 disinfectant is good or bad for more than 24 hours. We're not going to disinfect on turnaround. It's not possible. You don't have the cleaning staff on supplies at airports we anticipate on turnaround. None of it required where aircraft or where your aircraft and where passengers and crews are wearing facemasks. Because you've eliminated 98.5% of the risk of droplets occurring anywhere on board the aircraft. The aircraft will not be operating at 95% load factors, we think 50% to 60% load factor in the first month or two was the best we will do. And we've already explained where we will not get to 150 million passengers in the next 12 months within the number so we're under 80 million passengers.By the time we get to the summer of 2021. We do think it's reasonable to go back to 150 million passengers. But at that point in time, we think your vaccine will have been found. Vaccine will be found, treatments will be in place or the COVID-19 pandemic will have disappeared altogether. We have two months of experience now in Asia, there has been no second wave of COVID-19, this mythical second wave at the moment doesn't hasn't yet occurred anywhere. And so it seems to be you and medics and scientists trying to frighten the local populace into believing they should isolate somewhere for a two week period. So caution, I think is the right approach at the moment. And but there will be no effect on turnarounds particular we're operating with 50% to 60% load factor. Neil?
Neil Sorahan:

On payables, the 1.4 billion figure just over 1 billion of that is accrued on PDPs to Boeing.
Operator:

The next question comes from the line of Neil Glynn from Credit Suisse.
Neil Glynn:

Just one quick one for me just on the airport and network strategy. You obviously highlighted a once in a lifetime opportunity, just interested in your take, are you likely best served going big at larger hungry airports like a Gatwick for example, where there's a whole opening up or by dispersing freed up aircraft more thinly around the network?
Michael O'Leary:

May I have David O'Brien just say it -- to take that [indiscernible]. David?
David O'Brien:

Yes. That's going to depend on what those airports do. We've more than enough solicitations from around from over 200 airports to distribute them are to concentrate them. But and we've demonstrated with the flexibility to do both. In the case of Lauda, it's going to be a 15 aircraft fleet out of the Vienna, available either in small increments at smaller airports or indeed of the opportunities you described. So, no, we'll be opportunistic on this.
Michael O'Leary:

But I think it's fair to say that we're seeing the same kind of offers, in fact, if anything, better offers coming from the bigger airports who are facing a much more catastrophic loss of traffic, necessarily the smaller airport CSR, we're in dialogue, [indiscernible] opportunities are going to come with the bigger airports. I'm not sure if it necessarily emerged with Gatwick, I don't really believe that IAG will close their Gatwick operation. I think it may well close SBA, but it might reemerge as [indiscernible] or lower cost operation. Our Norwegian operation will go from most of the airports in which they operate. You look across Germany, in most of the German airports except the German wings is going to disappear in the tangible cut back traffic, but and some of them are panic and some of them are remarkably complacent. They just believe that the German state will provide, Lufthansa will be ordered to go back to their previous volumes. We don't think that's realistic.And certainly in the other bigger market Italy and Spain, there's a very open dialogue with the airports there and but lots of airports are also in the same situation. They don't quite know what they are going to lose, what's going to come back what they're going to lose. Until we see that emerge over the next two or three months and certainly into winter this year, it will be difficult to finalize those agreements. Certainly if you look at, I've been looking at EasyJet as an obvious candidate where there's that ridiculous kind of dialogue with their largest shareholder about cutting back aircraft orders, that can only result in significant cutbacks at certain of the EasyJet bases across Europe, in favor of, I would presume Gatwick, maybe Berlin but and I feel sorry for the EasyJet management, dealing with COVID-19, it's hard to deal without dealing with unreasonable demands from shareholders who recently received quite ginormous dividends. If they were that concerned about the future of EasyJet, they could hand back -- they would return to dividends and stop annoying the management. But annoying shareholders is just one of the factors of life we all do [indiscernible].
Operator:

The next question comes from the line of Malte Schulz from Commerzbank.
Malte Schulz:

I have a two question for my side. First of all, I would like to know, you mentioned the 60% for a break even operation, is it just on variable cost based or on a cash cost basis or on a general cost basis. And my second question would be if you use your unencumbered fleet as a collateral, how much discount does the bank currently ask for, given that Europe -- the fleet at the moment is not sellable at the book value?
Michael O'Leary:

Don't confuse the numbers. Like I'm saying we're hoping to run with maybe 50%, 60% load factor in the second half -- in the Q2, based on a reasonable assumption, we think that at the moment, those numbers would suggest we would run into breakeven or a small loss. It's not going to be $200 million plus loss in Q1.All the three moving variables and so we can't give you any guidance into Q2, so it isn't 60% will deliver a breakeven or 65% or 55%. At the moment we think, if the restrictions are lifted, there's no 40 day isolation, we think there will be a reasonable prospect to get into 50%, 60% load factor through July and August. The years will be lower than we previously predicted for that peak season yield. The cost would certainly be materially lower than we have -- would have been normally purchasing in July and August. But if we get 20% pay cuts don't -- they will all take effect from the 1st of July or we will have a lot less labor.So there's no number here that the forecast or prediction, we can't give you one into the second quarter. The unencumbered fees, actually, we wouldn't have been the proposal we've had at the moment are reasonably most of them are close to above our book value because of our aggressive depreciation policy and low purchase price on the fleet anyway. Most of the offers don't come with as Neil said elevated financing costs. So it's not that someone would ask us to take a pass on the aircraft or the book value of the aircraft. But what we've seen offers coming in at 4%, 5% or 6% rate of interest.And they are frankly, where we've been able to borrow in the bond market for the last number of years that down at 1%, where we don't need to raise any additional money. Frankly, I don't see any rationale in borrowing money at 5% or 4% -- 5% or 6% at the moment. Now, that's not to say that there couldn't be a downturn in the market that there won't be some further unforeseen events in the second six months of this year. In fact, we don't know. But thankfully, with 4 billion in cash and a net cash burn of under 60 million a week. We don't have to worry about that for the moment, but that doesn't mean that we're out of the woods yet.We're managing this business on a day to day basis. We think there's a reasonable prospect of some return to business in July. And I think the most key development of that would be Italian decision this weekend to dispense with the restrictions to allow the tourism industry to come back and to dispense with the kind of idiotic 14-day isolation, which militates against both business travel and tourism travel. And we think most sensible European governments will mirror those kind of reasonable policies in the next couple of weeks.Guys, if anybody has conference call, please go. We keep the conference call going. Just we have answered all the questions as best we can.
Operator:

The last question comes from the line of Alex Paterson from Peel Hunt.
Alex Paterson:

Can I ask you two quick clarifications, please. Firstly, on the pay cut, is that temporary or is that permanently basement and secondly, on cash refunds, did you say passengers need to contact me directly that you are not refunding through intermediaries like [indiscernible]?
Michael O'Leary:

First on the pay cut, look, there is a dialogue going on with the union. Now, let's be clear of it. What we said is, we will need up to 20% pay cuts and obviously that there is a variable number in there is 20% of the higher pay people like the captain, of he is down at around 10% for the lower paid cabin crew, et cetera, et cetera. So, it's variable. And but if we don't get those pay cuts, we will be back for considerably more than 3000 job losses at the end of June. We're not messing, everybody knows there's an existential crisis going on the industry. And we know the obvious number, unions coming back as though we need further information. If you don't need further information than we originally planning to carry 150 million passengers a year. We will not be looking to carry 80 million passenger this year. There's your further information, get on with it.And so I think the pay cut will be between 10% and 20%. It's also our objective to try to restore those pay cuts over a kind of three or four year period as the industry recovers. We need lower pay through the remainder of FY'21, if we're doing well in summer of '21, FY'22 and FY'23. The first people who will be sharing in this recovery will be our people. So the pay cuts will be restored over three or four year period, the job losses we would hope to restore, some or if not all of those job losses. Now, it won't be the individual people, but we're not going to give anybody the rights that you could be the -- you would the first one back. But clearly, we will favor rehiring those pilots and that those cabin crew who lost their jobs to no fault of their own because of the COVID-19 pandemic.On the cash refund, the situation is, yes, we can't issue refunds, automate refunds where because part of the problem we have here is, we have travel agents and OTAs, generally speaking, we don't allow you to make bookings but they are all operating but most, I don't know what the term is, but Phantom credit cards, Phantom addresses and Phantom emails. We can't, if I made a booking through Joe Blogs OTA or some of the scam those scam artists like eDreams or eDreams in Spain, whoever, the other scam artists in Germany and Italy whether levy handling fees, we would never dream of refunding cash -- customers cash to those people because I'm sure the customers would never see the cash back as well.Our cash refund processes, the individual customer communicate to us, we communicate with the individual customer, we are asked to fill in the refund form and where they want that refund sent and then they have to find it off, so that we have the authorization to make those cash refunds. Without those and those procedures and those -- they're required under ordered rules and Consumer Protection rules. We cannot just lash out money to some automated process to third-party intermediaries. And it is a customer money, the customers paid us, so we have to make sure that we send that refund back whether it's the customers credit card, whether it's their, I don't know what the payment terms in Germany, are straight to their the cash transfer into their bank account as well. We require every customer who wants a cash refund to give us or to verify where they want the cash to go and that they sign-off on that liability otherwise we could be refunding money to intermediaries that our customers would never see.
Operator:

There are no further questions.
Michael O'Leary:

Okay. Gentlemen, thank you very much. I'm sorry, the conference is over and I'm excited but I think is important given the COVID-19 crisis to be translated as real as well as best we can. I'm sorry that we can't give you any more material guidance into the second quarter of the full year. But, we're all in this same situation together, we're flying blind. But I think there's a reasonable prospect of us returning to a reasonable level of flying in July, August into September. And I think once people begin to fly, even if it's wearing facemasks, confidence will be restored reasonably quickly. And then I think you'll see a very dramatic restoration of passenger volumes, but on the back of discounted pricing and very aggressive pricing, both from the airlines and also from the holiday hotel and tourism providers.And that said, hopefully, by the time we get to the first quarter results call in early August, we'll have a much better handle on the situation. And we'll be able to give you something like more tangible kinds of directions for the second half of the year. And thank you for your patience. We sincerely appreciate the support you've all shown in the business over the last three months. I know it's been extraordinary difficult time for investors as well. It's not crazy to see the share price go from wherever it was €15 down to €9 or whatever it is, but rest assured, we are here on a daily basis making sensible decisions on cost, making very sensible decision on cash, protection and trying to make sensible decisions on an early return to flying in a -- at the healthiest fashion we can deliver for both our people and for our customers.Thank you very much, ladies and gentlemen, we have an extensive roadshow -- virtual roadshow going on this week. We're now all going on into Investor calls here. And if you'd like to have an individual meeting with Neil, myself, or any anybody else in the team, please route the request back through [indiscernible] to Shane O'Toole our Head of Investor Relations. And I'm sure we'll have a call with you later on the way. Thanks very everybody. Good to talk to you and look forward to seeing you again soon.Remember keep flying, fly Ryanair. Safest and the cheapest airline in Europe.
Neil Sorahan:

Thanks everybody. Bye-bye.
Operator:

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.

Ryanair Holdings plc Q4 2020 Earnings Call Transcript

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Ryanair Holdings plc
Q4 2020 Earnings Call Transcript