Ryanair Holdings plc
Q1 2014 Earnings Call Transcript

Published: 4 Nov 2013

[Operator:]

Good day and welcome to the Ryanair Results 2013 Analyst Briefing. For your information, they may be silence on the line until the presentation begins. At this time, I would like to turn the conference over to Michael O'Leary.

[Michael O'Leary:]

Okay. Good morning, ladies and gentlemen, and welcome to the Analyst Briefing for the Ryanair Half Year Results to the end of September. As usual, we have a short presentation, slide presentation, which we'll take you through. I assume everybody has gotten the press release and the details of the results which has gone live on the dot com on the Ryanair website, this morning at 6

[Howard Millar:]

Michael, we changed that inherent to the capacity. We now got 4 -- you would have seen that previously with 420 -- 410 aircraft. We've now got 420. That's because we've extended leases on 10 aircraft, which we had knew we were going to do. So the passenger numbers are more or less the same, as you've seen before, but it does give us a little bit more capacity as we come in to next year.

[Michael O'Leary:]

Okay. Thank you very much. And are there any questions? Nice. Sure, go ahead.

[Howard Millar:]

You might just call out for the listeners.

[Jarrod Castle:]

It's Jarrod Castle from UBS. Just on the ancillary revenues, a number of changes, I mean, in terms of reserved seating, the baggage, the ticketing. Net-net, is there a loss, do you think, going into next year on ancillaries, or a gain from the changes? Any ideas on that?

[Michael O'Leary:]

I expect that it would be neutral. There'll surely be some minor loss like cutting the airport bag fees, the airport check-in, the boarding card reissue fees will be negative. We expect, however, that the allocated -- moving to allocated seating, we'll see some growth in that revenue line. And then on a like-for-like basis, they should be neutral. I do think, however, ancillary revenues next year will be slightly lower or certainly the growth rates will certainly slow down. Some of what you're seeing this year has also been the change in the debit card and credit card admin fees this year, and from Q4 onwards, that's -- you have the higher comparable in the prior year. So as we've said in the past, we expect ancillary revenues to trend downward towards about 20% of revenues, but at the moment, a little bit higher than that.

[Jarrod Castle:]

Okay. And sorry, just a follow-on, just with the whole kind of customer service drive, is there any implementation costs in terms of upgrading systems, training people?

[Michael O'Leary:]

There's some, I mean, we have some costs on the -- we've recruited a lot of software developers, IT specialists and mobile developers in the last number of months, but the number isn't meaningful. I mean, in a -- on an annual cost base, the number is not material.

[Stephen Furlong:]

Sorry, Stephen Furlong from Davy. Well, just a follow-on on the website actually, one thing to ask. I mean, in terms of internally, how much time is that taking in terms of the change in the website or is it complex or simple in terms of a lot of moving parts on the website improvement? The second question is just, that I've been asked this, there was an economist article recently talking about the EU in terms of airports and regional airports. Just give an update what exactly is that? And just finally, I mean, you're saying this statement in terms of visibility, just might -- just talk about that because, in Q3, you talked about having reasonable visibility, obviously, Q4, 0 visibility. Just, Mike, talk about bookings and visibility in general as opposed to pricing.

[Michael O'Leary:]

Yes, I think this -- it is explained in the website, we have a very successful back engine. So the booking system works very well. We have a lot of capacity. We invested very heavily in the booking system, the server capacity of it. So we have generally have very little difficulty with that. What we have not done, though, is aggressively invest in the front end of the website and making it a -- I think, we've allowed over the last 2 years it to become a very busy complex and kind of slightly offensive experience. It will take us -- we've recruited a team probably of about 12 additional software developers. It will take them most of the next 6 months to rewrite the front end. We control the front end, and they're rewriting a lot of the software for the front end, mainly to make it easier for people and more intuitive for people to use the website and kind of get through it to make bookings, if that's want you want to do, without continuingly interrupting the process, like

[Stephen Furlong:]

Bookings.

[Michael O'Leary:]

Oh, yes, bookings.

[Howard Millar:]

Yes, bookings are running well. I mean, we saw our October numbers were out there last Friday, and the load factor was up 1%. Volume's up 6%. So bookings are running very, very strong. As we look into November and December, in fact, we have only a very small amount of bookings in place for January, not really statistically relevant. We're better booked now than we were on this exact day last year. So, strong bookings rolling into the end of the third quarter.

[Michael O'Leary:]

And I think -- and you answer to people that characterize this morning and laugh at the media, what's gone wrong? Nothing. We're booming ahead. Pricing has been significantly weaker for about the last 6 months. It happens every 5 or 6 years. We've had 5 years of high-single-digit yield growth, and it looks like we're not going to get a 6th year in a row. We addressed this issue at the end of August. Once we came out of the peak, and it was becoming clear this isn't some temporary phenomenon because it was a heatwave in June or the early part of July, this looks like something underlying. And lo and behold, when we came out with a guidance in August, Norwegian were out after us, Aer Lingus were out, where, Aer Lingus recently said, "No, they were nosing." And then 5 days later, said, "Actually, it has been going on for the last 6 months." Lufthansa were out last week. Look, there's a weaker pricing environment out there. Get over it. I think the way for us to respond to that is, be aggressive about it. And we've been aggressive for about the last 2 months. What you see, though, in the October numbers, not that the October number is very impressive, the traffic was up 6%. The load factor was up 1%. That would be continued to be the future of our winter out-turn for the next number of months until you get to March, where because Easter has moved back into April, traffic would be down significantly March on March. It was going to be a weaker fare environment out there for the next 6, 12, 18 months. We intend to capitalize on it by blowing more low fares out there than any other airline has, because our unit cost is still coming down, and the difference between us and the rest of the competition is their unit cost are rising.

[Donal O'Neill:]

Donal O'Neill from Goodbody. 3 questions if I can. First one, just in terms of the outlook for capacity into next summer, I guess, you're probably thinking about your bookings -- your schedules now. How much does the competitor capacity look like on your network into next summer? Second question, on pricing. Obviously, you've cut the lower end of your fares quite aggressively. How has the competition responded to that? Can you give us any specific instances of what you're seeing in terms of competitor pricing? And the last question, on the allocated seating. Can you give a sense of what the uptake has been to date? And will you look at trying to price different routes and different parts of the network definitely to maximize the amount of revenue you can get out of that?

[Michael O'Leary:]

I mean, it's -- Frankly, we see generally flat capacity out into summer '14 both for us -- I mean, our capacity would be marginally down, but traffic would be slightly down. In summer '14, we'll have about 10 leased deliveries. So our summer fleet this year is just 303, would probably drop to about 295, 296, 297 next summer. Would probably take a load factor up 1% or so, but I think traffic will be down marginally for us next summer. We've seen nothing among any of the competition adding any significant aircraft. EasyJet has some deliveries, but they've announced a new base in Hamburg, was it and a couple of more aircraft going into Gatwick to take up the flight eastward. So there's almost no capacity growth across the short-haul piece. I think the bit that we don't yet are not yet aware of this. How much more short-haul capacity would I be able to take out in Spain, and then it would be some. The one we're really watching very closely is how much short-haul capacity will Alitalia take out in Italy? And we may have some kind of a chaotic situation in Italy next year because I think Alitalia would take out significantly more capacity. We may find ourselves -- we're already by far and away the largest airline in Italy, taking some capacity that we don't presently plan to for all the market, and shoveling it into Italy, simply because there's an opportunity there that we have to keep capitalizing on. We are inundated with the Italian airports, really very, very worried about Alitalia. Now I suspect -- actually I don't think Alitalia will go both. I know it's the Italian post office is the new major shareholder, and I'm sure when they've exhausted the funds of the Italian post office, they'll move on to the Italian gas company or something else until they work their way back to ENI. Although I think ENI doesn't seem to have much appetite for funding Alitalia any more. But those opportunities exist. Enough Copenhagen, Scandinavia is also an opportunity where SAS continue to cost capacity, and Poland, in particular, where loss is weak, Wizz look like kind of not expanding in the Polish market. They seem to be kind of moving further East and South into the Ukraine and down into the Gulf. So we really have more opportunities for growth than we can manage. By the time we get to next September, then I think as we start taking new deliveries -- but growing forward, I think there'll be a mix of -- I think you'll see a mix of city airports. You'll see some -- we're announcing some new flights to Lisbon, for example, have recently been announced out of Stansted and Milan and Charleroi and Paris. And there'll be a mix of those kind of city and then the new markets. But really, what we're trying to do mostly for the summer '14 capacity is see where -- who's taking out the most capacity, and where we would need to capitalize on this. The pricing -- competitors have they been responding to our pricing? Yes. There is much lower pricing out there at the moment, although none of them is as low as our pricing. We're down at typically now at GBP 15, EUR 15 one way. We see Aer Lingus, easyJet down at around 25, 29 euros, pounds, which is way below their kind of average short-haul airfare, and I think that will continue to be the case for the remainder of this winter out into next summer. Still, we have houses notably in Q4. I suspect this will be a temporary phenomenon through the winter, but I keep going back at the point all the time. We are load factor active, yield passive. We will take whatever pricing we get to ensure that we hit our load factors, and that's always been the business model. Allocated seating, it's hard where it will go. If you look at their growth of reserve seating, in some markets reserved seating is now up, running at 25% of total seats; and out of this, 15 reserved seating are the priority boarding, and I -- we're kind of planning that the allocated seating in summer '14 could rise as high as up to 50% of seats in some routes and some markets. It could be slightly higher, for example, in -- Holiday flights to the Canaries, where you have lots of families who will want to sit together. It might be lower on other more business-type routes, and we will still have reserve seating paid for allocated seating, and then free, we allocate the seat to you as you check in 24 hours beforehand. So we're a little bit blind, but we have been, I think, pleasantly surprised by the uptick and the demand for reserved seating over the last, as we add more seats to the reserved seating offer, and they get taken up. Jimmy, you want to add? Lesley Kane is our Head of Sales, and you want to on that?

[Lesley Kane:]

No.

[Michael O'Leary:]

Okay. Who's next?

[Oliver Sleath:]

Great. So, Oliver Sleath from Barclays.

[Michael O'Leary:]

Oliver, welcome.

[Oliver Sleath:]

Just on -- in the September updates, I think you're asked by somebody to sort of rank the issues you were seeing that affect the pricing weakness, split between the FX and the sterling, the general austerity and sort of particularly aggressive pricing in the marketplace. And I think you said that the sterling was -- is ranked #1 and then everything else was kind of a mix. So, my first question would be, has that ranking changed at all, going forward into the winter? And my second question is, maybe one for Howard, just, you obviously got a new aircraft order commencing within the next year. How is the financing looking for that tapping into the capital markets potentially looking at credit rating? Anything you could say about that?

[Michael O'Leary:]

On the pricing, the sterling is clearly one of the significant ones. I mean, we're -- the sterling, where your average fare is, in the half year, down 2 %, sterling accounts for almost all of that. But that masks the fact that underlying fears in the summer period have been flat when they really should have risen. Given the fact that we -- I mean, and the one thing in the past where we've had soft pricing is

[Howard Millar:]

Yes, in terms of the aircraft financing program, we've been -- we've run a beauty parade with -- we had a party and thanks to the beauty parade to

[Michael O'Leary:]

Okay. Who's next? Go ahead.

[Neil Glynn:]

Neil Glynn from Credit Suisse. Just a question on your customer service initiative. Ryanair, obviously, has one of the strongest brands in Europe, and a lot of customers or passengers are very clear about what Ryanair means to them, for better or for worse. Just interested in terms of how you think about the areas of negative passenger perception you're trying to change. How long does that take? Obviously, a lot of it won't happen overnight.

[Michael O'Leary:]

Well, we're not trying to be defensive about it, I don't think we have a negative passenger perception. You can't carry 81 million passengers if you have a negative passenger perception. There's clearly a lot of people out there, who like what we do and choose our services. Now, it maybe in some markets that we're the only the carrier. But in the markets where we have competition, we tend to out carry all the competition, as well. But there's no doubt that we are a target for, I think. I hate to be the pain, like the fucking media golf, but an awful lot of media coverage that tend to focus on the fact, Ryanair's customer service is awful because of boarding card reissue fees. Less than 1/2 of 1% has even paid a boarding card reassure fee. The gate bags, less than 1/2 of 1% of the passengers pay a gate bag. So we're getting a disproportionate amount of negative, I think, media coverage for what are tiny, relatively minor issues paid by very few people. There's undoubtedly a perception out there. The one I think to be fare, easyJet have shown the way on this. They move to allocated seating about 18 months ago. I was certainly skeptical about it, but open-minded enough to say, look, we don't think allocated seating is the way forward. It will impact on punctuality as it has. I mean, easyJet's punctuality is significantly inferior to Ryanair's, but nobody seems to care that they have inferior punctuality. I've never seen it mentioned. And yet it comes up all the time. But also the mad scrub to get onboard the aircraft. Everybody boards our aircraft, obviously, they're single set of steps. I've never yet seen a scrub. But there's no reason for us not to eliminate some of the these kind of cheap headlines that they're kind of the source of these cheap and negative headlines about Ryanair. What I don't see about the coverage of Ryanair is we have lower fares than anybody else. We don't have fuel surcharge. We have brilliant on-time performance. We lose very few bags, et cetera, et cetera. So we have an awful lot of very happy customers, but I think if we're going to win the next 20 million or 30 million customers away from the easyJet, the BAs, the lost handlers. We need to eliminate some of this negative chat. And it's relatively simple for us to do so. So you tell us, you want to carry a second carry-on bag? Okay, you can have a second carry-on bag. You tell us you want allocated seating, and allocated seating, a lot of you say, this is all cosmetic. Allocated seating is not cosmetic. It's coming on the first of February. You'll get it. I absolutely accept, well, I think one of the big areas, where we're rightly criticized is that our website is crap. The front end at the moment is crap. We haven't develop. We haven't been at the front end of the website development. We'll get there very quickly. As in the past, we weren't the first into the Internet, but once we decided that the Internet was the way it was going, we pretty much caught up and overtook everybody else. We'll do the same now. So I think the focus now is -- and remember, there was always been this year coming, where we weren't going to have any growth. This is a period when, actually, we can improve and refine what we do. We can improve our systems because we're not adding 6%, 8%, 10% of capacity, and that's what we are determined to do. And whether we're doing that in a weak pricing environment or a strong pricing environment, actually, I don't much care. Frankly, I prefer weak pricing environment because it tends to kind of help us to clear out a lot of the competition an awful lot faster in a weaker pricing environment. So our focus in terms of customer service has been improving what is already Europe's #1 customer service, removing the ability of travel writer to kind of trendily criticizes Ryanair's services when, actually, 81 million people think we're great.

[Howard Millar:]

And if you look at new, we were the first ones to launch reserved seating, and easyJet followed this, and they went to fully-allocated seating. We already have 45 seats are unreserved seating on some flights. Particularly, the longer sides down to the Mediterranean. They're full. So we're moving to a situation where we'll just have everybody in allocated seating. But we're already, in some cases, 1/4 towards 1/2 the way there.

[Neil Glynn:]

Can you just walk us through your U.S. dollar hedging position? How far out are you hedged at this time?

[Howard Millar:]

Well, we've -- we gave you an update in the release this morning in terms of our fuel hedging. We're now 60% hedged into FY '15 on our fuel, but also on the dollar, as well. So we've locked out both and have current rates that would give us a saving of a very significant number, a 4% unit cost per passenger saving. In terms of the CapEx, we're now out into the end of March 15. So we're approaching the horizon out. We did some hedging there recently when the Euro dollar exchange rate was up 1.38. Obviously, that's a pretty attractive rate, unfortunately, didn't stay around for that long. So we've managed to do use some of that. So our plan over the next, as we move through the winter now into spring, we're going to be pushed farther in towards the mid-stroke end of FY '15 in the next couple of months, at whatever the attractive rates.

[Tim Marshall:]

Tim Marshall from Redburn. The impression that you guys are trading out there, beginning in September, was that the third quarter yields would be up, well, average fares would be up 2%. It ended up being flat, I think. Is there anything, particularly in terms of momentum of trading in the September quarter, that deteriorated towards the end? I guess your comments about August being strong would suggest that, that was the case. Secondly, in terms of the regional trends on the weakness in your 29 markets that you suggest, but it can't be unilaterally exactly the same in terms of the weakness. Could you give some color on that per market, and perhaps, markets where you have direct competition versus markets where, as you say, that there is no competition? I missed the comment on the reserved seating penetration, so if you just, just in terms of what you've seen during the summer in terms of the demands there? And then finally, Howard, just in terms of the fuel cost program, outside of what you pay for the fuel, but in terms of the usage, if you've given up dates on that, that would be useful.

[Michael O'Leary:]

Okay. I mean, I think what we have seen from the middle of August onward as we emerge out of the first half of August, as the pricing has been getting weaker and progressively weaker, that emerged here. And particularly, the close in bookings. We were -- did not have sufficient advanced bookings in the system coming out of August into September. So we were pricing down close in to make sure we hit our targets. But once we made the announcement on lower pricing and adjusted the guidance at the start of September, and said

[Tim Marshall:]

In the Irish market, I know that your capacity from Stansted to Dublin's up 15%. I think your capacity from Manchester to Dublin is up 25%, from Edinburgh to Dublin is up 25%.

[Michael O'Leary:]

But a very small basis.

[Tim Marshall:]

Sure. But you still added a lot of capacity to those routes, where you're a big, big part of that market. So, that would be one of the regions where I'd expect that the weakness in fare is in, and Aer Lingus would attest to this, the weakness in fares is due to your own growth because you're growing 5% in October and November.

[Michael O'Leary:]

And yet Norwegian will tell you that Scandinavia is weak. Lufthansa said short-haul pricing was weak. Iberia said pricing is weak. Okay?

[Tim Marshall:]

Iberia would say that, frankly, they had a long list -- but Air France prices were up 6.5% in France, and they were up 4% in Europe. And Norwegian and SAS were in a market where capacity is up 7% in Sweden. It's up 5% in Norway. But in Italy and France, the capacity is down quite a lot. So I'm just -- I think there's...

[Howard Millar:]

Look, say, for example, Norwegian's growth has been out of Gatwick and Spain -- and growing in Spain with 3 new bases.

[Michael O'Leary:]

If there was some regional variation here, we would tell you. There isn't. It is weak across the piece. It has been weak. I think what we realized somewhat late, I mean, it was weak in Q1 and into June and July. August was strong. September, October were weak. November and December are weaker. And -- but -- and if there was, you'd see it. If there was a unique market that was performing strongly, we'd have taken some winter capacity and shoved more into that marketplace. We haven't. We are starting to grow out of Stansted this winter on the back of the seat sale, although most of that capacity only comes in post-Christmas. There is some capacity growth in Ireland this winter. That I grant you. But it's capacity that we're really restoring. Remember, we took a lot of capacity out of the Irish market in the last 4 years, largely in response to the government travel tax and the DAA price increases. Some of that is creeping back in, but Ireland is now less than 10% of our overall market. It used to account for 30% of our traffic. So there is no regional variation. And if there was, we wouldn't have to tell you. You'd simply see us allocating that capacity into those marketplaces. And some of the markets that did very well last year, I mean, there's not a -- Canaries bases did very well for us in the prior year. They've been much weaker this year. Morocco, which was stellar last year, we opened up 2 bases in Morocco, has been much weaker this year. But anyhow, but there's been more competition entering the Moroccan market. It's not huge capacity, but it seems to have been very somewhat price-sensitive. And yet, all the competition that's emerged in the Moroccan market is charging higher prices than we are. So, there is nothing unique. There is nothing regional that we can point to out there. It is, generally speaking, system-wide weakness.

[Howard Millar:]

What's quite interesting as well, these markets that we wouldn't have seen any weakness for, for example, in the Italian market, which have been very strong despite the kind of woes in Italy, has softened over the summer and into the winter. It's -- we thought the Italians were going to drink theirselves through the recession. But for some reason, it has got softer this year. It maybe just a cumulative impact. I mean, when the signs of an economy going into recession, it takes a period of time before the man in the street feels the recession. Equally, I think, we're in the same situation. The man on the street hasn't had any more money in his pocket than he had 5 years ago. And even though the macro signals are going from red to green, the guy on the street hasn't got a pay increase yet.

[Michael O'Leary:]

And we certainly see that in the Irish market. Ireland is primed for recovery, exiting the bailout, all that good stuff. But yet the property tax, which was introduced at 50% last year is 100% this year. There's a lot more of the fiscal stuff that started to hit home. But I don't want to point -- I don't want to point to any one individual and say

[Joe Gill:]

Sorry, 2 more questions here. I want to talk about reserved seating.

[Michael O'Leary:]

Reserved seating. We have...

[Joe Gill:]

Just the number that you gave in the previous question in terms of what the penetration was.

[Michael O'Leary:]

We have up to 49 seats on per flight.

[Howard Millar:]

45, 45.

[Michael O'Leary:]

45 seats close to 50 -- for 25% of the aircraft available for reserved seating. In some markets, most of those seats get sold. The average penetration at the moment on reserved seating is in the order of about 30%, isn't it? Systemwide.

[Howard Millar:]

No, it varies. So for example, longer -- the longer flights, say, if you go down to the Mediterranean or...

[Michael O'Leary:]

Canaries.

[Howard Millar:]

The Canaries during the summer, you'll get 100% penetration. Some of the business routes, in particular, we track it by seat. So for example, the front of the plane and the back of the plane, surprisingly, when people want to sit at the back because they want to get on and off quickly. On particular business routes, you can get a good penetration. Some of the Eastern European markets can be quite weak. So it's a mix across. So very strong, certainly, on longer, more family destinations, Mediterranean destinations. And then some of the other markets, it's weaker.

[Michael O'Leary:]

Now having said that, while we think the allocated seating will grow rapidly, I think it will cannibalize priority boarding. Because where is the reserved, there will always be a demand for the reserved seating. Nobody would pay for priority boarding going forward, where actually you have an allocated seat unless -- and we will still have priority boarding because one of the issues we will face with the second small carry-on bag, is we'll have increasing flights where some bags will have to go in the hold of the aircraft. And a bit like easyJet, where they have, I think, guided to the first 80 passengers are guaranteed to bring their checked in -- their carry-on bags onboard, but the last boarding passengers may have to put them in the hold. Now they're putting them on the hold for free, we're not going to be charging them hold baggage, but that may well encourage people to still want to be in the first 80 or 90 passengers to get onboard the aircraft, despite the fact they have allocated seating, but at least they'll be guaranteed to bring the bags onboard. The reserved seating or the business part, they'll be guaranteed to have the bags onboard because they'll be guaranteed a reserved seat.

[Joe Gill:]

And why are rows 3 and 4 been blocked off from the last 3 or 4...

[Howard Millar:]

As part of this process, rows 3 and 4 will now be open. So the structure would be, rows 1 to 5 will be in reserved. They will be at the higher price. So that will be EUR 10 for rows 1 to 5. 2 rows over the overwing exits, 16 and 17, there'll be at EUR 10, and then the last 2 rows, 32 and 33. So, we have row 50 in at the moment, so that will compensate. So we'll have 2 more extra rows. So we'll go from 45 to 57 seats at the EUR 10. You can sit anywhere else down on the plan for EUR 5. And if you check in within 24 hours -- if you don't check in until 24 hours prior to departure, you'll get a unallocated seat, wherever that might be.

[Michael O'Leary:]

The question you were asking is, why do we have rows free at the moment? It's because when you have free seating, there's a theoretical possibility on the weight and balance of the aircraft that we only put the hold -- the bags in the front hold because it's the one that's easier to get to. So all the weight is towards the front of the aircraft. There is some theoretical equation, which Boeing worked on, that in theory, all the passengers could seat at the front of the aircraft, and the back is too light, and it affects the takeoff and the landing capability of the aircraft and the braking. And therefore, if the flight is booked to less than 130 passengers, you have to keep rows 3 to 9 empty. And if the flight is booked to less than 174 passengers, you have to keep rows 2 and 3 empty. So that in theory, they sit towards the back of the plane. Now I've never understood why 2 rows of seats makes any bloody difference onboard on an aircraft that weighs somewhere in the order of 70 tonne, but there is this theoretical distribution of passengers. It is eliminated when you have allocated seating because the system automatically spreads the passengers across the flight, even both the allocated passengers and then the passengers to be allocated on the day before travel. It's a weight and balance provision.

[Howard Millar:]

In terms of fuel, our fuel performance has continued to improve this year outside of the kind of slightly lower cost for the unhedged fuel. We now see that, overall, our burn per block are -- is starting tail towards 4% reduction on a prior basis, this year compared to last year. We introduced a new system, a flight planning system on the 11th of September, and we've seen some improvements from that as well. So this has been a program, as you know, we've been talking about this for about 1 year, referred to loosely as the slow flying initiative. But it's started to pay dividends now, and we're starting to see that. We know when we started out at the start of the year, we were at over EUR 200 million increase in fuel costs, came down to EUR 170 million. I mean, now we see it settling somewhere between EUR 120 million and EUR 130 million is the full year increase in fuel.

[Alexia Dogani:]

It's Alexia Dogani from Goldman Sachs. Just 2 questions please. Just firstly, in terms of competitor capacity growth. Obviously, Norwegian, Vueling indeed do have aggressive growth plans. And I guess, in a period of constrained growth, what can you do to make sure you don't lose any market share? And then secondly, just on the balance sheet, I wonder if you have any sort of guidance to give us in terms of sort of what comfortable leverage range you look at when you think about your balance sheet and cash?

[Michael O'Leary:]

You look at the capacity additions and like, yes, while Norwegian have some capacity additions, I mean, and Vueling have, they are more than compensated in most case by SAS's capacity cuts and by Iberia's capacity cuts, Alitalia's capacity cuts in Italy, and that's -- at this point in time, hard to kind of determine what exactly would be the final outcome of their short-haul capacity cuts for the summer 2014 because a lot of the schedule hasn't been finalized. And what has, don't know whether to fly or not. System-wide across the piece in Europe, I think, generally short-haul capacity is pretty much flat. We've been flat this year. We start growing again from September of '14, but that will be off the back of 2 relatively flat years of capacity growth for us. Norwegian have added capacity, but SAS have taken some out. Vueling have added capacity in Spain, but Iberia have taken some out. And I think a lot about Vueling's growth has been actually simply straight transfer from Iberia to Vueling, as gradually IAG use Vueling as the means for getting Iberia's cost base down. And when you look at Italy, frankly, we've added capacity to this year despite the fact that we've always had to take it from other markets. Because in the Italian situation, the opportunity is just simply so great. EasyJet's added. I mean, you look at easyJet, they've taken -- they closed the base in Madrid. They've added some capacity to Malpensa. But most air capacity next year, it looks like it will be in Hamburg and in Gatwick. So around, across the 29 markets, we actually see very little competitor capacity additions, as we have seen very little competitor capacity additions this year, which then makes the kind of pricing outturn this summer and into this winter so unusual. I mean, one of the things in the past is, yes, fares will fall, yields will fall because our capacity was ticking up by 10%, 15%. And as we slowed the carrier's capacity growth for the last 5 years, we've seen very high-single-digit yield growth. And here, I mean, there's no doubt, have we been surprised by the softness in pricing at the back end this summer into this winter? Yes. But there's no, not much point of spending too long being surprised to both. If that's where the market is, that's where the market is. We go back to our model again. We are price passive, load factor active. And you look at what we're doing. If the pricing is going to be weak, fine, pricing will be weak. We'll get the ancillary revenue line up. We keep taking out our unit costs. And unit costs, the trend are just falling in H1, falling significantly in H2. And we put in place, the new aircraft order, the Stansted 10-year deal, the Modlin 10-year deal, the Irish government tax thing gone. And obviously, on the back of our promise to grow by 1 million passengers. And we are taking out very meaningful medium-term costs, which we will hold on to as I think pricing -- as pricing will recover.

[Howard Millar:]

In terms of the balance sheet. Some people have gone for a metric per aircraft. We don't feel particularly comfortable with that because this is such a volatile industry. So, generally our view is that we want to keep cash -- cash on hand and debt more or less in equilibrium. Despite having done EUR 250 million of share buybacks this year and a fairly extensive start to our capital expenditure program, I still expect net cash to be in excess of EUR 200 million next year, by the end of next March. That's assuming we do about EUR 150 million more on our buyback program. So the business still remains very strongly cash generative. And we think broadly, cash and debt matching is about right for us. James Hollins - Investec Securities (UK), Research Division It's James Hollins from Investec. Just 2 for me. The first is on unit cost. I think you put a 2% wage increase through this year. Given the outlook, any indication what you might be doing on wages next year? And whether you can bring unit cost down in full year '15, maybe give a range of what you think they can come down by. And the second one is, what sort of flexibility you may have to reduce winter capacity further? Or, are we now stuck for 81 million passengers for the full year?

[Michael O'Leary:]

To the second one, firstly I know, I mean, the winter schedule is out there, it will be no worse. That will 80 million. It will 81 million passenger. We are slightly just under 81 million passengers for the winter. The load factor will tick up probably by about 1%, so close to 81 million passengers. We could, if we wanted to, adjust that winter schedule further, but frankly, we don't want to. And that if we cut it anymore, I think you're going to start getting into suboptimal schedules on some of those routes, where we're flying multiple frequencies during the day or multiple frequencies during the week. In terms of unit costs, at the moment, it's not that -- it's not helpful to go into FY '15, other than what we already know. Fuel based on current hedging, if we can hedge out the remainder of fuel, we'll be down about 4%. We -- most of the staff cost have -- there may be a small pay increase next April, but most of what was done this year was -- has been based on a new 5-year cabin crew pay agreement. So that's in place for the next 5 years. 10 of the pilot bases came up for renewal or their deals ran out in April of this year. We negotiated and extended all 10 of those pilot agreements out of all of those 10 bases, which kind of dismisses the sort of the recent rumblings of various KLM and Aer Lingus pilots who want to represent the Ryanair pilots. They seem to be doing a perfectly good job themselves without any help from a bunch of KLM captains. But the final outturn on unit cost next year will ultimately determine -- will be determined by where we allocate the airports. We're still doing some airport deals. And also, some of that who tends to be the later announced decisions that they say Spanish airports, Italian ATC, some of those kind of publicly imposed costs, a lot of them at this time of the year say there'll be no more increases next year. I don't trust them. Some of them will just because they can't help themselves. So I think it's a bit early yet to be able to give you any reasonable guidance on FY '15 cost because there's a couple of variables still need to be put away. But the big ones, the aircraft, the fuel, the people, the maintenance, the airports and handing are pretty much locked down with some cost reductions in place. The Eurocontrol, the kind of exchange rates, kind of still -- will still be a little bit uncertain as of yet. Next question.

[Anand Date:]

Anand Date from Deutsche. Just a few. So just on the winter capacity again. Could you confirm what proportion of the fleet, that is, that you're grounding? And then can I take from that, that there's relatively little flexibility on how that proportion can change? And on pricing, I just remember, I think it's about 65% to 70% of your routes, you fly alone. You don't suffer carrier competition, is that fair? Is there a difference between what you're seeing on pricing on those routes versus the routes where you do fly against competition? And then just over winter, you've talked about Alitalia and SAS and the lot, is there anyone else you'd potentially be lining up as where you could end up putting capacity in?

[Michael O'Leary:]

Okay. The winter grounding, I mean, again, we expect to ground somewhere up to between 70 and 80 aircraft. But again, on a Tuesday in November, that could rise to 100 aircraft. And on the week of Christmas, it will be down to 20. So it's not a kind of a, we don't take out a lot of aircraft like, you're grounded for the next 5 months. It's a kind of variable. It's slightly less than we grounded this time last year. But when we announced the weaker guidance there at the start of September, we took out almost 0.5 million seats and grounded a few more aircraft on some of the marginal capacity. We are pretty much there, where we are, because the winter schedule is published now. Going to November, that's the winter schedule. It will largely run through to the end of March. But the biggest driver of that will ultimately be the fact that Easter, which was in March last year won't be in March this year. So do we have flexibility in the winter schedule? Yes, we do. But that frankly, it's unlikely we would want to disclose in because we're taking those bookings. It's always a difficult to say -- I mean, it depends on who you're listening to. We fly 65% to 70% of our routes. We don't have any competition. That depends on whether you take that as an airport-to-airport or city-to-city. I have no truck with this airport-to-airport nonsense that is much bloated by competitors who desperately want to try to show that they don't compete with Ryanair. We think our services from Stansted to 129 points all over Europe fully compete with easyJet's higher-priced services from Southend, Gatwick and Luton. And anybody who tells you otherwise is misleading you. Although it helps them in their presentation to try to persuade you all, but we don't really compete with Ryanair because we fly to different airports. We set the pricing, and if you watch the pricing of all of those competitors who allegedly don't compete with us, you'll see them coming and getting weaker for certainly this winter. Because we're going to set the pricing and people will trend to us. I don't know where we -- in the last year, we've grown from 79.5 million to just under 81 million passengers. That 1.5 million passengers came from somewhere. And generally, it's coming from competitors. Increasingly, in the continent of Europe, it comes from Iberia, a lot in Poland. And so, are we seeing anything different on the -- I think there's about 25% of our routes that I would actually, yes, they -- nobody competes with us on. Santiago to -- or Stansted to Santiago de Compostela, nobody competes with us on that route, from Gatwick or anywhere else. But I don't have any faith in the fact that, do we because our Stansted to Rome Ciampino competing with easyJet. Gatwick to...

[Howard Millar:]

Fiumicino.

[Michael O'Leary:]

To Fiumicino. Or, be it Heathrow-Fiumicino? You bloody bet it does. That's why BA are coming out with a range of lower fare options, although they're not particularly low at the moment, because we have them under pressure on pricing. But no, there's no difference between the pricing on those say, 25% of our routes where we don't have competition with the 75%, partly because we trash our own yields across the system anyway. So if it's 14.99 is our lowest fare, it tends to be our lowest fare on every route, whether we have competition or don't have competition. Whereas do we see airline weakness? Alitalia, SAS, LOT in Poland, Air Berlin in Germany, Olympic Aegean in Greece, Iberia in Spain, TAP in Portugal, BA short haul here in the U.K., easyJet in those markets like Liverpool and Stansted, where they're desperately trying to get away from us by moving to Manchester and Southend.

[Howard Millar:]

Monarch.

[Michael O'Leary:]

Monarch who's here in regional U.K. seem to be...

[Howard Millar:]

Jet2 had -- where our earnings rolling. Take your pick.

[Anand Date:]

Can I just ask one more follow-up as well? The improvements you want to make in customer perception on the website and everything. I understand you can't quantify it, but how much of that do you think is, you feel you're just behind where you should be? And is there an aspect of that, that on those routes where you are competing, you're seeing people potentially switching away to your competitors because they're willing to pay the extra EUR 20 for the better service there?

[Michael O'Leary:]

I'm absolutely willing to agree with the first half. We are behind the competition in terms of the website and the functionality of the website and we're certainly behind the competition in terms of

[Howard Millar:]

Air Berlin.

[Michael O'Leary:]

Air Berlin can't seem to pull the capacity out of some of the German airports fast enough.

[Howard Millar:]

From 5 new German airports.

[Michael O'Leary:]

Monarch, Jet2, everybody wants to get away from competing with Ryanair. In fact, the first half of your -- of the previous question was the -- I'd go to the very rare airline industry conference and everybody's presentation consists of, we don't really compete with Ryanair because we fly to different markets. Why does everybody not want to compete with Ryanair? And yes, there's this sort of mistaken belief that somehow passengers are deserting us in droves to go to, who? EasyJet. Higher fares, more delays. Yes, they have a nicer website, and that I will grant you. But easyJet have no advantage that we can't, kind of, eliminate within 3 months. Better website? We'll get there in 3 months. Allocated seating? First of February. Second carry-on bag? Done. What they can't match is, we have a unit cost that's nearly 1/2 theirs. An average fare that are nearly 1/2 theirs. And yet, our margins are still bigger than easyJet. We make more money than easyJet. Our load factor is -- our load factor is not higher, but they're growing. So no other airline in Europe has any short term competitive advantage, which easyJet certainly has at the moment with the web and the kind of business part, that we can't eliminate within a space of 3 or 4 months once we decide to eliminate it. And once we eliminate it, we still have a lower unit cost. So they can continue to fight us off in Gatwick if they want to. I mean, Stansted is wide open, why aren't they growing in Stansted if they're such a great product and passengers are just driving to Ryanair in droves? Stansted, easyJet signed up a growth framework agreement, which is a wonderful euphemism at Stansted with MAG. Well, I've had a growth framework agreement with the BAA airport for about 15 years in Stansted and traffic has declined. While our traffic has declined in Stansted for the last 7 years, our market share has gone up because everybody else has pulled out even more capacity than we have. So whilst easyJet was signing up a growth framework agreement at Stansted, we signed up a real growth agreement, which says we'll grow from 13 million to 20 million passengers over a 5- to 7-year period, but with real cost reductions on a per passenger basis. Now, the upside for MAG is, they will drive, drive very dramatic traffic growth through the airport in the next couple of years. And the upside for us is we'll have lower cost and efficient facilities. Okay, guys, we'll have the gentleman of the year before the nasty gentlemen of the press will be getting here shortly. So we'll be wrapping this up in the next minute or 2 just to get you all out before the Sun and the Mirror get here. Any other questions? Yes sir?

[Jarrod Castle:]

It's Jarrod Castle from UBS again. Which as you manage your load factor, would there be any circumstance you'd say, look, we're happy to let this slip if we can maximize revenues by pricing a bit higher. No?

[Michael O'Leary:]

No. And look, and again, and the thing I'd point -- look to the performance of the ancillary revenues. We generate so much money from the ancillary revenues. And also so much of our cost efficiency, the unit cost reductions are driven by delivering real and meaningful traffic growth to airport partners across the piece. And those airport partners competing against each other to share in that growth, at a time when, really, there's very few -- really, no other airline is able to guarantee or deliver significant growth to any airport.

[Howard Millar:]

And we'll be the only airline in Europe recording a unit cost reduction this year.

[Michael O'Leary:]

Any other questions? No. Okay, everybody, thank you very much for coming. And we will be on the road all week. So, doubtless we'll see you all at some stage over the period of this week.

[Howard Millar:]

Thank you.

[Michael O'Leary:]

Thanks, everyone.