Ryanair [RYAAY] Conference call transcript for 2021 q4
2022-02-01 00:54:04
Fiscal: 2022 q3
Operator: Welcome to the Ryanair Q3 FY22 Results Conference Call. I'll now hand the floor to Michael O'Leary. Please begin your meeting.
Michael O'Leary: Yeah, thank you. Good morning, ladies and gentlemen, you're all welcome to our Q3, this Q3 results conference call. You'll see the comprehensive release this morning on the ryanair.com website of the Q3 numbers or the MD&A. We also released a video interview of myself and our CFO, Neil Sorahan, which should have dealt with most of the major issues. A couple of quick things. We've taken as read and everybody's read, seen the results. So I think the strength of the numbers here with the recovery of traffic during the third quarter, up to 31.1 million passengers, that was significantly faster recovery than any other airline in Europe, also dramatically higher load factor than any of the other so called local airlines who all still have load factors in the mid-70s, we delivered an 84% load factor. That would have been significantly higher, as would the yields, if we hadn't had the sudden emergence of the Omicron variant in the last week of November and the first week of December. And I think we should be just a little bit cautious going forward. We were heading for a very, very strong Christmas and December last year. And as Omicron broke out, and government started imposing or re-imposing travel restrictions, we got hit and it probably cost us about 2 million passengers in December. And also that 2 million passengers that people tend to book later. So it had an impact on both passenger volumes, we fell to 9.5 million in December but also critically on yield. We took out about a third of our January capacity again because bookings just collapsed. We did hang on to some of that Christmas return traffic in the first week of January but other than that the rest of January was a washout. As we said, we have - we would have originally expected to do about 10.5 million passengers for January. Taking out a third of the capacity, we reduced the passenger target to between 6 million and 7 million. We've probably taken out about 15% of the February capacity as well. And so there's a kind of a - there's a misconception out there that these lockdowns just hit passenger volumes, they don't hit passenger volumes and they hit passenger yields and revenues. And we think therefore, that the impact of Omicron was quite damaging on the December numbers of therefore in those the Q3 numbers, despite the fact that we still did 31 million passengers and an 84% load factor, it'll also continue into Q4. January will be somewhere between 6 million and 7 million passengers and February will be down about 10%, 15% on what we would normally have expected. Again, I think we're heading for something over 8 million, about 8.5, so between 8 million to 9 million passengers but and then March we're hoping to maintain that very strong recovery probably back up to something between 11 million, 12 million passengers. But if there are any more of such surprising variants or anything else emerges, and governments again start to kind of panic as they did in early December, we will get hit for Easter. Easter is in the middle of April. All the indications are, at the moment there will be a strong recovery into Easter and into summer of 2022. But it is hugely uncertain if there is any other kind of COVID developments. So with that as a backdrop, I think the highlights of the third quarter is, we continue to invest heavily in our environmental strategy. Our Climate Disclosure Project rating, an independent rating moved from B minus to B, which is industry leading. Traffic rebounded very strongly to three, despite the impact of Omicron on the December traffic but closing bookings and yields in December and January and into February were badly damaged by those Omicron restrictions and we are spending, we are aggressive on pricing at the moment to recover traffic and load factors into February and into March. The balance sheet remains strong. We repaid the CCFF £600 million loan in October, five months earlier than scheduled. At the end of December, we've taken 41 Game Changer deliveries. We expect that to rise to 65 aircraft before the peak summer of 2022. To accommodate that additional capacity, we've announced 720 new routes and we're open 15 new bases, all of which will operate in the summer of 2022. We are very well hedged on fuel. And it's something that separates us from some of our competitors, many are - we're very strongly hedged at prices that are at significant discount to the current spot. We see Brent crude opened up this morning, over $91 a barrel. We're very strongly hedged, 100% into Q4, 80% into H1of FY23 and 70% into H2 of FY23. That's a mix of swaps & caps. And the reason we're using caps is that we don't want to take a risk, we don't want to commit to having kind of buying into playing for 80%, 90% of our capacity, in case there are other kind of repetitions of COVID restrictions or sort of the things that disrupt travel. We think we have a very good balance. Again, we see and I think it's hard to believe that we want to operate at 60% or 56% of our scheduled capacity through the summer of '22 and into the winter '23. But the caps at least are a modest of giving ourselves further insulation, taking us to about 80%. And it means that for the remainder of this fiscal year, and for much of the next fiscal year, we will benefit from significantly lower than spot price oil cost. So that will give us yet another significant cost advantage over all of our competitors in Europe. Our summer '22 in capacity is now on sale, we're offering 114% of our pre-COVID capacity. That's essentially the Game Changer delivery less a couple of aircraft NG aircraft we delivered on lease. And we are committed to stepping up our five year growth which, as you'll be aware of has accelerated from an end target of 200 million passengers, it's now 225 million passengers. Because we think and expect it will be strong recovery post COVID into summer 2022. And certainly there is a huge gap in the market out there. I see we do not believe some of these analysts report to expect capacity will be flat and so we're in '22 pre-COVID-19. It won't, it will be down. I think it will be down by a double digit percentage. But maybe it'll be a high single digit percentage. When you see the legacy airlines out there desperately trying to hang on to the slot waivers, they're desperately trying to hang on to those slot waivers for a reason. They do not want to operate a large proportion of their short haul traffic there short haul schedules, a lot of that is driven by the fact that about 50% of their short haul traffic is connecting to or from long haul. And there's no doubt that long haul will be slower to recover in summer of 2022 and I think in summer of 2023. So we think that will be meaningful - there will be a meaningful reduction in short haul capacity in Europe in summer 2022. We will be by far and away the fastest growing airline in terms of absolute traffic numbers and capacity in that marketplace. And we are deluged with airports and governments who are beseeching us and also beseeching us, trying to get to allocate more aircraft to their markets. And we're doing very attractive COVID recovery or post-COVID recovery, traffic or recovery yields of both airports and governments all over Europe. I don't want to add too much more than that and Neil, will you through MD&A and a couple of highlights of MD&A and we'll open for Q&A.
Neil Sorahan: Yeah, yeah. I'll very quickly run through that. You've covered the field already, we're equally well hedged on carbon as well for the next year. So we're about 100% hedge for FY22 to €24 in EUA, we're 80% hedged into FY23 at €45 in EUA, compared to current prices of €90. The balance sheet remains in a very strong position with cash just under €3 billion at year end, after having or at the end of December after having paid off the UK CCFF five months early. And indeed, net debt despite €800 million of CapEx is now modestly €2.1 billion at the end of the quarter. There will be a big focus on the balance sheet over the next couple of years to get that back to broadly net cash net debt position. And then the final thing that I was pleased within the quarter was the unit cost ex-fuel development where we saw unit costs get back to €32 per passenger.
Michael O'Leary: Okay, thanks Neil. And we'll just open up to Q&A now. Everybody is limited two questions. Can I deal with the first question that comes from everybody, what will the yield be like for summer of 2022? We don't know. Our focus on like most of our competitors will be on recovering volumes quickly and restoring loads to and try and to get load factor back up to 90%. If there is no further Omicron or COVID restrictions, then we think there will be a reasonably strong traffic recovery through the second half of February into March and certainly into April. But forward load factor or forward bookings are running significantly behind for summer of 2022 where they would have been on this day in advance of summer of 2019. And so while bookings have jumped or bookings have recovered very strongly in the last two or three weeks, that needs to continue uninterrupted, I think, for another eight or 10 weeks. So that we can get not just April, which at least we're able, but also the peak summer months forward bookings back to the level where they would have been this time, two years ago, pre-COVID. We will as always remain load factor active, yield passive. I think that was demonstrated in the Q4 numbers that we delivered an 84% load factor. I smiled to myself as I listened to a number of our competitors last week claiming to be load factor active and yield passive, yet they only delivered 77% load factor in the Q3 compared to our 84% and they were only delivering about 25% of our seat capacity. But nevertheless, lots of them claimed to be Ryanair, we're not actually delivering what Ryanair delivers. We don't know what the yields will be, we're not going to speculate on this morning's call as to what yield will be. You are all big analysts out there and you can guess as well as we can and have a look at yourself. I think what we will see though, is a very strong, if there is no more negative COVID developments, and I will be cautious on that front, you'll see very strong traffic recovery, not in February because we've taken out about 50% of capacity in February, you should see a very strong load factor recovery into March and then Easter or April, which will be the first month of the new year and in the new year, we're aiming for a targeting a 165 million passengers. We would want and expect to see a very, very strong traffic and load factor recovery in April and then that would set us up well for the summer. If however, there is another Omicron variant emerges in the middle or the end of March, then Easter will get wiped out the way, Christmas got wiped out in December and we will put it back two or three months. So I think the sensible thing to do at the moment is to be cautious. I think we should expect some more COVID negative news flow somewhere. We don't know where it comes from. But I think it would be sensible just to be cautious. And I think that's what underlies our message today. Okay, let's go ahead to Q&A, please.
Operator: Thank you. And our first question comes from the line of Mark Simpson at Goodbody. Please go ahead, your line is open.
Mark Simpson: Good morning. Yeah, two questions as allowed. First one, you mentioned in the preamble that you're going to pay down debt over the next two years in terms of the presentation on the website. I'm just wondering if there's an update on CapEx we can have behind that statement? And then secondly, whilst we're not looking for a specific overall guidance on the summer, there are two areas that kind of stand out in terms of competition. One is domestic Italy, the other is Vienna. I'm just wondering, can you give us an update on how you see the strategy of managing those markets, particularly where one of your competitors, has kind of made a statement down on the domestic Italian side with their increase coming to capacity. So it's really between you and Wizz being played out in Italy and Austria, be interested to have your take on that? But first off, all, maybe a CapEx update from Neil?
Michael O'Leary: Sure, thanks. Just before Neil comments on CapEx and I might have Eddie to just give news on domestic. I think it's just - it's important again, there is a non-natural view out there generally, maybe among I think some unions across Europe and labor that, oh, we're out of COVID and we're recovering from it, it's all behind us. It isn't all behind us. We're still repairing load factors, we're still repairing bookings, and we still need to get our forward bookings for the summer up to where they were before. Even when that does repair, we are - we went into COVID essentially with zero net debt position and we will emerge with a 2 point - effectively a €2 billion net debt position. Foremost in the Board's mind at the moment is returning that net debt position to zero as quickly as we possibly can. So our primary uses of cash in the next, I think 18 months - 18 months/24 months will be, pay down that debt to return us to a net zero debt position. Neil, net debt and on CapEx?
Neil Sorahan: Okay, on CapEx Mark, no change from our previous guidance. So about €1.2 billion CapEx in the current financial year to 31, March '22, that shows maintenance CapEx. That will increase to €2.3 billion next year, which is our peak year of CapEx, and then it starts to pull back although the next year after that we'll start with a €2.0 million and then you'll see a drop off thereafter.
Michael O'Leary: Okay, and Eddie domestically in Vienna, are we noticing anything from or do we even notice competitors in those markets that are not Italian?
Eddie Wilson: I think, particularly on Italy, we've had a huge investment in Italy over the last 12 months. We've gone from, for the summer of this year, we go from 67 base aircraft to 92 base aircraft. We've got three additional bases opened up and we've got just in comparison to, there are gaps there that have been left by Alitalia and EasyJet as well, but we now have well over 100 domestic routes. Wizz have got less than 30 routes there and we have the frequencies. And we are, I mean, particularly as we flew pretty much our entire schedule down there, throughout the whole sort of COVID crisis, we are the sort of go-to airline for domestics in Italy at the moment. And we know that some of our competitors down there are less than maximum sort of load factor, certainly in around a 50%, 60% mark and sort of desperate fares there at the moment of €299 and €499. So we have grown by almost 40% in terms of base activity in Italy. And I'm pretty confident we are going to, more than confident that we're going to have the lion's share of the domestic traffic in Italy. And Vienna, again, we will have just close to 20 base aircraft there this summer, as against Wizz, which is gone sort of backwards there. They were going to do nine, they're back down to five, talking about going back up to six. And we've got significantly more capacity. They've recently canceled 14 competed routes out of there, notable ones will be Madrid, Kelowna and Warsaw. So I think we are certainly more than grabbing market share and frequency build and competed airlines are on completed routes. We see them pulling away from us.
Mark Simpson: And just a follow-up, do you think that your fuel hedging strategy gives you a massive advantage this year and able to actually take the competition in being able to manage your prices with a decent return, take that to the airline which is unhedged?
Michael O'Leary: I - fuel we never do that and we don't hedge fuel here to maximize returns. I mean, the returns will very much depend on the speed and depth of the recovery. I think what's important with our fuels hedging strategy is that we can deliver cost certainty to our shareholders for the next 12-18 months. I mean, we have seen some spectacular deviations by some of our so called competitors, arguing that they now will be unhedged because they've never made money hedging. Well, they're about to lose a shedload of money by not hedging with, particularly with spot prices of $91 a barrel. And but to be fair, all we see for them in some of those - as Eddie said, some of those markets easily, they struggle for a 50% load factor. And we see desperation pricing in recent weeks, we've seen some seats sales at €299 and €499 in domestic Italy, although nobody in domestic Italy seems to notice them. But I think most of the other airlines, certainly EasyJet and the other well run sort of airlines, local airlines in Europe are hedging. We don't - always we're not hedging, but hedging gives you cost certainty for your shareholder and investor base for the next 12 months. And it would - it really takes a spectacular, I would say, leap of mismanagement to be looking at a post-COVID recovery where I think all of the pressure on oil will be to the upside on the back of economic recovery and also political uncertainty over Ukraine. We would want to be certainly, I think it is a sensible strategy to be hedged. The real challenge in hedging was, would you kind of hedge up to 80%, 90% and we didn't think that was sensible, which is why we've got a, I think a very clever and sensible mix of jet swaps and caps, which insulates us from the upside but there is still benefit from a sort of the caps on the downside if there was some kind of collapse in oil prices. But no, it won't affect the return. It just gives our investors cost certainty.
Mark Simpson: That's great, much appreciate it.
Michael O'Leary: Thanks, Mark. Next question, please.
Operator: Thank you, that comes from the line of Sathish Sivakumar of Citigroup. Please go ahead, your line is open.
Michael O'Leary: Hi, Sathish.
Sathish Sivakumar: Thanks, Michael and I've got a couple of questions here. So firstly, if you could actually give an update on the recent ICO report on ministry, regarding the Belarus space? And secondly, on the ancillary revenues, if you could actually share some color on the quarterly momentum that you're seeing on priority boarding and reserved seating, i.e., do you expect it to normalize in the coming quarters? Thank you.
Michael O'Leary: Okay, yeah. Thanks and good question, Sathish. We welcome the ICAO report on the diversion in May of 2023. I think it is clearly, we think it could have gone further, but at least it has certainly highlighted that it was inappropriate state actors who essentially engaged in an act of modern day aircraft piracy. I think we are calling on ICAO and on the aviation and the government authorities of Europe to ensure that there are appropriate undertakings given by certain Belarusian state and this will never happen again. It is fundamental to air travel going forward that both airlines and our passengers can expect to overfly even rogue states, free from any interruption or dishonest diversion or piracy of aircraft. We certainly welcome and we fully support the action now being taken by the US Department of Justice against the four named officials in Belarus and we, as the airline involved would be seeking to support any actions taken against those actors. I think it is fundamental to the future of air travel that we do not have a reputation of, or to my mind, it was the first case since the Chicago Convention 1945 of a state sponsored act of international piracy and we should not reopen the - there should be no overflights at Belarusian or less appropriate guarantees are obtained from and then this won't recur. In the meantime, we continue to fly around the Belarusian state, we, it's generally on our north south flight from the Baltic states down to Greece. And those kind of destinations where we might overfly Belarusia but we believe all the EU states should show solidarity and avoid Belarusia until appropriate assurances are given and Eddie, you want to give us some color on ancillary revenue developments?
Eddie Wilson: Yeah, I mean, on ancillary, I suppose the big call, it's really for us internally here are duty free sales and reserve seating and priority boarding. And as we had been working our way through that, during the sort of shutdown on COVID-19 and our labs people over the last two years, have been doing a lot of work in terms of dynamic pricing, particularly on the priority boarding side and that is continuing to show build. And we've also put in some dynamic pricing in terms of the number of price points for baggage as well, but I think we'll only see that more closely and as we get into the summer, but we still have some way to go, I think on dynamic pricing on seats, which we have yet to tap and the way that we've done with priority boarding. So very pleased with what's happening there. And obviously on duty free out of the UK, we're continuing to build on that. And again, into the summer, I think we'd really only see how solid that is when we get those volumes back up. So I'm very pleased.
Michael O'Leary: And roughly what proportion of our flights operate to and from the UK?
Eddie Wilson: It's a bit just under 30%.
Michael O'Leary: Okay, thanks, Sathish. Next question, please?
Operator: Thank you. That comes from the line of Savanthi Syth at Raymond James. Please go ahead, your line is open.
Savanthi Syth: Hey, everyone. Just two questions. And just on the non-field passenger performances, as Neil pointed out, it is very strong show in there. Just curious if you expect that to slip here in the fiscal 4Q given how much frozen capacity you've cut here in January and February? And just any early thoughts on where that can go in fiscal year 2023 just in terms of kind of upper and lower bounds, perhaps? And then for my second question, I guess, if you can provide some color on how you're thinking about the opportunity in Germany relative to perhaps kind of what your ambitions were pre-COVID? Thanks.
Michael O'Leary: Okay, we'll have Tracey who will take that the nonfuel passenger cost developments and where we think that's going and I'll have Eddie maybe to comment on the opportunity in Germany.
Unidentified Company Representative: Okay. We've seen a very strong performance in the non-fuel costs in the quarter of €32 per passenger that was driven by increased load factors, increased aircraft utilization, a lot of work done on the variable cost on renegotiation in a lot of our airport deals. And we continue to benefit from the staff pay reductions. And where we see it probably coming over the next year is, as we said before, “we'll start to see an increase in Eurocontrol and ACC costs which are pretty much out of our control.” So that probably give us a better passenger, I think next year but we hope to get to the pre-COVID levels as we return to an increased load factors.
Michael O'Leary: Okay, and Eddie, you want to talk on developments in Germany and particularly the closure of the Frankfurt main base?
Eddie Wilson: Yeah, I think, our view on Germany would be that there is a structural problem with airport costs in Germany, that's evidenced by what's happened in Frankfurt recently, where practically every other airport in Europe that we dealt with was looking to lower prices and in Frankfurt, they were looking into not only higher prices, but to look for higher thresholds of passengers. And I suppose Germany is really a story of two types of airports, the secondary airports are still very competitive, in terms of, the smaller airports like Baden, Mannheim, and Niederrhein, places like that, where we've been able to sort of put additional capacity in there but we, Germany is a one country that we have significantly reduced base aircraft, if you compare it with summer '19 and it's all down to pricing security taxes. And we have, we didn't recover fully to the amount of base aircraft that we had previously had in Berlin, but something needs to happen in Germany on pricing, particularly where you've got less capacity in Europe and you've got more choice with other airports and Frankfurt was the was the big casualty there.
Michael O'Leary: What about Nuremberg and Hahn?
Eddie Wilson: Yeah, that's all same, the sort of the more sort of secondary airports, I mean Hahn has its own difficulties at the moment being in administration, they're looking for a buyer at the moment. But Nuremberg came back with a published deal that was open to everyone on a non-discriminatory basis and made sense for us to go back in there. Originally, we went out to Nuremberg because of the non-delivery of the MAX's, but places I say like the smaller airport, the Baden's, the Mannheim and the Niederrhein's and places like that are the only ones that are at least trying to lower costs when they know that the international competition for them on movable aircraft would LCC is going to - tend to go elsewhere.
Michael O'Leary: Yeah, I think also, for my piece, I think Germany is an example again of our cost discipline. As Eddie has said, Frankfurt Main were coming up with a ridiculous price increase into a post-COVID recovery. I think what's interesting is you see kind of essentially the big hub airports, I mean, Heathrow came up with a ludicrous, I think £15 per departing passenger, 15 pound sterling for departing passenger. One of the richest airports owned by the richest shareholders in the world and their first response to a COVID catastrophe and the need to recover was to put up charges again. Frankfurt Main is doing the same because they can, they have a very large connecting home there. We're happy to grow in Germany, we are growing at a number of the smaller airports. But frankly, we have better uses of our aircraft this year, this summer and into 2023. And if an airport doesn't want to work with us to stimulate or to be use price to stimulate an aggressive traffic recovery, then frankly, we have 200 other airports elsewhere in Europe where our aircraft are better deployed, and we'll deploy them elsewhere. We will not give up on Germany, but like frankly, I think the German market is in for two or three years of very - of difficult times for the airports where they're increasingly reliant upon the state subsidized Lufthansa Group. Lufthansa have no interest in returning traffic volumes. They're leading the chart on slots waiver - on the waiver of the slot or the user of slot rules. And German - the large - certainly the German, large German airports are going to see a significant decline in traffic, materially higher air fares while it becomes a kind of a loose hand monopoly. But there's kind of a mood in Germany around supporting the national champion. It all seems, propping of Lufthansa. Not just with €12 billion in state aid but also eliminating competition. We need that to be a reasonably short term phenomenon. But we're very happy to redeploy aircraft into growth markets in Central and Eastern Europe, where we're growing far more - far and growing much more - at a much more accelerated rate than any other airline. We have growth opportunities in Italy, in Spain, in France, Ireland and in the UK and if some German airport wants to put a face, good luck, we'll see you when you change your mind in two or three years time when you have about 20% less traffic than you do pre-COVID. Next question please?
Operator: Thank you. The question comes from the line of Alex Irving at Bernstein. Please go ahead, your line is open.
Michael O'Leary: Alex, hi.
Operator: Alex, if your phone is on mute, you'll need to unmute.
Michael O'Leary: Okay, just move on to the next one.
Operator: Okay, so the next question comes from the line of Stephen Furlong at Davie. Please go ahead, your line is open.
Michael O'Leary: Stephen, hi.
Stephen Furlong: Yeah, hi, Michael. So two questions, one for you, Michael and then one for Neil. And Michael, just might talk about what's going on with Boeing and, obviously, the performance of the new aircraft but also in terms of MAX 10s and new orders beyond 2025, 2026? And then, Neil, just I would like to talk about carbon credits and costs. I just haven't seen that much with other airlines, where you actually hedge this and you might just talk about how that came about in the market because I think that's quite interesting? Thank you.
Michael O'Leary: Okay, well, the kind of key development with Boeing in the last quarter Q3 is we took delivery of about 25 aircraft. In the quarter, we were up to 41 aircraft at the 31 December. I know Boeing's results of last week, they delivered 99 aircraft in the quarter. So we accounted for one in every four Boeing aircraft delivered - delivery in that quarter. We expect to take another 24 aircraft from them, six aircraft a month in January, February, March and April and that gets us up to our 65 aircraft for summer 2022. Performance of the MAX aircraft has been exceptional. The few, I mean, admittedly some of this is because we're operating with lower than normal load factors. We're operating with an 84% load factor in Q3 as opposed to more normal 90% load factors, but the fuel consumption is better than the original 16% promise. And the noise performance has been noted by almost all passangers, they're exceptionally quiet aircraft on board. And I think our initial concern which was that there will be crew or passenger reluctance to operate the aircraft. Absolutely no, and we feel despite the fact we're offering to customers, you can offload off the aircraft and travel on the next if you want. Not one passenger has sought to offload. In fact, if anything, more and more people want to fly on the new air - the new quieter aircraft. And on the MAX 10s, I think, there's been disappointing and the sales operation in Boeing has been . They've been, I think, disturbed. I think worrying from a kind of a, as Boeing's largest customer outside of the USA, it's been worrying to see a trend in recent months of Boeing customers converting to Airbus. We sold Jet2 order Airbus. Qantas order Airbus and even KLM, who for nearly 100 years have been operating shorthold Boeing equipment, now it looks like they're moving towards Airbus as well. Certainly the Airbus sales team are performing very well and Boeing doing nothing, we haven't heard back from the sales team since, I suspect, about last October. Although they know where we are but I think the good news is, we don't need any aircraft deliveries or orders from Boeing until '27 or '28. But for an OEM that's losing so many customers to a it's Airbus opposition, it's remarkable that we haven't - that they haven't been camped outside our offices here, trying desperately to restart our discussions on the MAX 10. But we live and wait in hope. In the meantime, Neil, carbon credits?
Neil Sorahan: Sure, Stephen, carbon credits where would that come about? Well Michael talked about our desire for certainty on fuel. Carbon is becoming a bigger cost and has been have been for the last couple of years. So we took the decision to line up our counterparties and developed a forward market for EUAs. We're able to do that thanks to the BBB rated balance sheets that we have and I think wisely locked in carbon exposures out at the end of FY23 and in a market that is rising and spots trading about €90 euro in EUA. Today, we're headed out into next year at €45 or €45 for 80% of our requirements and that boils down to our desire for certainty on the balance sheet that we have which convinced counterparties to setup this market which traditionally wasn't there.
Stephen Furlong: Okay, great. Thank you.
Michael O'Leary: Thanks, Stephen. Next question please.
Operator: Thank you. Next is from the line of Muneeba Kayani at Bank of America. Please go ahead, your line is open.
Muneeba Kayani: Thanks for the call. One follow up question on Ukraine. What's your exposure there, you've added some new routes there and what have you seen more recently with the kind of political tensions? And then secondly, on the cost side, have you seen a salary pressure for cabin crew and pilots and how does that impact your strategy to get back to unit costs pre-crisis level?
Michael O'Leary: Okay, on Ukraine, we have a reasonable size operation to Ukraine, but mostly is centered on Kyiv, and airports in the west of Ukraine. We do have a plan, our plan this year is to grow to about 1 million passengers. Last year, we got close to 4 million passengers to and from Ukraine, this year. Again, I've said there being any sort of negative developments, we will continue to operate that plan. But we have no aircraft base in Ukraine. So if there was a Russian invasion or there was some kind of political disruption up there, we will pivot those aircraft away from Ukraine into the summer, we can fill those aircraft readily going to other destinations, any of the other 200 destinations we have across Europe. We remain committed to Ukraine, as long as Ukraine is looking westwards. There are huge economic workflows or people traveling to and from Ukraine, working in Central Eastern Europe. And there's a very large migrant workforce in Poland, in Germany and we see no reason why Ukraine won't - will continue to grow. It certainly one of the countries, and if it's not invaded by Russia, it's a country we would expect to open a couple of bases in Ukraine sometime in the next, I would say, two or three years subject to agreement on costs and prices. We did have the new routes team were down in - visiting the Ukraine airports. Again, it's about our third or fourth visit in January. But I think it was understandable, really the Ukraine authorities weren't in a position to just go to new routes and bases, they were somewhat otherwise distracted. We hope the situation in Ukraine gets resolved diplomatically. And if it is, it remains a very exciting growth opportunity for us. I mean, it's the same population base as Poland, and with the same kind of propensity for traveling to and from the EU. And just on the cost of the salary pressure, I mean, we don't see much salary pressure at the moment, the vast majority of our people would be pilots and cabin crew, we are in the - coming to the end of the second year of four and five year multi-year pay deals. I might have Eddie to just give you some flavor. But we're coming, this is the first year we're committed to kind of pay starting of the first two or three years of pay restorations in July. We are and we've begun started having discussions with some of our unions and our people and maybe we'll bring that forward from July to April. Or we may restore instead of three years of restoration, maybe do it over a two year period. But we would want a year or two tacked on to the end of those agreements, if we're going to accelerate those kinds of pay deals. We have to be careful because I think we still don't think we're out on the course and worst of the COVID. We think there is the potential for further negative COVID surprises. And but we're - if we do better over the next year or two, the first people we and two things we want to do is, pay down our €2 billion of net debt and two is to restore the pay of our people in a kind of sensible, sustainable fashion. However, the backdrop to that is, there are literally thousands of unemployed pilots out there. We are, I think we - at last now, we have a 900 cadets coming through our cadet training program across the system. We see no shortage of pilots for the coming number of years. Again, simply with cabin crew, we're running a lot of cabin crew training this year for the growth across Europe. There will be one and the UK would still be I think an area where there are some pressure points, particularly on the cabin crew side. There's a lot less freedom of labor in the UK. I think were many sectors, particularly some of the people who are most vocal are in supporting braces who now want the government to issue work visas for bar staff, fruit pickers and god knows what else. But I think we - our cabin crew are relatively well paid, certainly well above hospitality kind of supermarket workers, our entry level workers in the UK. But if there's going to be a pinch point on salaries, I think it would be likely to be in the UK or in certain spots in the UK around cabin crew. But other than that we don't see much salary pressure, upward salary pressure. I should say obviously, labs and IT is an area where there's an ongoing salary pressure there. But we have four centers across Madrid, Dublin, and in Portugal. And we're continue to attract very - we're trying to continue to recruit very attractive graduates. But there is a high - relatively high rate of turnover in the labs and IT area. Eddie, you want to add, Juliusz, maybe you want to add and on the Ukraine side and Eddie gives us some flavor on what you think on the salary pressure side. Juliusz first Ukraine?
Juliusz Komorek: And Michael you covered Ukraine comprehensively. I mean, we hope that the conflict will not take place, that the standard will be resolved diplomatically. We look forward to investing in Ukraine.
Michael O'Leary: And Eddie?
Eddie Wilson: Yeah, I mean, because you've covered most of it there, except to say that, we tend to think of financial results obviously on a quarterly basis. But with the restoration of pay, I mean, you've got to look at, not just this summer, but what's going to happen next winter, and whether there is a reoccurrence next November of some other sort of Omicron type variant. So on that basis, like this isn't over and we don't have a clean set of heels just yet. But we do want to, clearly people made sacrifices here to keep the business on track. Pilots took a - agreed through the unions for pay cuts of 20%, the cabin crew largely around 10%. And we have to have an orderly way of doing that. And we're in negotiations at the moment to do that. So that with a number of unions, and if we can do some of that area, we can do some of that area, but only on the basis that we've got cost certainty over a longer period of time.
Michael O'Leary: Okay, thanks, Eddie. Next question, please?
Muneeba Kayani: Thank you.
Operator: Thank you. And the next question, sorry, just one second. Sorry, the next question comes from the line of Jarrod Castle at UBS. Please go ahead, your line is open.
Michael O'Leary: Jarrod, hi.
Jarrod Castle: Hi, morning, everyone. Just coming back to growth over the next two to three years, I mean, the biggest markets at the moment are Italy, followed by Spain and the UK. I mean, if you look out two, three years time, should we see more concentration in terms of revenue mix in those markets or do you think it will become more balanced? And then just secondly, on summer, I mean, obviously, the northern hemisphere is in winter, but it's - there's been much publicized stoppages in the US, not enough staff and people getting sick. How do you plan to kind of, will hopefully be a period where there's less people getting infected, but how do you plan to kind of manage something like that in summer, should you see things spike in terms of planes at hand to fulfill schedules and staff shortages, potentially, if they arise due to people being unfit to travel?
Michael O'Leary: Okay, let me touch briefly on both. I mean growth over the next two years. Again, in all cases, for the last 35 years, growth here is almost an opportunity. The growth will go whenever we see the best deals. I think we do comment because of the scale of the markets. We're seeing very substantial growth opportunities in the UK, in Spain and in Italy. But we - this summer, we will grow from about eight to 20 aircraft in Vienna. Budapest, for example, which is the home airport and one of our competitors, we see that this year growth to, is it nine aircraft? 10? Eight? We grew to eight aircraft base in Budapest this year, which will be one more than Wizz, where I think will be at seven aircraft this summer. We are - we're growing faster in many Central and Eastern European markets than the incumbent carriers. So our growth will always be opportunistic. And, it's not some Napoleonic invasion of Russia, here. It is, whoever comes up with the best deals will get the next four or five aircraft. And I think it's very sad, the new routes team are absolutely inundated with requests for meetings, negotiations at airports, and one of those that I would drop in bases, if we saw a resolution of the political uncertainty in Ukraine, Ukraine could take 15, 16, 20 aircraft as, four, three, four or five base at five different airports over the next two or three years. That - I think the critical opportunity or the thing to focus on is not so much the actual, you the geographic areas, focus more on the fact that Ryanair would take delivery of some 60 aircraft a year each year for the neck, right away. We're 65 into the summer of 2022. There'll be another 60 for summer '23, another 60 for summer '24. We could allocate all of those aircrafts, this summer, if we wanted to, to airports and governments who are engaged in, very - putting in place very significant incentives. A good example of that would be the Irish government. I mean, we had no plans to grow in Ireland in summer 2022, in fact, we were going to cut the fleet. And the government has come up with a very innovative COVID recovery incentive scheme. I think total value of the scheme is about €90 million €100 million, which is passed through the - by the government through the airports onto those airlines who are delivering growth. And as a result of that, we've gone from cutting our planned airport capacity at Dublin, Cork and Shannon compared to pre-COVID. Now we're running our largest ever schedule of the Cork, Dublin and Shannon this summer, entirely in response to a very enlightened, and individual, I think, government COVID recovery program which is available to all airlines to grow. It's not kind of just designed for Ryanair. But we have the flexibility to deliver far more growth than any other airline. So we will always be opportunistic. How we'll handle staff? Again, I think we handle the staff situation better than any other airline in Europe during COVID. We kept all of our aircraft current, we kept all of our pilots and cabin crew current, even and so - and by the way, this is mete out that we operated lots of ghost flights to protect slots. We have never in our lives operated a ghost flight. In fact, we're usually criticized for the opposite. Oh, we just canceled the flights, we have low drivers. We don't do that either because we don't have low load drivers. But we did operate flights during the 18 months of COVID where we sent a plane up there to keep the plane cards filled it full of pilots and cabin crew to keep them all current because they all had to operate one flight a month. So we didn't operate any empty flights. Some of the fights we operated were full of pilots and cabin crew to keep them all current. We are going to oversight the over recruit this summer. But I don't see us having the same issue in the US with staff calling in sick. And a huge proportion of our staff are now vaccinated. There's a huge vaccination uptick across certainly Europe and continental Europe. It means some countries, Austria, Germany are talking about mandatory vaccinations. I'm not sure whether they'll be able to make it mandatory, but across most of Europe we see very, very high. In Italy, Spain, Ireland, UK 90%, 95% vaccination thresholds. There is much greater resistance in the US to vaccinations. You have a very strong and idiotic anti-vacc kind of group, which seems to be about 40%, 45% of the population. We don't see that happening here in Europe. But our view of life is, if you were, we always roster and roster so significant staffing pilots and cabin crew, we filled in sickness and routine sickness into that. We have a roster of significant standbys on a daily basis. And we would expect us to continue to run through, we've had no difficulty with that in the last three or four months into what has been a very strong post-COVID recovery. The one cover page point we did see over Christmas was, security staff at airports, at a number of airports and handling staff at a number of airports. Strangely, some of the bigger airports like Berlin and Frankfurt were, I think there will be an opportunity, but they were not showing up to work on Saturdays, they always seem to get, to be close contacts on a Saturday and Sunday, and then remarkably, they'll return to work on Mondays. They - but I think that we're even in those. We don't think that will be a significant issue into Easter or into summer as long as there is no negative COVID development. There is it but we - I don't think we're out of the woods yet. We expect there to be other variants. And we hope that there won't be any other variants that will result in the kind of mass hysteria that was caused by Omicron in the first week or two of December's where European governments are closing down. Despite that, and even then the South Africans were telling people, look, it does seem to be more variant but there is a lot less and more of transmissible about this variants. So staffing I think we've managed well today and we will continue to manage it well. We don't believe, given the high rate of vaccinations in Europe that we'll have similar kind of sicknesses as they have suffered in the US.
Jarrod Castle: Thanks Michael.
Eddie Wilson: Can I just add on to that on the labor side, I mean, we have absolutely no issue with the supply of pilots. And on the cabin crew side, as we have and don't forget, well we were flying most of our - all of our aircraft and over the over the last two years, we kept up the sort of the fields of recruiting, so in terms of the cabin crew side. So we've no issue with cabin crew. We may have some pockets in the UK, but if you look at on a macro level of the amount of cabin crew, there isn't an issue for this summer, given the sort of run rate that we have in terms of applications and on the number of courses running. So we're not coming from behind at all. We are coming from a steady platform of training.
Michael O'Leary: And it's a good point. And even in the UK, I mean, our cabin crew generally are earning between £30,000 and £40,000, it is significantly ahead of hospitality and significantly ahead of retail, and it's probably double or triple what the fruit pickers are earning now. I know that's a different issue but we would - we don't expect to see any issues there. And I think, again, I come back to the point, I think the high rates of vaccinations will hopefully protect us from the experience of some of the US carriers on labor shortages.
Jarrod Castle: All right. Thanks very much.
Michael O'Leary: Thanks. Next question, please?
Operator: Thank you. Next from the line of Jaime Rowbotham of Deutsche Bank. Please go ahead, your line is open.
Michael O'Leary: Jamie, hi.
Jaime Rowbotham: Hi, Michael. First, you flagged your superior December quarter load factors versus peers. Provided there are no further COVID curveballs and if the forward bookings curve continues to rally, what do you think is the best case for load factors in Easter and peak summer? Can you get back to pre-crisis type levels in the mid-90s? And secondly, your environmental targets, front and center in today's statement, you hope to power 12.5% of flights using sustainable aviation fuel by 2030. What are the main constraints to achieving that? And will that level be quite consistent across the network or will it be skewed paths depending on where the staff is stored? Thanks.
Michael O'Leary: Thank you, Jamie. I'll let, Thomas Fowler regarding to sustainability to address the environmental issues, just I'll give the load factor issue first. I mean, we would have gone - I think we would have had a load factor in the third quarter if we hadn't had Omicron that would have been in the high 80%. And we won't get there in February, we won't get there in March. I would be hopeful that we will get close to 90% through April as long as there is no COVID negative development. I'm not sure we get over 90%. But we're certainly are, I think our thinking going forward is that once we get into the peak summer months, and obviously the June, July, August, September, that we would expect our load factor to be back up over 90%. Now, a word of caution. That's because we'll be load factor active and yield positive. We will drive load factors up over 90%, but maybe at the cost of yield. So we'll be aggressive on pricing. We're not expecting and we know we're working on our budget for FY23 at the moment. We don't expect to get back to kind of 95%, 96% load factors that we were at pre-COVID this year. But I think we are budgeting for a kind of low 90% load factor through the year. And we will take it on. If we have to be aggressive, we'll take the hit on yield rather than on the load factor. So I think close to 90% for Easter, April and then I think over 90% is the peak summer months. And Thomas, the environmental?
Thomas Fowler: Yeah, Jamie, so obviously the 12.5% target is aggressive for the biggest constraints we see today is the availability of SAF. So at the moment it's not less than 1% is produced in Europe today. And obviously the current split for 50/40 proposal has put a mandate on fuel producers to produce 40% SAF by 2030. But we've seen some of the major oil companies come out with statements in the last few months to say 10% of their aviation production will be SAF by 2013. So that gives us confidence that we should meet the 12.5% target. But if not, we'll be very close to it in 2030. And then the price like so obviously, the price is a lot higher today and when we this production round, so if the price comes down. And obviously we - we haven't called for some incentives to begin with the producers to produce it and regarding the pickup, I think there will be - it will be - there probably be more pickup at some of the main locations initially because that's where most of the fuel will be selling to. But over time, we see an even distribution across all airports in Europe on the demand base in Europe.
Michael O'Leary: Okay, thanks, Thomas. Thanks Jamie. Next question, please?
Operator: Thank you. That's from the line of Neil Glynn at Credit Suisse. Please go ahead, your line is open.
Michael O'Leary: Hi, Neil.
Neil Glynn: Morning all, and just following on from that question. Firstly, just on the Easter. I realize the forward looking curve is later these days but can you give us some kind of a sense as to just what proportion of Easter bookings are actually in place this year versus 2019 to help us understand the increased reliance on late bookings towards Easter? And then a second question, maybe a bit more on the field. Obviously the subject of the 737 popularity has been topical and we're all clearly wondering about your future fleet plans. But the fewer non-Ryanair 737s that are actually operated in Europe, following the recent decisions from KLM and Jet2, pops a question for me in terms of the availability of engineers, maintenance facilities, maybe even top rated pilots to an extent. Is that something that's a concern for you? Or are you very much in control of that situation and that's irrelevant?
Michael O'Leary: It is a good question. I mean, I'm not going to give you obviously a proportion of Easter in advance. But I want to give you a flavor for what's normally happening here. Pre-COVID, we would enter into a month, on the first day of the month, we'd have about 80% of the kind of the bookings for that month or the expected times that month already pre-booked. Currently at the moment, and it both bounces up and down. Omicron variants have damage, we're running at about 60% pre-booked. That would have - it must have been strongly, it went up from 45 through 50%, 55% as we went through kind of August, September, October, November, and then it got a big hit the kind of raw gut pulled out from under us in December into January, but which is why we took our 33% of the capacity in January and 15% of the capacity in February. So we would typically now expect to enter a month at the moment with about 60% of the final target in the bag. Some of that is also a reflection to that we now have are a much bigger domestic operation in places like Italy and in Spain. So where they do and we'll talk later, but we know they're going to book because that kind of domestic short hauls are generally books later. So we're running about 20% behind. We monitor and on a daily basis and we open up, close off, open up close off, if we think the weekend bookings or bookings on Monday or bookings on Tuesday. We do some tactical stuff like we ran a 24 hour £9.99 seat sale and I think it was Wednesday with essentially the availability is the first half of February. I mean, there's no doubt that February as we move into it, were about 50% the capacity cuts, were weaker in the first half of February. We have the school midterm in the third week of February and then there's the fourth week of February is reasonably well booked as well. So it's again a question of growing back the bookings and it's very hard to shift a lot of bookings in the first two weeks of February during the month of January when, Neil, so much that the media was still focused on Omicron and developments and lockdown and everything else. But it's getting there and we think that will - if there is no negative COVID development, it will repair very strongly into March. Easter and April will be critical and that there are no negative developments and a lot of people travel families travel for Easter holidays, Easter break that and it all goes well. And we don't have negative PCR requirements on returning back to or these kind of, then I think that will put a lot of confidence into summer, we'll see a big surge in summer bookings as well. So, but we keep making the point at the moment, not alone is it later than they're booking late but it's very fragile. Any negative developments, as we saw during December will have an immediate and very damaging impact not just on volumes but also on yields as well. And 737, it's a very interesting situation. I think if anything, there the lack of Boeing kind of customers or the flight of Boeing customers in Europe to Airbus is indicative firstly of a sales failure on the part of Boeing. I mean it's one thing not attracting new customers but you lose your existing customers to your - into your direct competitor Airbus seems to me to be a failure of your sales force. You can argue that KLM, Air France and KLM are, the government - the airlines who are receiving massive volumes of state aid, were probably inevitably going to be noticed in direction of airports but to lose Jet2, a reasonably well run Boeing customer to Airbus, I don't know what the Oscar was. To lose one or two customers is probably okay but to lose kind of a four or five of them is stupid and we're not to forget well the COVID is pretty prevelant, slightly stupid. But interesting though is that we see, going forward and certainly for the next year or two, there's going to be very, I think dramatic or I think there's going to be much more upward pressure on pay for Airbus pilots and Airbus engineers. You see people the likes of that, the lower end of the pay scale is a Valarie's of this world is probably losing some pilots to Wizz and to EasyJet, but then with EasyJet losing pilots to Airbus and Air France and all the Airbus operators who are - pay more, so I think you're going to see a lot of much more pay based on the Airbus pilots and Airbus engineer's side. Well, it's interesting on 737, there's a lot less demand and a lot less, I think rotation or a job opportunity for 737 pilots and engineers to jump ship across Europe. We're training upwards of about 1000, almost thousand 737 cadets in training at the moment. In Sydney, pre-COVID, when Norwegian were running around and doing all the maths that they were doing in 2017 and 2018 and causing a pinch point on pilots, that they've now blown themselves up, as was inevitably going to happen. And we've seen a lot of 737 pilots returning from Asia and the Middle East. And yet, we have reintroduced the payment for our architects, are now paying us well about €25,000, €30,000 for their cadet training, and we have nearly 1000 of those in cadet training at the moment. So I think we will - the job opportunities for 737 pilots across Europe in the next number of years will largely be combined to Ryanair. Now we do pay well and we have very productive and beneficial fight for rosters and stuff like that. But I think actually because we have such scale, that's why we're investing in new training facilities, we offered a €50 million training facility in Dublin. We'll operate another one somewhere in the Iberian Peninsula, and probably somewhere in Central and Western Europe, Eastern Europe in the next two or three years. But we have the capacity to train all our own engineers, our own pilots and our own cabin crew. But given the cost of trying to retrain the 737 pilot onto an Airbus, I think if anything, there will be a lot less turnover of pilots here in Ryanair. Certainly about that turnover of engineers because we will train our own but we will essentially be the only significant I wouldn't say 737 operator here in Europe in the next couple of years. So I would argue the convert and the counterfactual is that actually it's a strength to our cost model here in Europe. Whereas I think all the Airbus operators, certainly beautiful Valarie, TCG's, Wizz's, BA's, Air France's, KLM's, there'll be a lot more turnover and stealing of each other's pilots because they're all Airbus quality.
Neil Glynn: Great. Thanks, Michael.
Michael O'Leary: Next question? Thanks Neil.
Operator: Thank you. The next question comes from the line of James Hollins at BNP Paribas. Please go ahead, your line is open.
Michael O'Leary: James, hi.
James Hollins: Hi, morning. The first one is for Neil. I think last, we talked about H2, fiscal H2 costs being about €35 per passenger. Obviously Q3 you've done €32. I was wondering if you're beating that number, or whether we should expect some pretty significant ramp up costs obviously what most airlines talking about that? The second one, I'd like to caveat this is not a question about some yields and I do recognize you're load active and yield passive. But just following your comments Michael, calling out effectively a lot of operators not having enough staff into the summer to operate full schedules, calling out us analyst as idiots for thinking that capacity might actually be quite high into Europe. You've got it down maybe double digit percentage, just wondering how that plays into how brave your revenue management team would be at this stage and were coming through the next couple of months as you call out that capacity outlook for the summer, hopefully a surge in bookings etc.? Thank you.
Michael O'Leary: Neil, you'll take the first one, H2 cost?
Neil Sorahan: Sure, James. So there's no change on a full year basis. We're expecting to come in somewhere around €35 euro per passenger ex-fuel. If you recall we were well over €60 in the first quarter of this year. And that's been ramping down into Q2 and Q3. So blend is about €35 on a full year basis.
Michael O'Leary: But then and second one, may I, perish the thought that I would ever call an analyst who we respect and value highly, idiot. But I've seen some kind of pieces recently talking about, we dispute Ryanair's view that there will be capacity will contract in Europe. I don't know how you dispute it. The legacy airlines have spent inordinate amounts of lobbying and resources trying to extend their soft labor scheme, and expressing deep unhappiness that it has gone from 50/50 to 36/64. I know of no legacy airlines that proposes to operate it full pre-COVID short haul operation, this summer. They're all talking about quoting it back. Alitalia's fleet is 50% less than it was pre-COVID, TAP's fleet is about 35% less than it was pre-COVID. And if you look around the piece, even EasyJet's fleet is now less than it was pre-COVID. We are the only airline with significant additional capacity this summer and to a lesser extent, Wizz have a better growth capacity. Because they have a much smaller base, it looks like a higher percentage, but in general terms, I can't don't see where and particularly when you don't have the long haul, the Asian tramping across Europe this summer, and they won't be - there is still travel restrictions on them. I think the US will partially recover but they will be slow to travel outside of America. Again, there's going to be nobody to fill the short haul flights of Lufthansa, Air France, IAG, Iberia, you name it. And that's why, they could build them. I mean, Lufthansa is out there pointing on about operating ghost flights. To which, we said, but the obvious solution to your ghost flights was to introduce some low fares and sell them to the traveling, the people who've been giving you $10 billion or $30 billion of state aid. They have no commitment to doing that. Now, I would certainly - I wouldn't die in a ditch over whether the declining capacity issue was going to be a high single digit 7%, 8%, 9% or whether it was going to be 12%, 13%, 14%, 15%. I don't think it matters that much. It is certain in my view that the capacity will be, meaning, for short haul that will be meaningfully down this summer, into a market players where all the short haul oil prices, spot oil has gone above $90 a barrel at a seven year high. And you have airports most notably Heathrow, Frankfurt Main and inevitably Ganzhou could shortly follow with significant cost increases. Therefore it is, to my view, cooperating with our revenue management team be it that it wouldn't be brave at all. I mean, what we tell our revenue management team is you must hit the passenger traffic your load factor active yield is passive now, would we take the chance and hold out for higher yield, we absolutely wouldn't. I would always give away yield in return for more accelerated recovery of higher load factors. And you see that demonstrated in the third quarter, both Wizz and EasyJet with much smaller operations delivered in 77% load factor, we delivered an 84% load factor with 31 million passengers, that was more than almost three times higher than EasyJet traffic and four times more than Wizz's traffic in the quarter. So our revenue management team here don't have to be brave, they just have to hit them. The only time they will get brave is when they've hit the passenger volumes and the load factors and then they'd have to be very brave. But I think it's inevitable in that with less capacity in Europe, I struggle to see and that would lead to a combination of less capacity short haul and higher oil prices. I struggle to see why particularly when inflation running rampant across Europe in the short term, there won't be a strong pricing recovery, certainly in the peak summer months, as well as and I keep going back to the point, as long as there is no negative COVID developments in the next couple of months and we should be - we're expecting or worrying that there will be at least one or two more negative variants emerge. I hope that answers the questions, James.
James Hollins: Yeah, and I appreciate it. Both, thanks.
Michael O'Leary: Thanks. Next question, please?
Operator: And that's from the line of Alex Patterson at Peel Hunt. Please go ahead, your line is open.
Michael O'Leary: Alex, hi.
Alex Patterson: Hi, good morning, everyone. Two questions, please. Firstly, you've got a lot of new bases and routes coming through, should we expect those to perform as your existing do or should we expect and perhaps because you've got plans for big marketing spend and price stimulation or should we expect them to perhaps mature over a season or two? And then secondly, carbon costs are clearly going to become quite significant in a couple of years time when the hedging drops off unless the carbon price falls. It's not obvious that there's a lot of costs that you can reduce to mitigate that. Should we therefore look at those being passed through to passengers or are you planning to perhaps have lower margins?
Michael O'Leary: Okay, thanks, Alex. I'm going to have Eddie just take the new base performance and then maybe Thomas, give us a review on carbon cost pass through and I'll ask Neil, maybe to sweep or coming with his view. Thomas, Eddie?
Eddie Wilson: I know it's a simple answer because like and largely when we open new base, they are one or two aircraft bases and we tend to reverse traffic into those which has already come from non-base activity. And even in bases that we hadn't been in previously like places like Arlanda, we've actually gone from two to four aircraft there. So it's, like we've been doing this for years, no different from - in the COVID-19 times. You reverse the traffic and you take less of a risk and then you build from there.
Michael O'Leary: And then, and Thomas, see carbon costs and when we would be able to pass them through?
Thomas Fowler: Like on the carbon side, we have seen big increases in the last 12 months. I think it's where one like feel, the customer load factor, active yield, passive on the bookind side. So there'll probably be a 12 month lag between whether we recover the increased carbon costs and along that way, as we've seen with the fuel price previously, but obviously, all indications of on carbon will remain at the level that is today between €90 and €100.
Michael O'Leary: And Neil, the ability to pass them through?
Neil Sorahan: Well, we're already seeing the likes of Air France who don't pick up any carbon at this point or any SAF at this point in time, adding on surcharges for their customers. I think there will be an effort with the industry to try and pass this trough. But I also think that aircraft are going to become more efficient, where we're taking on more Game Changers, 16% lower fuel burn, 60% lower CO2, which will help. We're well hedged for the next two years, as we already talked about. So it's really an issue from kind of FY24 onwards. But I think there will be an effort as has always been the case in the past that the legacy guys will try and recover. And we'll hopefully track them behind us.
Michael O'Leary: Hey, thanks, Neil. Thanks, Alex. Next question, please?
Operator: Thank you. And the next question comes from Alex Irving at Bernstein. Please go ahead, your line is open.
Michael O'Leary: Alex, hi.
Alex Irving: Hi. Good morning, gentlemen. Two from me, please. First of all, on the strength of demand. So we've seen some increase in the cost of living, but then how that affects finally on the demand side, think about, say consumer budgeting, whether or not there's enough travel going on to benefit the lower fare alternative? And then second, just want to follow up on some environmental issues, please. So could you maybe talk about where you think we are with the Single European Sky, is this getting more likely? Or do we sort of remain stuck as we have in the past? Thank you.
Michael O'Leary: Thanks. Demand slope, what we've seen Alex once the EU issue that due to COVID surge on the first of July last year, demand strength has been - demand has been incredibly strong. I think there's huge pent up demand. There's lots of people there, we saw particularly the October bank holiday or the October mid-term school break last year, very strong demand and high yields. The Brits, the Irish, the Germans all moving with our families. We thought that then again was good, that was good build for a very strong Christmas. And if we had a very strong Christmas, frankly, we'd be back to pre-COVID volumes by, into January, February, March, all the way back to normal. And then the raw gut pulled out from under us in the first week of December with the Omicron kind of panic and hysteria and coverage. So, again, absent there being any negative development on COVID, we think there will be a very strong recovery into Easter in April and the schools that's traditionally a time where lots of schools go on school tours and families take the first of the kind of summer breaks. I think the other, kind of just have and again, this is a slightly sort of, it's not based on fact but definitely, I think an awful lot of families generally at Christmas and New Year are booking their summer holidays. And again, they stand at home over that Christmas/New Year period worried about Omicron and restrictions and people have to have negative PCR to get back in and they go ski and they could go skiing, they could go but they might have been able to get back if they have tested. So huge uncertainty. We see that repairing itself now but again, we need to have a strong Easter booking period, a good experience of travel over Easter, then I think you'll see that kind of flow to Christmas or summer bookings. But we think the potential demand is very strong because of the pent up demand. And also remember, families and huge numbers of families have been sitting at home or working from home, haven't been able to spend money for the last two years. There are huge pent up savings there. And one of the first things they spend that money on will be travel and holidays. And so again, as long as there's no negative COVID developments, we think Easter will be strong. And if there's a strong Easter that would lead to a very strong recovery in both load factor volumes and then hopefully yield into the big summer months of June, July, August, September. Environmental, I have long given up on the Single European Sky. It is, I think 20 or 30 years they've been talking about it. They never make any progress on this. The idea that the European Commission is going to override the very powerful National Air Traffic Control Union is a myth. It is never going to happen. But the technology has moved beyond the Single European Sky. But I think what we should have now is a deregulation of ATC across Europe. You have multiple national providers, and again, we keep making what Ireland could provide, for example, over flight over France on a day when the French AT on those regular days when the French Air Traffic Controllers go on strike. What it means is deregulation and breaking it up. Now, you know a 20 year phased project of the Single European Sky and we're never going to see a Single European Sky. The unions won't kind of bend towards it. And these are very small, but very powerful unions. But what tends to happen over time is very small and powerful unions like, you know, the typesetters and the print workers in Fleet Street. Eventually, the technology moves beyond them, and the airlines should be freed up to purchase air traffic, those air traffic control services from whichever national providers want to provide them. But what we need is a commitment from Europe to say, you're not going to close the skies over Europe. And if the French want to go on strike, somebody else can provide the ATC services that keep us moving. So I would be all in favor of deregulation and competition, which is what has delivered those benefits for consumers in the airline industry. And that needs to be applied to the air traffic control industry as well. And Juliusz you want to add anything on that?
Juliusz Komorek: Maybe just that we keep pushing, obviously, for reform and the more environmental arguments we hear in Brussels, Airlines having to make an effort, the more obvious it becomes the government and the European Commission are not doing enough. Various studies indicate that if European ATC was reformed, between 10% and 15% of fuel could be saved. That is more than any of the commitments made by anyone in European aviation for the next five to 10 years. And that could be fixed immediately with a little bit of goodwill. So we keep pushing for it. I kind of share Michael's pessimism as to chances of success, but we are not giving up.
Michael O'Leary: That I think is a good point. I mean, the environmental upside of reforming air traffic control, like remember, you'd eliminate 90% of flight delays if you had an effective air traffic control provision, and what a huge reduction in fuel consumption, fuel costs, and also environmental waste and then questionably .
Operator: Currently there are no further questions in the queue at this time.
Michael O'Leary: Okay. So, thank you very much for joining in the call. And we're not doing a Roadshow because in the Q3 we generally don't. Neil and Peter here in Dublin, if you have any follow up questions or want to call, please plug and we'd be happy to get to talk to you individually. All of them are, I think, looking forward. Let's kind of keep being I think cautiously optimistic. There is a strong recovery underway, but we need to get through or get to and get through Easter, without there being any further negative COVID developments and in those circumstances, we think we would be set fair for a very strong summer recovery. Our costs are well under control, the fuel hedge position I think gives us a very strong cost base going forward. We have a much lower cost base than any other airline in Europe. But we will deploy that cost base over the next six months in a load factor active yield passive manner that will put kind of traffic and load factor recovery ahead of short term pricing advantage as we seek to rebuild. And the aim is to deliver 165 million passengers in the year to March 2023, which would be 14%, 15% ahead of where - what we carried in pre-COVID, the 149 million we carried pre-COVID in the year to March 2019. Thank you again for your support. For those of you who have stuck loyally with us during the COVID, we hope to vindicate your judgments with superior returns over the next 12 months. And we look forward hoping to see you all. We'll be doing a full-year Roadshow, our full year results at the end of May. We'll remain with you in full and in terms of Roadshow across the Europe, the US during that. So thank you very much everybody and if you want to follow up, please contact Neil or Peter here in Dublin. Good to talk to you all. Bye-bye, thank you.
Neil Sorahan: Bye-bye.
Operator: This concludes the conference. Thank you all very much for attending. You may now disconnect your lines.
