Yahoo Finance Ryanair Holdings plc (NASDAQ:RYAAY) Q2 2024 Earnings Call Transcript
Ryanair Holdings plc (NASDAQ:RYAAY) Q2 2024 Earnings Call Transcript November 7, 2023
Operator: Hello, and welcome to the Ryanair Holdings plc H1 FY’24 Earnings Call. My name is Maxine and I'll be coordinating the call today. [Operator Instructions] I'll now hand you over to your host, Michael O’Leary, Group CEO, to begin. Michael, please go ahead when you are ready.
Michael O’Leary: Good morning, everybody, and welcome to the Ryanair half one results analyst call. You have seen this morning on our website, we loaded the half one results, there's a full MD&A, and a Q&A with myself and CFO, Neil Sorahan. But just to focus on some highlight pieces, obviously we've had a very strong Easter and record summer traffic that resulted in a very strong half year profit rising at EUR2.18 billion and we expect over the full year now that a profit after tax of about EUR10 per passenger is likely to be achieved and we've declared our first ordinary dividend, it's not a first dividend, but it's certainly our first ordinary dividend has been declared this morning. Highlights of the half one traffic grew 11% to EUR105 million.
We maintain a very strong 95% load factor through the summer period. Again, I keep coming back to the point, we're operating in a constrained market in Europe, and that is good for traffic. It's good for load factors, and it's certainly been good for average fares. Revenue per passenger is up 17%, that's a combination of average fares up 24% and ancillary revenues up 3%. We opened three new bases and 194 new routes in summer 2023. We've now, the fleet of Gamechangers is now up to 124 aircraft. The total fleet at the end of September is 563 aircraft. Our fuel bill rose sharply because we were so well-hedged in the prior year. So, in the half year, our fuel bill rose EUR600 million, that's up 29% to EUR2.8 billion. However, we've continued to judiciously extend our fuel hedging program.
We remain 85% hedged for FY24 at about $89 per barrel, well below the current spot. And, but we're happy to report that we're now about 53% hedged for FY25 at about $79 per barrel, locking in a saving of about $300 million on the first half of the fuel we need for FY25. Net cash at the half year-end stood at EUR840 million, that was up from EUR560 million at the 31st March, despite the fact that we repaid over a EUR1 billion in debt during the six month period. We remain committed to Boeing the new 300 Boeing MAX-10 order will we believe underpin low fare profitable growth for a decade to 300 million passengers by FY34. And this morning, the Board has announced a EUR400 million maiden ordinary dividends and has also rolled out a dividend policy, which I'll ask Neil just to comment on further in this call.
Turning a briefly to growth in fleet this winter, we'll operate six new bases, Athens, Belfast, Copenhagen, Barcelona Girona, Lanzarote and Tenerife were returning to base in the Canary Island. We will operate over 60 new routes including our first 17 routes to Tirana in Albania which opened last week with some success, high load factors and strong customer impact. To-date over 90% of our summer 24 capacity is already on sale including over 180 new routes. While Boeing are suffering delivery problems particularly with their fuselage supplier Spirit, we continue to work with them to minimize these delivery delays ahead of 2024. Boeing have contracted to deliver us 57 Boeing MAX aircraft between now and the end of April, we're not sure they'll deliver all 57, but we're certainly confident that we get about 45 to 50 of those aircraft by the end of June which will be in time for the summer peak in 2024.
And that will be critical to our traffic growth next year. We continue to see a constrained supply situation across Europe. And I think that's fundamental, not just Ryanair’s strong results in this half year, but also a very strong result reported by many of our competitors in recent weeks. Eurocontrol have confirmed about the Europe is operating short-haul, Europe into Europe is operating about 94% of its pre-COVID capacity. We see no danger that it will return to a 100% of its pre-COVID capacity for the next two or three years. Consolidation continues to be a theme in Europe. We see the Lufthansa closing in on the takeover of ITA. TAP in Portugal is now up for sale. And the SAS refinancing sale is already underway and it looks like Air France KLM will take a 20% stake in a refinance SAS leaving fewer and fewer independent players out there.
I continue to believe that Europe is inexorably moving toward the situation that has prevailed in North America aid of having probably four large airline groups, each of them capable of carrying about 200 million passengers a year, and three of the big legacy guys Lufthansa, Air France and a KLM and IAG and Ryanair being the large low fare point-to-point carrier much like southwestern state. Now, added to that capacity constraints story though with the continuing inability of the OEMs to manufacture both Airbus and the Boeing to accelerate deliveries. They remain challenged on their existing deliveries, both Airbus and Boeing are running maturity behind because supply chain challenges going also with their production issues with Spirit. And, I think also the Pratt & Whitney engine issue is a large and as yes, not well, factored into capacity story for summer 2024.
Europe is the home of A320 Ryanair is the only significant to 737 operator across Europe, and the fact in which the engine is fundamentally an A320 issue. We expect there to be material groundings of competitor capacity through the summer of 2024, and we think that would run into 2025 as well, due again because of the pressure on engine. So we see a very little prospect of Europe returning to its pre-COVID capacity between 2024 and 2026, and we think therefore that will continue to show up as you underpin strong pricing, even if a consumer demand is challenged there will be less capacity than there was pre-COVID, and I think the price of that capacity will be higher. We've certainly seen that amongst the legacy airlines in Europe, Lufthansa, Air France, KLM and IAG materially increasing airfares.
They're already high airfares, and that will say quite a high ceiling over which, Ryanair is seeing a passengers trade down towards Ryanair but at higher fares. And that's reflected in our outlook and guidance where in the third quarter, for example, the end of December, we are seeing average airfares currently running as mid-double -- the mid-teen ahead of prior year. We're clearly growing strongly. We're carrying out of traffic. Cost is well under control and that takes the -- and our cash generation is strong. I mean, the Board has now begun to again look at capital allocation policy. We set out a clear policy since COVID but as we recovered from COVID, the first priority was pay restoration and multiyear pay increases for our people. That's now been done.
Secondly, we set out pay down our remaining debt, and we paid down two bonds of over a EUR2 billion over the last two years. We have two bonds left in 2025 and 2026 of about EUR2 billion that we intend to pay those down in their entirely, which will make Ryanair remarkably a debt-free company in Europe in the next two years at a time when the higher for longer interest rates, the bond yields looks like it's going to drive up financing costs for our competitors. Most of whom have very significant net debt positions in Europe. Once that's done, we also then want to continue to fund our aggressive CapEx program, and we're taking delivery of 50, we hope 57 aircraft between now and summer 2024, and that will lead us then to another 30 aircraft in time for summer 2025.
The plan is to maintain a strong balance sheet and investment grade rating. The MAX-10 order book will deliver annual traffic growth to EUR300 million. We think we'll do that largely out internally generated cash flows, but we will continue to be opportunistic. I think it's interesting that between FY08 and FY20, Ryanair has returned EUR6.74 billion to shareholders via buybacks and special dividends, and we're turning now to an ordinary dividend policy as well as today returning the EUR400 million by way of dividends to our shareholders, which is the EUR400 million they invested in Ryanair during the peak of the COVID crisis. I'll ask Neil just to comment on the dividend policy in his remarks. In terms of outlook, we continue to target approximately 183.5 million passengers in the year to March ‘24, that's up 9%.
The final figure might vary a little bit. It depends on Boeing meeting some are most delivery commitments between now and the end of April and they are running behind. And we had hoped to have 20 of these aircraft delivery for Christmas. We are now thinking it looks like we'll only get ahead of them. As previously guided, ex-fuel unit costs will increase by about EUR2 this year, but that still means that we will have a materially wider cost gap between Ryanair and competitive airlines across Europe. Forward bookings, both traffic and fares are robust over late October midterms and into the peak Christmas travel period, and with the benefit of this constrained EU capacity this winter, we currently expect average, Q3 average fares to be ahead of the prior Q3 by about a mid-teens percent.
Unhedged fuel costs will be significantly higher, but that's only 15% of our fuel for the remainder of this year. As is normal this time of year, we are very limited to Q4 visibility, Q4 is traditionally the weakest quarter and this year will be impacted by the partial unwind of free ETS carbon credits from January although it will benefit from the first half of the Easter period at the end of March. Despite uncertainty over Boeing delivery, significantly higher fuel bill very limited Q4 visibility and the risk of weaker consumer spending over the coming months, we now expect that full year ‘24 the profit after tax will finish in a range of between EUR1.85 billion to EUR2.05 billion, assuming modest loss us over the second half winter period.
This guidance obviously remains hugely dependent on the absence of unforeseen adverse events for example, such as the war in Ukraine or in Gaza between now and the end of March 2024. As I said, I think we're on-track to return to what we believe is our normal profit after tax of about EUR10 per passenger carrying a 183 million or 103.5 million passengers. This is a very strong performance but while the number looks big a profit of EUR10 per passenger is reasonably modest given the capital and the human resources that go into delivering an exceptional service to our customers, high on-time performance, and a very low cost base, which will enable us to continue to pass on markedly lower airfare to our customers at a time when huge capacity constraints in Europe, our competitors are all pricing upwards very aggressively.
Neil, do you want to add some remarks on dividend and take us through the MD&A, please?
Neil Sorahan: Yes, sure. Thanks, Michael. Well, as you pointed out there, we're well along the road on our path to achieving all of our capital allocation priorities. The next step is to look at some form of a dividend in the past. As Michael said, we engaged in kind of ad-hoc distributions, buybacks, and ad-hoc one-off dividends. We're now at a size and scale and I think a maturity where we can sustain an ongoing dividend policy and the Board have this morning agreed that the first maiden dividend will be EUR400 million, which is marginally above our long-term prior year payout ratio, but reflective of the EUR400 million, which our shareholders contributed in the depths of COVID, which enabled us to raise that EUR850 million bond and come out of COVID strongly.
So that's approximately EUR0.35 per share. Half of that will be paid in February as an interim dividend, the balance we paid after our AGM in September. And then when we look into next year FY25 onwards, what we're looking at a payout ratio of approximately 25% of prior year profit after tax, again, a bit roughly 50-50 interim final dividends in February or March of each year and after the AGM each year. So, I think that underpins the Board's commitments to return funds to our shareholders, but they've also left the door open. So, to the extent that we continue to have a very strong balance sheet lots of liquidity, and we're meeting all of our other commitments, if the reserve is cash, then the door is left open to look at other forms of distributions be that buybacks and/or ad-hoc dividends depending on where the markets are at that point in time.
Just to briefly build on a couple of the other points that Michael touched on. Balance sheet is in phenomenal shape, BBB plus rates over 530 aircraft unencumbered at period end, which gives us a huge flexibility in what we do. And importantly, thanks to the strong cash in the business, we're in a unique position where we're paying down debt rapidly, we paid down a EUR1 billion alone in August just gone a EUR750 million maturing bond and EUR260 million are revolving credit facility. So, that gives a huge competitive advantage over everybody else when they're extending leases at high lease rate due to the Pratt & Whitney GTF issue and indeed refinancing themselves into rising interest rate environments. We're paying out of our own cash resources of balance sheet in great shape and has enabled the Board this morning to engage in that dividend policy.
I've nothing further really to add, Michael.
Michael O’Leary: Okay. Thanks, Neil. Maxine, we can open up to Q&A now. If you can ask everybody to just confine themselves to two questions. And what I'll try and do is pass it direct questions around to members of the team so we can get as many of the management team on the call.
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