Ryanair Hldgs (NASDAQ:RYAAY) reported second-quarter financial results on Monday. The transcript from the company’s second-quarter earnings call has been provided below.
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Access the full call at https://www.investis-live.com/ryanair/6ac7596391437e0010eb4281/beqz
Summary
Ryanair Hldgs reported a 1% increase in passenger growth for the recent quarter, with expectations of further benefits from strategic airport deals into upcoming seasons.
The company is actively managing costs by shifting capacity to lower-cost airports without sacrificing pricing power, leading to significant cost savings.
Ryanair has evenly spread fuel hedges across the year, with a slight focus on the first half, aiming to increase hedge coverage to 50% before the peak summer period.
Management highlighted potential pricing improvements, with Q3 fares trending up modestly and Q4 expected to see double-digit increases due to Easter timing.
The company anticipates upward pressure on pricing due to expected capacity constraints and potential airline failures in Europe, with Ryanair positioned to benefit from its low-cost structure.
Ryanair is optimistic about the introduction of MAX 10 aircraft, which are expected to enhance operational efficiency with more seats and lower fuel consumption.
A €800 million share buyback is planned for next year, reflecting management’s confidence in the company’s future performance and market position.
Full Transcript
Michael O’Leary (Chief Executive Officer)
Passenger growth moving forward. You saw we were up 1% in the quarter just ended on ex fuel. Well, we’re already seeing some of the benefits coming through just with the airport deals that we have in place into the winter and into the spring and summer of next year. So that will feed into our numbers. But we’ll get into more of the weeds when we come back from the road and start doing the budget process for next year. So there’s a bit to go at this stage and, as I said, then we’ve got the first of the MAXs coming in as well.
Yeah, okay. Thanks, Neil. Thanks, Harry. Next question, please.
OPERATOR
Next question from Andrew Lobbenberg with Barclays, please. Go ahead,
Michael O’Leary (Chief Executive Officer)
Andrew. Hi.
Andrew Lobbenberg (Analyst)
Oh, hi. Can I ask, on the churn that you’re doing so assertively to control costs, do you see any corresponding impact on the unit revenues? Because if you’re churning capacity so aggressively, you have a higher share of immature routes given relative to your growth rate, which is quite cautious. And sometimes you’re moving into lower-cost or lower-revenue markets like Bratislava compared to Vienna. So does the churn—how does that play out on your unit revenues?
And then can I just come back previously to the fuel—you’ve added the fuel hedges. Are they spread evenly through the year, or are you weighted further out to get the cheaper fuel, or are they weighted closer in to give you more protection? How do you expect to build the hedges as you go forward? Evenly, or perhaps more to protect for the summer?
Michael O’Leary (Chief Executive Officer)
Okay, maybe I’ll do the churn and I’ll ask Neil—maybe you can come back in on fuel. I think don’t get distracted by the churn, Andrew. Yes, we’re not churning out of kind of mature routes into immature routes. In a lot of cases, we’re turning into airports doing deals with us to attract our growth incentive because they’ve either existing incumbents declining or cutting capacity or going bust. So while we are moving our capacity into those markets or turning into markets like Sweden, for example, in Ireland, like Slovakia, regional Italy—these are markets that were either previously underserved but are strong markets for us anyway.
So we’re going into those markets. We’re not taking any yield penalty, but we’re getting a huge cost savings. Again, I go back to Sweden, where the new government there—really a very visionary transport minister—has abolished the aviation taxes in the home of Greta Thunberg and flight-shaming. And we’re going in on mature routes in Ireland. But there’s not a lot of growth in Ireland other than what we’re delivering. So we’re seeing a yield benefit and a cost benefit. Also remember, where we turn out of an airport, we have less capacity at the existing airport.
Say, for example, this winter we’re going down from—I think we had 19 aircraft down to 12. Vienna, we went down from 20 aircraft this winter to 14. You see a big bump in fares on the remaining heavily constrained capacity in those markets as well. So there are significant compensatory effects of churning aircraft out of an existing airport where you’re reducing. Now, not Berlin, obviously, where we closed the base altogether, but we’re still operating about 50% of our capacity into Berlin, but without morning and evening services, and we’re seeing a bump up in airfare.
So when you turn out into a lower-cost airport, yet at the moment we don’t have to take a pricing penalty, and we get a pricing benefit on those airports that we churn out of. Which is, again, why I come back to—I think the point that jumps out to me in this morning’s press release is not the obvious one. It is that pricing has turned round in the third quarter, and having been down in Q1, down in Q2, suddenly it’s up in the shittiest quarter of the year.
That is, I think, the one takeaway I would take from the press release this morning. The big question: will it go up by 20% next year for the whole year? And I think that’s a bit overly optimistic, but I think we have a reasonable shot that it’ll move by some double-digit number, and we’ll close off the rest with cost savings. Neil, do you want to touch the fuel hedging? Is this spread across the year, confined into quarters? Anything you want to add on fuel hedging?
Neil Sorahan (Chief Financial Officer)
Sure. Andrew, I’m sure you’ve seen slide 13 of our presentation where we’re talking about 25% at $954 a tonne—that’s spread pretty evenly across all four quarters. And we’ve a slightly higher rate in H1, where we’re about 980; slightly lower rate in H2, we’re about 920, giving the blended of 954. As Michael indicated earlier on, I think the next focus when we come back into the market will be on the first half of the year, where we’ll probably, as indicated previously, try to get that up towards 50% before we get into the peak summer period.
It’s the same on the FX as well. So the euro-dollar spread across the year at 1.19, just over 20%.
Michael O’Leary (Chief Executive Officer)
Tom Fowler, you’re on the call. Is there anything to add on fuel or fuel hedging?
Thomas Fowler (Chief Sustainability Officer)
No, no, I think Neil covered it all off there, Michael. So we evenly hedge across every quarter. Typically we don’t tend to weight too much when we start our hedging. So
Michael O’Leary (Chief Executive Officer)
Fine, but I’m reasonably saying we’re waiting for the outcome of the midterms before we make any further decisions, I think, between now and the end of the year on hedging cover.
Neil Sorahan (Chief Financial Officer)
Yeah, we have the team in Dublin, time to go if there’s any dips this week,
Michael O’Leary (Chief Executive Officer)
Fine. Okay, next question, please. Thanks, Andrew.
OPERATOR
Thank you. Next question is from Axel Stass with Morgan Stanley. Please go ahead.
Axel Stass (Analyst)
Yeah, morning everyone. Thanks for taking my questions. Two on my side—first on the fare. So when you say double digits into 2028 and, obviously, the normal bridge to get there—so is it fair to assume that when you say modestly up it is mid-single digit in Q3 and then high single digit in Q4 because of Easter? And then my second question, and I know you said the budget still needs to be done for next year, but what should we expect in terms of unit cost inflation excluding the fuel heading to next year, because of the labor agreements and the higher maintenance—is low single digit a reasonable expectation for now, or would you say that’s too low? Thank you.
Michael O’Leary (Chief Executive Officer)
Yeah, okay, look, I wouldn’t add any more on fares. I think what we said this morning is that Q3 is now trending modestly up, and modestly would be, I think, mid-single digits. But, you know, we’ve only 50% of Q3 sold. Q3 is hugely driven by the final bookings in the run-up to Christmas, but I think it augurs well for continuing strong fare performance in Q3. Q4 will be up double-digit percent, but Q4 is artificial because we get both halves of Easter in March next year, and therefore it’s a slightly distorted figure.
So I wouldn’t lose the run of ourselves on that. But I think that does give us a good basis going into next summer. We and all the other European airlines—I think there will be more failures in Europe this winter. Some of the Ponzi schemes will finally blow themselves up. I think there will be real capacity constraint next year, and I think real upward pressure on pricing. My advice to all passengers would be to book early for next summer and secure your pricing. Neil, you want to take the fuel question?
Neil Sorahan (Chief Financial Officer)
Yes, Axel, I wouldn’t normally give you guidance on next year at this time. We’re just going to get stuck into our budgets. We will be looking on a line-by-line basis as to where costs may go, but it’s too early to get into details on guidance for FY28 on unit costs.
Michael O’Leary (Chief Executive Officer)
But I think we’re looking at FY27 unit costs—we’re still looking at ex fuel up maybe 2–3% on the full year despite having cut back the traffic. That widens the cost gap between us and every other European airline on an ex-fuel basis. And that gap will get wider again in FY28. I’m not sure—again, we have to wait until the outcome of the budget. We need to see what some of the other airlines are doing on wage settlements. Airport—complaining about the airport cost inflation, handling cost inflation—they are struggling.
And then they have, unlike Ryanair, huge increases in financing costs. You know, the cost of debt is rising, the cost of aircraft leases are rising. The dollar is strong. At the moment, that cost gap is widening materially into FY28, which puts almost further pressure on our competitors to get airfares up, and they will drag our fares up behind. I’ve seen some stupid analysis—I should say, you know, not stupid analysis, but I’ve seen a lot of stupid analysis—that fuel cost rises for Ryanair will be… fuel is a higher percentage and therefore the rise in fuel will be a bigger impact on Ryanair. Like, you don’t seem to understand that if Lufthansa puts a €10 fuel surcharge on next year, a €10 increase in Lufthansa’s average airfare is nothing, whereas the €10 increase in Ryanair’s average airfare next year is a 20% increase in fares and yields.
So it’s like-for-like. Yes, we have cost pressures, but we’re under an awful lot less cost pressures, given our margins, than any other European airline is. They’re under much more pressure to get pricing up. And to the extent they get pricing up, our price will move by a much bigger percentage—by a much bigger percentage—therefore maintaining or widening our margins. Next question, please.
OPERATOR
Thank you. We have no further questions in the queue. So I’ll hand back to you for any closing comments.
Michael O’Leary (Chief Executive Officer)
Wonderful. Okay, look, I think we’ve covered everything in some detail. Obviously the big issue for the next 12 months is where fuel will be and where fares will be, and those are two moving variables that we can’t give you any particular guidance—your view is as good as ours today. I think the key kind of drivers will be the U.S. midterms this week, and what’s the outcome after the U.S. midterms? What impact does that have on the situation in Ukraine and the situation in the Middle East?
Nevertheless, I go into, I think, calendar 2027 quite excited. We’re really excited by the MAX 10 aircraft. These are going to be transformational. We only get the first 16. But any aircraft that has 20% more seats and burns 20% less fuel is going to transform our economics. We have much bigger margins than any other airline in Europe. We can afford to pay higher oil costs for longer than any other airline in Europe. Fares are already beginning to move upwards into Q3, which is the worst quarter of the year.
And I think you’re going to see more failures and more capacity reductions in Europe this winter running through into next summer. As Jason said, he thinks at best, capacity in Europe next summer will be flat. If some of the other loonies fail, it will be down year on year. Pricing will be strong. And I think we will, as always in a crisis, do better than any other airline because we have the lowest fares and the lowest cost. We think now is an ideal opportunity time to buy. Clearly, I apologize—the share price performance has not been good this year to date. We think that’s the time we announce another share buyback, and we lead in with another €800 million share buyback next year. Personally, I hope the share price stays reasonably subdued until we complete that share buyback.
But unfortunately I’m not in control of the share price—the markets are. But I look forward with some considerable optimism. Has anything in the last 12 months altered my view that we are moving towards a period of consolidation in Europe, or that our profit per passenger will rise to €14–15 per passenger? No, I think the current crisis will accelerate that trend. But we’ll just have to weather this crisis and come out the other end until people will see where the profitability falls.
In the meantime, we will monitor capacity closely. We will certainly monitor our costs aggressively. And I think you’ll see us grow 214 million passengers this year and just 220 million passengers next year. And I hope we’ll do so profitably and in a manner that will deliver positive returns to our shareholders. We have a full roadshow of teams in every geography: Ireland, UK, Europe, America, East, West Coast. If you want a meeting with us, please contact one of our brokers, Citi, Goodbody, or David.
We’d be happy to set it up. And if you can’t make it this week, feel free to come to Dublin at any stage between now and the end of the year. We’d be happy to see you in Dublin and show you the operation. Thank you very much, everybody. Look forward to either meeting you or just talking to you later on this week. Thank you, Seb. I think that’s the end of the call.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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