Ryanair Holdings plc (NASDAQ:RYAAY) Q1 2023 Earnings Conference Call July 25, 2022 5:00 AM ET
Company Participants
Michael O’Leary – Group CEO
Neil Sorahan – Group CFO
Conference Call Participants
Unidentified Analyst –
Michael O’Leary
Hi, good morning ladies and gentlemen. Welcome to the Ryanair Q1 Results Release Conference. My name is Michael O’Leary, the Group CEO. I’m joined this morning by Neil Sorahan, our Group CFO.
Neil Sorahan
Good morning.
Michael O’Leary
We’ll open as usual with some opening remarks from me and then I’m going to ask Neil to take you through the slide presentation. And then we’ll mix and match during a Q&A session. So this morning Ryanair reported a Q1 profit after tax of €170 million as traffic recovered strongly post COVID but at lower fares. A €170 million PAT is before exceptionals but is well below the €223 million PAT we reported in the Q1 of FY 2020, which was the last year pre-COVID just to put in some context.
Highlights of the quarter, during Q1 traffic recovered very strongly to 45.5 million passengers from 8.1 million in the previous year. That recovery would have been stronger but for the significant damage that April and Easter suffered both bookings and fares as a result of the Russian invasion of Ukraine at the end of February. Prior to this summer peak, we’ve taken delivery of 73 B737-8200 Gamechangers. That Summer 22 capacity is on sale at about 115% of Summer 2019, in other words the pre-COVID capacity. We’ve also this morning announced that our hedging for FY 2024, so next year has been increased to 30%. Currently in the current year we’re hedged at 80%. Net debt has significantly reduced to just €400 million at the end of the quarter, that’s down from €1.4 billion on 31st of March thanks to very strong and positive cash flows from bookings and trading. And we’re also pleased this morning to announce that the majority of the 29 A320 leases and our subsidiary Lauda Europe have been extended by up to four years to now to 2028 at advantageous rates.
Just a couple of quick themes, this summer we’re very proud to be operating 73 of the new Boeing 737 Gamechanger aircraft. These aircrafts carry 4% more passengers, but they burn 16% less fuel and also reduce our noise emissions by up to 40%. We’re continuing to invest in our partnership with Trinity College Dublin Sustainable Aviation Research Center. And in April, we’re very pleased to have announced a partnership with Neste to power up to one third of all of our flights to and from Schiphol Airport in Amsterdam with a 40% SAF blend. In April Sustainalytics ranked Ryanair as the Number One airline in Europe, the Number Two globally for our ESG performance.
Following the beginning of the post-COVID recovery in air travel this spring, Ryanair moved quickly with our trade unions to negotiate accelerated pay restoration agreements so that we could restore previously agreed pay cuts with all of our people as soon as our business returns to pre-COVID levels. To date, I’m pleased to say that accelerated pay restoration agreements have been agreed with unions representing over 80% of our pilots and more than 70% of our cabin crew. And we are — significant progress is being made in the closeout the remainder of those pay restoration agreements. The sense or the — our decision though to work with the unions and to agree pay cuts to minimize job losses during COVID, during which we kept our pilots and cabin crew current and employed, and those decisions have been vindicated in recent months, as many European airlines, airports, and other third party providers have struggled to restore jobs that were cut during the pandemic. Ryanair seems to be unusual among the major EU airlines this summer, and suffice we are fully crewed for both pilots, cabin crew, engineers and handling staff at those airports where we do our own handling, despite operating at 115% of our pre-COVID capacity. And I think that reflects very well both on the team at Ryanair and on the decisions, the difficult decisions we took during the COVID pandemic.
Over the past two years, numerous airlines went bankrupt and many legacy airlines including Alitalia, TAP, SAS, and LOT only survived by significantly reducing their fleets and their passenger capacity despite receiving multibillion euro state aid packages. These structural capacity reductions have created enormous growth opportunities for Ryanair in Summer 2022 to deploy our new fuel efficient 737 Gamechangers. With Boeing scheduled to deliver over 50 more of these Gamechangers ahead of Summer 2023 we continue to recruit and train substantial numbers of pilots, cabin crew, and engineers. Already approximately 50% of our Summer 2023 capacity is now on sale and we recently announced new basis and new growth in Belfast International for Summer 2023, a fourth based aircraft in Venice in for winter of 2022, and the commencement of flights from Bologna-Forli airport in winter 2022.
Thanks to our 210 737 order book and available fleet capacity, the Ryanair Group expects to grow from 149 million passengers pre-COVID to 200 — over 225 million passengers by FY 2026. And in so doing, we will capture very significant market shares in most of our major markets across Europe. Just to touch briefly on outlook, our outlook remains cautious. We remain hopeful and optimistic that the high rate of vaccinations in Europe means that the airline and tourism industry will fully recover and put COVID behind us through the remainder of 2022. But we cannot ignore or eliminate the risk that there may be new COVID variants in the autumn of this year. And our experience with Omicron last November which really devastated our Christmas traffic and yields and the Ukraine invasion at the end of February which devastated our April bookings and yields, shows just how fragile the air travel remains — market remains in Europe. While our recovery and certainly Ryanair’s recovery during the summer of 2022 has been strong, we believe that recovery remains fragile and hugely dependent on there being no adverse or unexpected developments, either from Ukraine or COVID for the remainder of FY 2023. If we don’t have negative developments, we’ll perform very strongly. But if there are negative developments, we’ll have to act appropriately.
There are clear signs as we had barely — as we’ve previously guided of a huge pent up demand for air travel particularly for short haul in Europe through the summer of 2022. However, while bookings are recovering strongly, they still remain closer than was the norm pre-COVID. At this stage, while we have limited visibility into the second half of Q2, we still have almost zero visibility into the second half of this year, the two winter quarters which are typically loss making. At this time, though, I’m pleased to say that Q2 average fares are tracking ahead of peak core Summer 2019, the pre-COVID period by a low double-digit percentage that’s moved up from a high single-digit percentage in Q1, Ryanair plans to — at the time of the Q or at the time of the full year results announcement. At this time Q2 — sorry, Ryanair plans to grow our FY 2023 scheduled traffic to about 165 million passengers, that’s up 11% on FY 2020, the pre-COVID figures, it would have been higher but for the damage that was inflicted on April and Easter by the Russian invasion of Ukraine.
Despite being one of the best hedge airlines in Europe, higher oil prices will lead to increased costs from the 20% of our unhedged fuel for the remainder of FY 2023, that’s a much stronger fuel hedge position than any other airline. But given this later booking profile, the lack of visibility in the second half of the year, volatility in oil prices for the 20% that’s unhedged and the potential risk for COVID — adverse COVID and Ukraine developments, it’s still too soon to provide meaningful FY 2023 profit after tax guidance at this time. We hope to be in a better position to do so at the half year results in November but it is our experience again with Omicron last November and Ukraine in February shows any such guidance will be subjected to a very rapid changes from unexpected events which are well beyond our control during what remains a very strong but a very fragile recovery. Neil, do you want to take us through the Q&A — the slide presentation.
Neil Sorahan
Yeah, sure Michael. Thanks very much and good morning, everybody. Ryanair has the lowest fares and lowest costs of any airline in Europe. We’re number one for traffic and as Michael has already indicated, we’re going to grow strongly from 149 million passengers pre-COVID to 165 million passengers this year. We’re number one for customer service and enjoy strong environmental credentials with a B rating from CDP and indeed, Sustainalytics have now ranked as the number one European airline for ESG. Our balance sheet enjoys a strong BBB investment grade rating and it is this financial strength coupled with our lowest costs that make us the long-term winner in aviation in Europe.
This summer we will operate 770 new routes and a 50 new bases as we return to growth and we’re well set to grow to 225 million passengers by FY 2023 thanks to the Gamechanger order that we have 73 of them already in the fleet. We come into COVID with the lowest cost per passenger X fuel of any airline in Europe, €31 and indeed we’ve widened the gap between ourselves and competitors in the first quarter where that has now dropped to €30 and we would hope to build on that over the coming months and years. On the quarter itself, we saw a strong rebound in traffic to 45.5 million passengers from 8.1 million last year, a strong 92% load factor. Revenue while up 600% to 2.6 billion was badly impacted over the Easter periods due to the Russian invasion of Ukraine and as a result, average fares were down approximately 4% compared to the same quarter, pre-COVID. Ancillaries however did perform well and helped offset some of that.
Despite the fact that we grew by 330% sectors and 460% traffic, costs were only up 250%, which was a very strong indication of the cost control in the business over the course of the past number of months. As a result, profit improved from a loss last year of 273 million to 170 million in the quarter but still below the 243 million profit that we made in the first quarter of FY 2020. The balance sheet is improving. We finished the quarter with 4.6 billion in cash and an increase in unencumbered aircraft to 92%. But the important number here is the net debt, which has dropped significantly from 1.45 billion at the 31st of March year-end just to end at 2.4 billion at the end of this quarter. So we’re on track to achieve our target of broadly neutral net cash, net debt over the next two years despite record CAPEX for the next two years.
On current developments, summer capacity is 115% ahead of peak summer 2019. This is helped by our 73 Boeing Gamechangers which are now in the fleet. As Michael has already indicated there is a massive pent up demand but there are operational challenges most outside of our control in the form of unprecedented air traffic control restrictions and airport delays. Our fuel is one of the best hedge books in the market at this point in time, 80% hedged, roughly 23 and we have increased cover to 30% for FY 2024, which is a big competitive advantage. We will grow to 165 million passengers this year, but we will do so on our load active yield passive strategy recovery into the second half, where we have very limited visibility at this point. We believe we will remain fragile and subject to any news flow in relation to the Ukrainian situation or indeed any new variants of COVID-19. And of course, sustainability continues to be at the heart of everything that we do in Ryanair, and we’ve launched a new sustainability report this morning.
So just a bit more color on the summer itself, operationally we are performing very well. We’ve got 73 Gamechangers in the fleet. They’re delivering enhanced fuel burn and extra passengers, 4% more seats for aircraft. So as a result, we’re operating 115% of Summer 2029 at capacity. The decisions that we made at the start of COVID to reduce and more or less eliminate job losses and to keep our people and our crews current and also to get ahead of the recruitment curve, this time last summer means that we are uniquely fully crewed for Summer 2022. We’re making good progress in relation to pay restorations and we’re committed to restoring pay when the business gets back to pre-COVID levels. So we hope to make further progress on that over the coming weeks.
As regards ATC, we are experiencing delays, we’ve seen an unprecedented level of disruptions down to strikes, down to shortages of staffing in both ATC and airports albeit on the handling side or on the security side. We’re happy to say this morning that we’re close to finalizing the extension of leases in Lauda, we’ve got 29 A320s. We hope to extend the vast majority of those for up to four year periods. And that will lock in immediate cost savings but also add to our operational efficiency and resilience over the coming years. And we have garnered strong market share over the past two years.
Just moving on, I think this is an important slide from Eurocontrol as it highlights, Ryanair’s strong performance across Europe. As you can see by norm we are operating streets ahead of everybody else. Most competitors are not growing this year, they’re canceling flights, whereas we’re operating in excess of 3000 flights per day and growing strongly. I think this is a very strong picture of what Europe looks like at this point in time. As regards hedging, we’ve got a significant competitive advantage over everybody else. 80% of our fuel for the current financial year is hedged. 65% of that is through jet swaps at $63 a barrel and with 15% through caps at $77 a barrel and I’m pleased to say that we have now increased our hedging into FY 2024 to over 30% at just over $90 a barrel. And as you can see, this puts us in a significantly stronger position than everybody else and gives us a massive competitive advantage into this winter and beyond in relation to fuel.
Over the past two years, we’ve seen significant capacity come out of Europe via through bankruptcies or indeed airlines downsizing as you received significant amounts of state aid from their governments across Europe. As a result of that in Italy, for example, we’ve grown from 30% to 40% as Alitalia has significantly downsized. So by a country mile, the number one carrier there, we now grow to the number one carrier in Hungary this summer, where another low cost competitor has now fallen into second place. A lot of capacity has come out of Austria, where significant competitor capacity has disappeared or shrunk. [Indiscernible] our Polish operator have outstripped LOT and we’re operating our single largest schedule ever out of Dublin this summer with just over 30 aircraft.
So as you can see, we’re very well placed to grow to 225 million customers over the next five years, which will be a 50% increase in traffic from the 149 million that we carried back in FY 2020, pre-COVID. And this is facilitated by our 210 Boeing order book. And as I already said, the environment and ESG are at the center of everything that we do. This morning, we’ve launched our 2022 aviation with purpose sustainability report and this sets out our ambitious targets not just for the next 10 years, but also our paths to get carbon neutral by 2050. Recently, we’ve signed a commitment letter with SBTi a science based targets initiative, and we would expect that they will verify our targets over the next two years. And of course, I’m delighted to say that Sustainalytics have ranked Ryanair, the number one airline for ESG in Europe over the course of the past quarter.
So in summary, Ryanair will grow to 165 million passengers this year, that’s an 11% increase from pre-COVID levels. We’ll do this in a load active yield passive strategy. Demand is strong, there’s a lot of pent up demand in the market and Q2 are tracking ahead of the summer of 2019, but low double-digit percentages. We have to caution however, that the recovery remains fragile into the second half of the year where we’re typically loss making. You know, we very well remember the Omicron variant which emerged last November and we were concerned that something may happen into the autumn and winter of this year. Equally, there are risks in relation to what may happen in Ukraine if there’s any spillover elsewhere. And indeed, oil remains at very high and volatile levels.
So as a result of this uncertainty, we don’t think it’s appropriate to provide PAT guidance at this time. We do continue to target modest FY 2023 profits, and we hope to be in a position in November to provide more meaningful guidance on PAT. But beyond this year, we are very well placed, there are lots of opportunities in the market, there are lots of growth opportunities at the right cost and we will deliver to 225 million passengers per annum by FY 2026. The balance sheet is rock solid, the opportunities are available, cost base is in good shape. So we believe we’re the long-term winner in this market. Michael maybe we will go over to Q&A at the stage please.
A – Michael O’Leary
Yeah, thanks Neil.
Question-and-Answer Session
Q – Unidentified Analyst
Michael, Neil good morning. Let’s begin by discussing Ryanair’s ESG strategy. What were the quarter highlights?
Michael O’Leary
We were very pleased to get our 73rd Gamechanger in fleet for peak summer 2022. These aircrafts have 4% more seats yet burn 16% less fuel and Co2 and are 40% quieter than the existing aircrafts. We’re also very pleased that we’ve partnered with Neste now in Amsterdam to pick up a 40% soft blend sustainable aviation fuel blend on our flights out of Amsterdam. And I think it’s important that you know we’ve received strong backing for the work that we’ve been doing in the form of Sustainalytics, who have now ranked us as the number one airline for ESG in Europe and indeed the number two globally. And this morning we’re very pleased to launch our aviation we’re purpose sustainability document, which sets out our ambitious targets for the next decade and also sets out our path to carbon zero by 2050.
Unidentified Analyst
What is Ryanair’s job creation plan for the next five years?
Neil Sorahan
We plan to create 6000 new jobs, well paid jobs for aviation professionals, our focus being on bringing in cadets and engineering apprentices. We are investing 100 million into new high skills training centers. We’ve ordered ACA simulators and we’re opening three new maintenance bases in Kaunas, Shannon, and in Malta, all of which will help our operational efficiency and effectiveness.
Unidentified Analyst
How are your restoration discussions progressing?
Michael O’Leary
Very well. We took decision, as you know, at the start of COVID to minimize job losses through agreeing pay reductions for our people under unions. However, when we saw traffic starting to come back in the spring, we moved quickly to enter into pay restoration and acceleration discussions with our unions and our people. We’re committed to restoring pay back to pre-COVID levels as soon as the operation gets back to pre-COVID profitability. And I’m pleased to say that over 80% of our pilots and 70% of our cabin crew have now signed up to agreements on accelerated pay, and we would hope to finalize the small balance that remains in the near future.
Unidentified Analyst
And what are investors to make of strikes in Belgium, Spain, and Italy?
Michael O’Leary
Yeah, I think these are much more PR noise that are noticed and any effect they’ve had. We’ve had some strikes called by minority unions in Spain and Italy in recent weeks. They’ve not been supported by our cabin crew or pilots. The Belgian strike, we’ve had some Belgian cabin crew and pilot strikes but remember, throughout the summer Ryanair is operating more than 3000 flights per day. On no days of these small strikes have less than have more than 1% of our flights been affected. In actual fact, it’s ATC strikes and cancellations have caused us far more disruption than these very small and poorly supported strikes in Spain, Belgium or Italy.
Unidentified Analyst
Michael, we read a lot about airlines canceling flights these days. Why is Ryanair’s operational performance so much better than its peers?
Michael O’Leary
The decision to minimize job losses and keep crew current through COVID has been vindicated. We’re fully crewed for summer 2022 despite operating at 115% of our pre-COVID capacity. We’re suffering more disruptions from ATC and airport staff shortages than anything else. And we’re confident that we’ll complete up to almost 100% of our summer schedules, which will be about 115% during peak summer of our pre-COVID capacity.
Unidentified Analyst
And do you expect an increase in disruption costs due to these delays?
Neil Sorahan
The majority of disruptions are outside of our control as the likes of air traffic control disruptions and airport handling and security delays. We are finishing our flights, we are not cancelling flights. So while we do have some delays that may be subject to EU 261 [ph], any costs will be immaterial in the grand scale of our numbers.
Unidentified Analyst
And you referenced that Ryanair is operating 115% of its preferred COVID capacity this summer, where are you seeing the market share gains?
Neil Sorahan
It was very strong market share gains in Italy, Austria, Hungary, Poland, Portugal, and Ireland. We’ve opened 50 new bases, we’re operating over 770 new routes. And I think the important thing is that Boeing delivers 50 more Gamechanger aircraft in advance of summer 2023. So we can maintain this capacity growth into our market across Europe where most of our competitors have either gone bust or significantly reduced their capacity. So we’re winning, and we expect to continue to gain significant market shares.
Unidentified Analyst
Are you moving running capacity around this winter or indeed into summer 2023?
Michael O’Leary
We are in the happy position that we’ve got more airport offers and we actually have aircraft available to us. We’d be opportunistic on how we allocate that. And if there are airports increasing fees as we’re seeing, as we saw, for example, frack port [ph] in Germany, and indeed, as we’re seeing with frack port [ph] down in Greece and with some of the high cost Belgian airports, then yes, we may move some capacity this winter. But it’s not all about moving capacity. It’s about also adding additional growth and we’ve announced a new base, for example, in Belfast for the summer of next year. We’re adding extra aircraft into Venice, and we believe there are significant growth opportunities for us over the next number of years. We already have 50% for example of summer of 2023 on sale at this point in time so we will continue to put the capacity where we see the best opportunities.
Unidentified Analyst
And will an economic downturn or recession impact Ryanair this autumn or winter?
Michael O’Leary
We think it’d be good for Ryanair’s growth because in a recession people still fly, they just become more price sensitive. Ryanair has the lowest fares and growing market share. We’re very well hedged for fuel and currency. And that gives us a key competitive advantage into this winter. And into summer 2023 we take delivery of 50 new Gamechanger aircraft which lower our costs because they allow us to carry 4% more passengers but at 16% less fuel.
Unidentified Analyst
How will Ryanair achieve its 225 million packs per annum target by FY 2026?
Michael O’Leary
Well, we have a 210 aircraft order book from Boeing, 73 of which have already been delivered. A lot of capacity has come out of the market over the last two years and airports are very keen not only to get restoration, but also try and get some growth deals locked in with Ryanair, who’s the only airline that’s really growing at any pace over the next few years. So, I think we’re in a very strong position. We’ve already locked in a number of our larger bases like Stansted [ph], like East Midlands, like Bergamot, Charlevoix, etc. with deals out to the end of this decade. So we’ve got lots of opportunities to grow and we will grow to the 225 million passengers by FY 2026.
Unidentified Analyst
So just moving on to your fleet, Michael, any further update and discussions with Boeing on Max 10 [ph]?
Michael O’Leary
Not much, the negotiation of Boeing ended in 2021. Boy, we are nowhere clear close to being competitive on pricing. And that’s why other Boeing customers are switching to Airbus, such as Transavia, Quantas, and the recent Chinese order. But we’re very pleased that we’re in the comfortable position that we have 210 Gamechangers, with deliveries out to 2026. That’s sufficient growth to take us to 225 million passengers. We look forward to resuming discussions with Boeing, but only when Boeing get to a place that’s where they become, where pricing is competitive, and will not lead to an increase in Ryanair costs.
Unidentified Analyst
Are you going to take more leased NGs into your fleet?
Michael O’Leary
We looked at this over the past couple of months and have decided not to do so because there’s a much better opportunity to extend the majority of the Lauda A320 leases for periods of up to four years.
Unidentified Analyst
What’s the rationale layout for extending these leases?
Michael O’Leary
Well, first and foremost, we’re going to be able to lock in significant cost savings not only for the four year extensions, but also for the average two years upstart. So six years of savings coming through on these aircraft leases. It also gives us greater operational efficiency and opens up more growth opportunities.
Unidentified Analyst
Do you have any concerns about Boeing’s ability to deliver aircraft at summer 2023?
Michael O’Leary
Yes, we do. Already Boeing are hinting at having to add delays on the 21 aircraft we were due to get between December — September and December this year. This would be as inexplicable given the Boeing have confirmed they’re producing 31 aircraft a month from June which is 200 aircraft before the year end. And if there’s any delay in delivering 21 of those 200 aircraft Boeing we think that will be inexplicable and unacceptable. But, we will continue to work with Boeing and we expect them to meet and in fact beat the delivery dates for the 50 aircraft, 50 Gamechanger aircraft we expect to take between September of this year and April of next year. They’re producing more than sufficient aircraft to deliver Ryanair those 50 aircraft.
Unidentified Analyst
And Neil looking at your results, you reported a Q1 profit pre-exceptions of €170 million what are the highlights?
Neil Sorahan
Well traffic rebounded strongly in the quarter from just over 8 million last year to 45.5 million and a strong load factor of 92%. Unfortunately, Easter was badly impacted by the — Russia’s invasion of Ukraine which impacted close in bookings, but also fares to the extent that average fares were down 4% compared to the same quarter pre-COVID. We did, however, have a strong performance on ancillaries where we generated about 22 [ph] €50 per passenger and cost control within the business was strong at a time when sectors increased by 330% and traffic was up 460%. Also fuel had almost a six-fold increase to a billion. We only saw costs increase by 250% in the quarter and this was down to the lower variable costs that we have the addition of the 73 Gamechangers that are coming in at the right price, but also 16% lower fuel burn that was offset somewhat by the higher cost of fuel. And indeed the higher cost we’re now paying for route charges despite the fact that the service is not up to scratch. So as a result of all of that our unit costs in the quarter reduced to €30 which was a good performance.
Unidentified Analyst
Neil referenced strong ancillary rev performance, Michael, what are the key drivers?
Michael O’Leary
As they have been in recent years it’s very strong performance on priority boarding, reserve seating, and in flight sales are going particularly well this summer, especially the commencement or the growth of duty free sales for our flights to and from the UK, which now accounts for almost 40% of our 3000 daily flights.
Unidentified Analyst
Fuel prices obviously spiked recently, what’s your current fuel hedging position?
Neil Sorahan
We are the best hedged airline in Europe at the moment with 80% of our fuel for this year hedged through a combination of jet swaps, about 65% at over $60 a barrel, and another 15% through caps, just over $70 a barrel. And then importantly, we’ve extended our hedging book out into FY 2024. So we’re now over 30% hedged into FY 2024 at just over $90 a barrel. And I think it’s important to also highlight that in an environment where the Euro Dollar is almost trading at parity, we’ve got our OPEX well hedged over 115 this year and indeed our CAPEX on the Boeing Gamechanger order also hedged at about 124.
Unidentified Analyst
Let’s turn to your balance sheet. Is net debt reducing?
Michael O’Leary
Yeah, net debt has fallen way over 1 billion in the quarter from 1.45 billion at the end of March to 0.40 billion at the end of June. We have seen very strong cash inflows which has increased our cash balances as Neil said to just over 4.5 billion at the quarter end. We continue to have 90% of our 737 fleet completely unencumbered and it remains our target to reduce net debt to zero over the next two years despite peak capex and the need to repay two of our — over 1.5 billion in bond repayments over that period.
Unidentified Analyst
Any update Neil on the CAPEX guidance?
Neil Sorahan
It was unchanged from the previous guidance I gave back in May so we’re looking peak CAPEX this year FY 2023 of about 2.3 billion that includes aircrafts pre-delivery payments and maintenance and then next year we would see that drop to about 2.1 billion to 2.2 billion before it dropped significantly into FY 2025.
Unidentified Analyst
How do you finance the Gamechanger aircraft order?
Michael O’Leary
As always we will continue to be opportunistic. Most of the funding will come from strong cash flows thanks to the post-COVID recovery. We continue to retain a solid BBB investment grade rating and we have 90% of the existing fleet is unencumbered. As always we will select the lowest cost financing option from a suite of measures including unsecured bonds, bank debt, sale leasebacks, stock [ph], and internally generated cash flow.
Unidentified Analyst
Any plans to just refunds to shareholders in the near term?
Neil Sorahan
As Michael said, our objective over the next two years is to manage our peak CAPEX and indeed to pay down maturing bonds over the next 18 to 24 months as well and that’s where we will be focused. Michael finally let’s close the Q&A. We will discuss the Group’s outlook for FY 2023.
Michael O’Leary
Sure, it’s too early to give any accurate guidance because there’s too much uncertainty out there but there are clear signs of pent up demand in summer 2022. The booking curve remains closer than was normal prior to COVID. The traffic recovery however has been strong. We are on track for 95% load factor during July but we still believe that recovery is fragile. If there are adverse news flows on COVID or Ukraine through the autumn or into this winter, then that recovery will be damage or impacted as it was last Christmas and last Easter. We have no visibility at this stage into H2. H2 is normally loss making but at this time the good news is that the second quarter or the second quarter average fares are tracking up now with low double-digits that was high single-digit at the time of the full year results ahead of peak summer 2019 fares.
We are expecting — we expect that we’re on track to grow 165 billion passengers that will be up 11% on pre-COVID as long as there is no adverse news flows between now and the end of the fiscal year. But due to the later booking profile, that lack of visibility in the second half of the year, the volatility of oil prices particularly for the 20% of our fuel that’s unhedged, the possibility of negative COVID in Ukraine news flows means that recovery is potentially fragile this winter and that means it’s too early to provide any meaningful profit after tax guidance for the full year. But we do hope to be able to give the market a much more or some realistic guidance by the time we get to the H1 results in early November.
Nevertheless, as Neil has said in his presentation, I think what’s key here is not the short-term news flow but the very strong growth opportunity that Ryanair is sitting on. We have a unique combination of low cost aircraft deliveries coming to us. We are very strongly hedged both on fuel and on currencies and we are deploying these aircraft end markets like Italy, in Ireland, in Vienna, and in Hungary where we are taking very significant market share from the competition. And we believe that underpins our strong growth of coverage 225 million passengers by FY 2026 and a full restoration of the profitability and the margins we enjoyed pre-COVID, we just were not sure yet whether that will be in FY 2023 or in FY 2024. And with that can I say thank you to everybody for participating in this morning’s release, to Neil and Peter Larkin our Head of Investor Relations. Thank you. We look forward to talking to you later on the investor call and also on the on the analyst call.
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