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Ryanair half-yearly profits fall by 47%

3rd November 2008 - 00:00 GMT | by The Shephard News Team


Ryanair, Europe’s largest low fares airline, today announced half year profits of €215m, 47% down on last years interim profits as half year fuel costs more than doubled from €392.7m to €788.5m. Traffic grew by 19% to 32m, as average fares (incl. bag charges) fell by 4% to €47, while total revenues grew by 16% to €1.8bn. Unit costs excluding fuel fell by 6%, (incl. fuel they rose 21%), despite a 2% increase in average sector length.

Ryanair’s CEO Michael O’Leary said: “Achieving a half year net profit of €215m in very difficult trading conditions with record oil prices is a testimony to the strength of the Ryanair lowest fare model, which delivered 19% traffic growth, and a 4% yield decline (due to the absence of Easter and falling baggage penetration rates). Ancillary revenues which grew by 28% to €322m account for almost 18% of revenues versus 16% last year. Unit costs including fuel rose by 21%. Fuel accounted for more than 50% of our total operating costs as the cost per barrel doubled from $63 to $125.

Spot fuel prices have fallen recently to $60 pbl as the worldwide recession has led to a collapse in consumer confidence and consumption. Our fuel hedging position remains unchanged for fiscal 2008/09. We are 80% hedged for Q3 at $124 pbl and totally unhedged in Q4. In recent months a significant disconnect has emerged between spot and forward oil prices resulting in fiscal Q1 and Q2 pricing at a premium of $17 pbl over spot rates. In addition the hedging markets are illiquid which partly explains these high premiums. We have taken advantage of these recent falls in oil prices to hedge 25% of Q1 and Q2 fiscal 2009/10 supply at an average of $77 pbl. This will lock in a substantial saving over the $125 pbl paid in the half year to September 2008. We continue to closely monitor fuel prices and look for opportunities to extend our hedges at these much lower oil prices.   

High oil prices and the global recession has, (as we predicted), caused a string of airline bankruptcies and/or consolidations in Europe. Recent failures include Alitalia, Excel Airways, Futura, LTE, Sterling and Zoom. Many more loss making European airlines will go bust this winter because of unsustainable losses and insufficient cash reserves. Airline consolidation will continue as flag carriers merge into 3 high fare, fuel surcharging groups, led by Air France, BA, and Lufthansa. Ryanair will continue to compete with these high fare mega carriers most of whom stubbornly refuse to reduce their fuel surcharges to reflect the recent 50% fall in oil prices.   

Our new bases at Birmingham, Bologna, Bournemouth, Edinburgh and Reus performed well as consumers flock to Ryanair’s guaranteed lowest fares and no fuel surcharges. We have announced 3 new Italian bases for March‘09 at Alghero and Cagliari in Sardinia and Trapani in Sicily to capitalise on Alitalia’s cutbacks as more airports realise that only Ryanair can deliver rapid sustainable traffic growth. Advance bookings this winter are slightly ahead of target although this is due to repeated price promotions resulting in lower than expected fares.

The Irish government recently announced plans to introduce a €10 air travel tax which will discriminate against air transport as it is not applied to competing trains or ferries. We have called on the Irish government to replace this regressive flat rate tax with a fairer and more progressive percentage tax of the fare paid. This flat rate tax is grossly inequitable. Why should rich (business) passengers on €3,000 transatlantic airfares only pay the same €10 tax as price sensitive shorthaul passengers who (on many Ryanair flights) pay an airfare of less than €10.   This flat rate travel tax has already failed in the UK and Holland where traffic at many airports is in steep decline. It is inevitable that Irish traffic/tourism will suffer a similar decline next year. While this tax will seriously damage our investment in Aer Lingus (who are almost entirely exposed to Irish originating traffic and whose load factors are steadily declining), its impact on Ryanair will be minor since just 15% of our traffic originates in Ireland. However, our base at Shannon (where average airfares are less than €10 all winter long) will be particularly hard hit and we expect to reduce flights and traffic by up to 75% from November 2009 if this penal flat rate tax is implemented as announced.        

In the UK we continue to call for the removal of Mr Harry Bush, the hopeless CAA regulator, as well as the sale of Stansted by the BAA monopoly. Mr Bush has rubber stamped almost all of the BAA’s cost increases and capex proposals including their crazy plan to waste £4bn on Terminal 2 despite the unanimous opposition of all Stansted airline users to this gold plated Taj Mahal. He has stood idly by while airlines and passengers suffered lengthy security and passport queues, repeated baggage belt failures and a doubling of passenger charges over the past 18 months. The result of this regulatory failure has been the first decline in Stansted traffic over the last 20 years. The proposed sale of Gatwick is just the latest ruse by the BAA monopoly to avoid the Competition Commission’s break-up recommendations. We believe the UK government and the Competition Authority must force the BAA to bring forward the early sale of Stansted and at least one of the Scottish airports. This will lead to real competition and better passenger service. It will also ensure that efficient facilities are built at Stansted which will meet the needs of airlines and consumers rather than inflate the costs and profits of the BAA monopoly.

We have implemented our plans to ground 15 Stansted aircraft and 4 Dublin aircraft this winter following further unjustified increases in the already high passenger charges at these airports. Despite these reductions, we expect Ryanair’s traffic will still grow by 9% this winter, and by 14% to 58m for the full year. The economic recession has caused consumer confidence to collapse. Ryanair’s fares are now even more attractive as consumers become more price sensitive and trade down from high fare, fuel surcharging airlines, like Air France, BA and Lufthansa. As more airlines go bust, and the wave of European consolidation continues, the strongest survivors will be those airlines -like Ryanair- who are well financed, have a strong balance sheet, and the lowest cost base.

The outlook for the remainder of this fiscal year (2008/09) is dependant upon fares and fuel prices. The recession will continue to drive down oil prices and fares this winter. We will continue to respond with lower fares and aggressive price promotions to keep Europe flying and to maintain our market leading load factors. Although we have limited visibility, we now believe that average fares in the second half will fall by between -15% to -20% leading to losses in the 3rd and 4th quarters. Our full year average fare could fall by almost -12% although these lower fares will be largely offset by lower fuel costs (currently $73 pbl in Q4). As a result our previous guidance remains unchanged and we remain confident that we will break even for the full year.
We expect continuing bankruptcies and consolidations to create even more opportunities for Ryanair to grow. If oil prices remain at approx. $80 pbl next year then our earnings will rebound strongly. We have a significant cost advantage over our competitors many of whom have hedged fuel next year at significantly higher levels than current market prices. This will force competitors to further increase airfares and widen the price gap between them and Ryanair’s lowest fares. With one of the strongest balance sheets in the airline industry, €2.1bn in cash and the lowest cost base, Ryanair is strongly positioned to take advantage of the opportunities that will inevitably arise from the financial crisis and economic recession over the coming year”.

The Shephard News Team


The Shephard News Team

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