Back to News Archive

Ryanair has again announced excellent results, this time a 20% increase in half year profits to end of September 2011. The figures released on 7th November show profits grew to €544 million on the back of increased revenues of 24% to €2.7 billion although traffic grew by only half of that at 12%. Average fares increased 13%, the same unit costs which rose mainly to longer sectors and a 37% increase in fuel costs. According to Ryanair excluding fuel (and we would all love to), sector length adjusted unit costs did not increase at all! Not surprisingly and based on these figures Ryanair raised their full year net profit guidance by 10% from €400 million to €440 million, subject to the final outturn of Q4 yields. Ryanair’s capacity cuts will mean that traffic in second half of the year (H2) will fall by 4%. It could be even higher as for November they expect to report a traffic decline of 10% or almost 500,000 passengers as they ground up to 80 aircraft “due to higher oil prices”. While this trend could continue over the winter, Ryanair still expect H2 yields to rise by up to 14%, better than the 12% previously guided. In summary, Ryanair delivered robust traffic and profit growth despite, significantly higher oil prices, and an economic downturn in Europe.

Ryanair’s CEO, Michael O’Leary of course attributes the 20% increase in the half year net profits to “the strength of Ryanair’s lowest fare/lowest cost model” when of course it is the higher yields and the better capacity management of its routes and bases reflecting the seasonality that is part of any European airline. Ryanair explains the 13% rise in average fares from €44 to €50 as “due to slower growth .... as well as rising competitor fares/fuel surcharges”. This figure “which includes optional baggage fees” is in fact being increased because Ryanair believes the market can bear it. Revenue per passenger increased 11% from €54 to €61. Ancillary sales rose 15% to €487 million, again faster than traffic growth. In order to maintain ancillary revenue, they extended their reserved seating trial from 40 to 80 routes, and will continue to expand it if it remains successful. They also launched their somewhat controversial ‘Cash Passport’ Mastercard prepaid card in the UK and Italy, and they intend to roll it out across the network over the coming months.

Key figures

On the cost side, unit costs increased by 13% primarily although total operating expenses increased significantly more than that from €1.67 billion to just over €2 7 billion. There was a 37% rise in fuel costs but excluding fuel sector length adjusted unit costs were flat. Ryanair say that they continued to rigorously control costs despite a 2% pay increase, higher Eurocontrol fees, and “substantially higher charges at Dublin Airport”. Looking at the ‘Condensed Consolidated Interim Income Statement’ it can be seen that Staff costs increased from €195 million to €222.5 million (14.1%), Airport and handling charges increased from €268.5 million to €316.3 million (17.8%) and Route charges rose to €271.5 million from €221.8 million (22.4%). On the fuel side 90% of Ryanair’s fuel is hedged for FY12 at $820 per tonne (approx. $82 per barrel), up 12% on last year but significantly below current prices. We have recently extended our FY13 fuel cover and are 90% hedged for H1 at $990 per tonne ($99 per barrel) and 50% for H2 at $980 per tonne ($98 per barrel). Around €3 per passenger is required to cover increased fuel costs.

Some thoughts from the Analyst briefing and Conference Call

Ryanair held their Analyst briefing and Conference Call on the day the results were released and the discussion sessions showed an enthusiasm for fare increases, while there was much talk about the fleet routes and airport charges. The new route/base focus has shifted a bit from Spain and Italy to central Europe, including Germany where airports are said to be worried about Air Berlin and are offering exceptional deals. Michael O’Leary sees legacy carriers continuing to reduce short-haul activity and in Scandinavia a major SAS restructuring is rumoured in about 12-18 months time and this is causing “panic” in the airports there. The take-over of BMI Airlines by British Airways will create more opportunities as they re-focus on medium and long-haul routes although it is not particularly clear how that will help Ryanair. Ryanair however always believe that consolidation will create opportunities particularly with airlines like Spanair, BmiBaby and Jet2 reorganising and shrinking.

Route growth “will be driven by exceptional airport deals”

While its new routes and bases continue to perform well, Ryanair have said that growth “will be driven by exceptional airport deals”. Its 45th base in Manchester opened on 3rd November and its 46th (Wroclaw in Poland) and 47th (Baden Baden in Germany) bases will start in March 2012. Ryanair also plan to open its 48th base at Warsaw (Modlin) as soon as our current negotiations with the airport have been concluded and an announcement is expected before Christmas. The Baden Baden base with two based aircraft and 19 routes (12 existing) was announced on 25th October. There have been only two minor announcements since then. On 3rd November it announced that it will base a third aircraft at Leeds Bradford airport for summer 2012 which will allow Ryanair to add six new routes bring its total to 26 and on 9th November it announced its first four routes from Turku in South West Finland beginning April 2012.

In summer 2013/4 Ryanair, Michael O’Leary has said they will begin to 'churn' bases and routes to cut underperformance and to free up capacity for opportunistic deals. 2013 summer schedule work in now in progress but there will be no agreements with airports until February 2013. ‘Churning’ is already underway in Spain in Alicante in a dispute over air bridges and Girona over base agreement. In a clear threat, Ryanair say that Cork, Dublin and Shannon are targets for base ‘churn’ in 2013. Irish bases are loss making and uncompetitive due to airport charges and air travel taxes. The Dublin base has now only 10% of total traffic and is “a small part of the operation”. Nevertheless with 58 routes it comes third after Stansted (102) and Milan (59) and given all the ‘noise’ it makes about charges and taxes and the massive expansion it would undertake if they were removed it is clear that it is still an important part of their operations.

“No new Ryanair aircraft order for a year or two”

In spite of all the hype, Ryanair have finally confirmed that there will be no new aircraft orders for a year or two. This is because the aircraft market locked up to 2015 by Airbus/Boeing although there are questions regarding the viability of the manufacturer order books as customer financing is drying up. There has been a “step change” in the aircraft value cycle and the value of second hand aircraft remains very weak. In spite of this Ryanair believes that there will be no new EU airline start-ups in the next 12-18 months due to the lack of finance.

The fleet at end of September was 277 aircraft with 35 on firm order up to end March 2013 when the fleet size will be 305 units net of lease hand-backs. This is an increase on previous numbers, with sales of six aircraft in 2012/13 no longer included. These could be used for “opportunistic deals” with airports should these emerge as Ryanair has said it will not use leasing companies to add to capacity. Ryanair is still enthusiastic that state-backed Commercial Aircraft Corporation of China will change the face of the global aerospace industry if it succeeds in delivering its 174-seater C919 aircraft by 2016. Boeing is due in Dublin to brief Ryanair on the re-engined and more fuel efficient 737 MAX while Mr. O’Leary will visit Comac for an update on their C919. “The reality here is that if the Chinese deliver a 199-seat aircraft then there is nothing Boeing can do. The 10 extra seats would almost pay for the aircraft” he added.

The delivery of the five aircraft leased from Avolon (EI-ESL/M/N/O/P) brought total deliveries to 313 and taking disposals of 36 into account, this gave the total of 277 at end of September. Two further aircraft have since been disposed off. EI-DCT which was registered as N840AC on 7th September before becoming HS-DBA with Nok Air. She was ferried Shannon-Cairo on 27th October as the NOK6904 on delivery to Nok Air arriving in Utapao on the 28th. EI-DCV which became N845AC on 19th October was rolled out in Shannon in full Nok Air colours and noted as HS-DBB on 8th November. She departed on 11th November to Utapao via Baku on delivery to Nok Air. Finally, EI-DCS was withdrawn from use on 30th October and noted at Prestwick on 15th November. This leaves the total active fleet at 274.

Strong balance sheet

Ryanair’s balance sheet remains one of the strongest in the industry with €3.1 billion in cash despite returning €931 million to shareholders over the past three years. They have significantly reduced net debt during H1 from €709 million to €372 million despite another €85 million share buyback. Ryanair has  taken advantage of lower interest rates to fix almost 60% of its existing debt for the next 7 years at “all in” rates of just over 3.7%. In addition their long term dollar hedging programme will ensure that all 35 Boeing deliveries in calendar 2011 and 2012 are funded at €/$ exchange rates of 1.43, significantly better than current rates.

Traffic update

Ryanair carried 7.27 million passengers in October, up 4% from 7.02 million a year earlier. Its load factor slipped by one percentage point to 84%. In the year to October, it carried 77.1 million passengers, with an average load factor of 82%.

Raising more revenue

Ryanair is always looking at ways to earn extra revenue. it is looking to fit its aircraft with wireless technology, which is already offered on some domestic US flights including those operated by Virgin America. This would it to introduce in flight Wi-Fi, charging passengers to watch entertainment or surf the web in-flight on their laptop, tablet or mobile device. The media have already picked up on Michael O’Leary’s comments suggesting that this could include watching 18+ rated films. However, its handling staff at Liverpool Airport, employed by Servisair, are being offered a 50p (€0.58) bonus for every Ryanair passenger they catch with excess baggage. In spite of denials in the past, staff have previously been given targets for the number of passengers charged excess baggage fees, with those missing the target facing disciplinary action including dismissal. To “encourage further diligence” the payment will only come into force if an employee reaches a target of at least 10 bags a week. 50p for the employee at a cost of £40 (€46.60) to the passenger strikes an interesting balance.

Four heads are better than one!

Michael O’Leary was one of four leading airline chief executives who came together to call on George Osborne to scrap the Air Passenger Duty arguing that its negative impact on the UK economy is outweighing any benefit from the revenue raised. Together with Carolyn McCall from easyJet, Willie Walsh from IAG, Michael O'Leary from Ryanair and Steve Ridgway from Virgin Atlantic they have written to the Chancellor highlighting that passenger numbers at UK airports have fallen consecutively for the last three years to a level lower than 2004. In 2010, there were 7.4 million fewer passengers in the UK while numbers using European airports grew by 66.3 million. The chief executives challenge the Chancellor to commission an independent report on the true economic effects of aviation tax in Britain.

and finally.....

Ryanair’s cabin crew have again stripped off for the airline’s fifth charity calendar which was fortunately shot in Lanzarote given the scantily-clad female cabin crew. . Proceeds from this year's ‘Girls of Ryanair’ calendar, will go to DEBRA, chosen from nearly 400 applicants, which provides support for patients suffering from epidermolysis bullosa (EB), a genetic skin condition. Ryanair hopes to raise around £85,000 for it through sales of the calendar, which costs £8.50 and can be purchased on board Ryanair flights, from DEBRA’s charity shops in Spain and Ireland, or on the airline’s website (www.ryanair.com).