Ryanair Beats Recession As Traffic Grows 13%
Q3 LOSS OF €102M AS FUEL COSTS SOAR BY 71%
Ryanair, Europe’s largest low fare airlines today, (2 Feb) announced a Q3 loss of €102m, (compared to a profit of €35m in last year’s Q.3). Average fares fell by 9% to €34, while fuel costs rose by 71% to €328m. Revenues rose by 6% to €604.5m, as traffic grew 13% to 14m, as more consumers switch to Ryanair’s low fares from high fare competitors.
Summary Table of Results (IFRS) - in Euro
Announcing these results Ryanair’s, CEO Michael O’Leary said:
“Our Q3 loss of €102m was disappointing, but in line with expectations, and was almost entirely due to a €136m increase in fuel costs. Average fares (due to recession and weaker Sterling) fell by 9% to €34, but this decline was largely funded by a 3% reduction in non fuel operating costs. The general economic environment remains extremely difficult, as the recession saps consumer confidence, but this is proving to be good for Ryanair’s traffic growth, as more and more passengers switch to Ryanair’s lowest fare lowest cost model. Many of our competitors have in recent months reported short-haul traffic falls, while Ryanair continues to grow. We will continue to lower fares to maintain our traffic growth and high load factors.
“Ancillary revenues grew by 19% to €132m, and now account for 22% of revenues (19% last year). We expect our onboard mobile telephony service to become operational at the end of February on 20 Dublin based aircraft, and this trial, which will last for 6 months should be extended to some 40 aircraft by the end of the summer. We expect initial revenues to be small, but believe that in-flight communication will be a strong source of ancillary revenue growth in future years.
“Q.3 fuel costs rose by 71% to €328m and accounted for 47% of our operating costs (37% in Q.3 ’08). We have taken advantage of recent falls in jet fuel prices to extend our hedging position for FY’10 to 75% of Q.1 and Q.2, and 50% of Q.3, at an average price of $650 per tonne, which is 38% lower than the average $1,050 per tonne paid in the current year. If our average cost in FY’10 finishes at $650 per tonne, it will reduce our fuel bill by approx. €500m in the next fiscal year. Excluding fuel, other operating costs in Q.3 fell by 3% on a per passenger basis due to improved unit cost performances on staff costs, airport and handling costs, and depreciation.
“The rate of airline closures and consolidation across Europe continues to accelerate. Recent developments include the Air France/KLM 25% stake in Alitalia, the EU’s approval of the Clickair/Vuelling merger in Spain and the January bankruptcy of the Lithuanian carrier FlyLAL. As losses increase in 2009, more EU airlines will close and/or consolidate, as many lack the cash reserves to survive next winter.
This consolidation is hastening the emergence of four large European airlines, comprising three high fare fuel surchargers, led by Air France, BA and Lufthansa, and one very large low fare airline, Ryanair. Ryanair’s success is good news for Europe’s consumers and airports, as we will continue to offer choice, competition, growth and even lower prices.
“The dramatic cuts in flights and capacity by many of Europe’s flag carriers has created traffic collapses at many of Europe’s larger airports. This is creating enormous opportunities for Ryanair, as these airports compete to reduce charges in order to attract Ryanair’s growth and to develop low cost facilities to take advantage of Ryanair’s quick turnarounds and our improved web check-in facilities. This movement towards lower cost, more efficient airports in Europe is welcome, even if it is 20 years too late.
“In the UK we welcome and strongly support the CAA’s recent recommendation that the high cost BAA airport monopoly be forced to sell Gatwick and Stansted airports in London and Edinburgh in Scotland to finally introduce much needed competition and speed up the delivery of low cost, efficient, additional capacity, something that the BAA monopoly has repeatedly failed to do. The CAA Regulator remains hopelessly inadequate and has recently approved another round of cost increases at Stansted at a time when airports all over Europe are lowering prices. The sooner real airport competition replaces the incompetent CAA Regulator in the UK, the better.
“In Ireland we welcomed the Government report in December which confirmed Ryanair’s view that the DAA’s Terminal 2 is “considerably over-sized” and that the risk of this over-sizing should be borne by the DAA monopoly and not by passengers. We hope that the equally incompetent Aviation Regulator in Ireland will now act upon the recommendations of this government panel having been correctly criticised for “passive regulation”. The fact that Dublin Airport’s traffic is now in freefall (down 9% in December) exposes the damage being done to Irish tourism and the wider economy by this high cost, inefficient, Government owned airport monopoly. We call again for the Government to allow a competing terminal to be developed at Dublin Airport. Ryanair would be willing to build and pay for such a facility which will relieve passengers from the high costs, long walks and even longer queues which are a feature of the third rate, third world services provided by Dublin Airport.
“The European Court of First Instance’s decision in December to dismiss the EU Commission’s flawed 2004 Charleroi decision was a stunning victory for Ryanair, competition and regional airports across Europe. This ruling confirms that Ryanair did not receive unlawful State Aid or subsidies from Charleroi. This ruling renders the Commission’s 2005 Airport Guidelines redundant. We again call on the European Commission to abandon the 8 other State Aid cases against regional airports in Europe and focus instead upon the real abuse of State Aid including the latest Government bail-out of Alitalia, and the State Aid recently given by the Austrian Government to its flag carrier to induce Lufthansa to buy them. We warmly welcome the EU’s ruling last week that the over €1bn of discounted domestic airport charges, received by Air France at French airports was unlawful State Aid. There will now be a level playing field between international charges and domestic charges at French airports. The EU Commission should be commended for finally exposing this blatant abuse of the State Aid rules by Air France.
Aer Lingus Offer
“On 22nd January last, the Irish Government announced that it would not accept Ryanair’s cash offer of €1.40 per share for its 25% stake in Aer Lingus. We are disappointed by this rejection of a generous offer which valued Aer Lingus at €748m, but respected it and immediately withdrew the offer. This sadly condemns Aer Lingus to a bleak future as a loss making, subscale, regional airline, which has a high cost base and declining traffic numbers, and which, we believe, will report substantial losses in 2008 and again in 2009.
“Whilst we regret that the Government’s decision means that we can not now deliver on our promises to reduce Aer Lingus’s short-haul fares, double its short-haul fleet and create 1,000 new jobs, this decision clears the way for Ryanair to continue to focus on our own growth and expansion, reducing our costs and returning to substantial profitability over the coming year. It is doubtful that Ryanair will waste any further management time or resources making another offer for Aer Lingus, as its scale and losses will continue to render it increasingly irrelevant in Europe’s airline landscape.
“Our balance sheet continues to be one of the strongest in the industry with over €1.8bn in cash at the end of Q3. The rebound in profitability in fiscal 2009/10 should lead to a further growth in our cash balances. Our large floating cash deposits provide a no-cost hedge to our floating debt and we plan to take advantage of the historically low interest rates to lock in much of our 2009 aircraft deliveries at these low fixed interest rates. Our long term dollar hedging strategy will mean that in 2009/10 we will benefit by paying for aircraft at €/$ exchange rate of 1.50, significantly better than current market rates. We also recently exercised options over 13 Boeing aircraft for delivery in 2011 which will enable us to add cheaper and more fuel efficient aircraft to our business”.
Q.4 and full year outlook
“Our outlook for the fourth quarter has improved somewhat. Our decision not to hedge Q.4 oil prices has been vindicated by their continuing decline and we will benefit from much lower oil costs in Q.4 of approx. $500 per tonne. Some of this cost advantage will be diluted by weaker yields, which are the result of our aggressive price promotions, the decline in Sterling and the impact of the recession which is making consumers much more price sensitive. As a result of this degrading environment we expect Q.4 average fares to fall by 20% at the upper end of our previously guided range. Thanks to lower oil costs and continuing reductions in non oil operating costs, we expect the Q.4 loss will be smaller than previously anticipated, so we are upgrading our full year 2008/09 guidance from break even to a net profit after tax in a range of €50m to €80m (Pre-exceptionals).
“Looking forward into fiscal 2009/10, Ryanair will enjoy significantly lower oil costs thanks to our recent hedging programme, when most of our competitors are already hedged at much higher prices. We intend to use this cost advantage to again lower fares. These lower prices will drive Ryanair’s traffic growth, maintain high load factors (and ancillary sales) and capture market share from higher cost fuel surcharging competitors. We won’t be in a position to give earnings guidance for next year, until the fare environment becomes somewhat clearer. At this time we expect fares to fall next year by over 10%, although if the recession deepens, it could be worse than this. However the 38% reduction in oil prices which our fuel hedging has secured will ensure that Ryanair returns to substantial profitability next year, when many of our competitors will be reporting losses.
“The longer and deeper this recession, the better it will be for the lowest cost producers in every sector. Like Lidl, Aldi, Ikea and McDonalds, Ryanair, is the lowest cost provider – by a distance - in the European airline industry, and we are poised for substantial traffic and profit growth in the coming year as the recession forces millions of passengers to focus on price, while still (in the case of Ryanair) enjoying our superior punctuality, fewer cancellations and younger aircraft fleet.”