Ryanair Half Year Results- Profits rise 80% and fares fall 17%

 TRAFFIC GROWS 15% TO 36M PAX

LOSSES IN Q3 AND Q4 LEAVES FULL YEAR GUIDANCE UNCHANGED

Summary Table of Results (IFRS) - in euro

Highlights of the half year included:

·        Average fares down 17% to €39.

·        Traffic growth up 15% to 36m pax.

·        Net profit up 80% to €387m.

·        Industry leading net profit margin of 22%.

·        Ancillary revenues grew 8% to 20% of total revenues.

·        Unit costs down 27% (ex fuel costs down 5%).

·        100% web check-in from 1^st October.

·        Fuel hedges extended for fiscal 2011, Q.1 to 50% and Q.2 to 50%.

Ryanair’s CEO Michael O’Leary said:

“Ryanair’s ability to grow both traffic and profits during the half year is a testament to the strength of Ryanair’s lowest fare model, and our relentless cost discipline. However these results are heavily distorted by a 42% fall in fuel costs, which has masked a significant 17% decline in average fares.  We expect average fares to decline by up to 20% during Quarters 3 and 4, which will result in both these quarters being loss making.  Despite this our full year guidance remains unchanged and will be substantially profitable, at a time when many of our competitors are losing money, consolidating or going bust.  Recent weeks have seen the demise of SkyEurope and Seagle Air in Slovakia, and MyAir in Italy, and we expect further casualties this Winter.  Ryanair is the only major European airline to grow traffic and profits strongly.  We are winning substantial market share from the big three high fare flag carrier groups led by Air France, BA and Lufthansa and we expect this trend to continue.

Market conditions in Ireland, the UK and Europe continue to be difficult, characterised by an absence of consumer confidence; and specific markets (i.e. Ireland and the UK) which have been damaged by misguided tourist taxes levied on air passengers but not on competing ferry or train journeys.  Traffic at many Irish and UK airports has slumped, with Ireland facing a decline of 15% of its air traffic, and the UK set to lose almost 10% of its traffic.  We again call on the British and Irish Governments to scrap these stupid tourist taxes and reduce airport charges.  VAT receipts on visitor spend alone would be a multiple of the revenues generated from these tourist taxes.  The Belgian, Dutch, Greek and Spanish governments have led the way by scrapping passenger taxes and/or reducing airport charges (in some cases to zero) in order to stimulate traffic growth.  We are switching a material proportion of Ryanair’s Winter capacity and growth away from high tax, high cost countries like Britain and Ireland in favour of “no tax”, lower cost countries like Belgium, Holland, Italy and Spain. 

Ryanair’s relentless focus on costs continues to deliver savings.  While fuel remains volatile, we have continued to reduce airport and handling costs, through our web check-in initiatives, and staff costs, with a pay freeze in both the current and coming year.  At a time when many competitors are cutting pay and jobs, Ryanair continues to provide secure employment without pay cuts for over 7,000 of the best professionals in the European airline industry.

We continue to campaign for the break up of the BAA and DAA airport monopolies, which  waste billions of pounds/euro building over-specified facilities which airline users neither want nor need, at Stansted and Dublin in particular.  We welcome the sale of London Gatwick and again call for the early sale of Stansted and one of BAA’s Scottish airports, so that inter airport competition can deliver lower costs and more efficient facilities which the BAA monopoly, and inept CAA regulation has repeatedly failed to deliver.

The failure of the Irish Government to honour its promise to break up the DAA monopoly continues to damage Irish traffic and tourism.  In 2010 the DAA monopoly will unfold Terminal 2, a €1.2bn white elephant, despite the fact that the 30 million passengers p.a. (MPPA) capacity at Terminal 1 now substantially exceeds the 20 MPPA traffic at Dublin Airport.  The fact that the DAA have built an entirely separate building just for “deep queuing check-in spaces”, at a time when most airlines are moving to web check-in and no check-in  queues, shows just how out of touch and clueless the DAA monopoly is.  T2 should be mothballed, thus eliminating the enormous operating costs associated with its opening, particularly as the Irish economy faces a collapse of air traffic and tourism in the face of high airport charges and a crazy €10 tourist tax.  It may take some time before the Irish Government realises that the only way forward is to lower airport fees and scrap tourist taxes. 

I regret to report that we have made little progress in our discussions with Boeing for an order of 200 aircraft for delivery between 2013 and 2016.  We won’t continue these discussions indefinitely and have signalled to Boeing that if they are not completed before the year end, then Ryanair will end its relationship with Boeing and confirm a series of order deferrals and cancellations.  We see no point in continuing to grow rapidly in a declining yield environment, where our main aircraft partner is unwilling to play its part in our cost reduction programme by passing on some of the enormous savings which Boeing have enjoyed both from suppliers and more efficient manufacturing in recent years. 

We would prefer to grow, but if Boeing doesn’t share our vision, then I believe that Ryanair should change course before the end of this fiscal year and manage the airline  over the next three years to maximise cash for distribution to shareholders.  If we cannot invest our surplus cash efficiently in new aircraft, then we should distribute it to shareholders.

It is appropriate at a time of economic difficulty to remain cautious and conservative in our guidance.  Our outlook for fiscal 2009/10 remains unchanged.  Traffic growth is strong, but at the expense of declining average fares.  Ryanair’s yields are being negatively impacted by the weakness of Sterling and tourist taxes in the UK and Ireland.  We expect yields this Winter will continue to fall by up to 20%, which will cause material losses in Q.3 and Q.4 and accordingly our full year net profit guidance remains at the lower end of the €200m to €300m range – as we previously guided.

While this Winter will be a difficult one for the European airline industry, Ryanair will continue to grow traffic, market share and profits.  We have the strongest balance sheet in the European airline industry with over €2.5bn in cash and we continue to negotiate significant cost reductions with airports and handling companies who are keen to share in our growth, while other customers consolidate or collapse.  Ryanair remains ideally positioned to return to substantial profit growth as Europe emerges from this economic downturn and we remain confident that our “growth during a recession” policy will continue to deliver substantial returns for our passengers, our people and our shareholders”.