Ryanair shows record profits

Ryanair’s first-quarter result were much better than analysts had been expecting, with operating profits of 136.7 million euros.

While net profits rose 80 percent to 115.7 million euros, the fall of Easter, more sun destinations and fuel surcharges on other carriers brought traffic Ryanair’s way.

Traffic grew by 25% to 10.7m passengers, yields increased 13%, ancillary revenues climbed 31%, and consequently total revenues rose by 40% to €566.6m.

Unit costs excluding fuel fell by 2% (including fuel they rose by 6%) as fuel costs rose by 52% to €167.5m. The increase in profitability boosted cash balances which rose by €212.4m to €2.18bn. As a result, Ryanair’s adjusted after tax margin for the Quarter rose by 4 points to 20% as Q.1 Adjusted Net Profit increased by a record 80% to €115.7m.

Announcing these results Ryanair’s Chief Executive, Michael O’Leary, said:

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“These bumper Q.1 profits - which were strongly signalled at the time of our full year results in June - reflect a much stronger yield environment despite substantially higher oil prices. We would caution however, based on advanced bookings, that we do not expect this yield buoyancy to be maintained at similar levels during the second quarter or indeed the second half of the fiscal year. The underlying causes of these stronger Q.1 yields was primarily the presence of Easter in the quarter (and its absence from the prior year comparable), many more “sun” destinations, the impact of competitors fuel surcharges which continue to drive traffic towards Ryanair, the initial impact of our baggage charging initiative, and the earlier launch of our new bases and routes, much of which took place in the fourth quarter last year.

We are pleased that ancillary revenues grew by 31% from an already significant base, as the growth of ancillary sales continues to outpace that of scheduled traffic. As we stimulate further traffic growth with lower fares, we find that passengers are more willing to spend some of their savings on additional products and services such as car hire, hotels and travel insurance.

Our new bases at Liverpool, East Midlands and Shannon continue to perform well, with strong bookings over the Summer months, albeit that fares at Shannon continue to be lower than expected. We plan to announce two new bases over the coming months with launch dates in early 2007, as well as further expansion of our existing bases.

During the quarter fuel costs rose by 52% to €167.5m. Excluding fuel unit costs fell by 2% as we continue to aggressively manage costs in all other areas. Fuel prices continue to be high and volatile. We have recently extended our hedging position, so that we are 90% hedged to the end of October at $70 per barrel and 90% hedged for November and December at $74 per barrel. Thereafter we remain unhedged for the January to March 2007 quarter, but we continue to monitor forward rates and will try to avail of any suitable opportunity to hedge out our outstanding requirement for the fiscal year.

During the quarter we exercised options for delivery of ten further Boeing 737-800 series aircraft in 2008. The addition of these new aircraft will enable us to continue to drive down our aircraft and operating costs. The penetration of web based check-in continues to improve with some flights achieving 50% of web check-in. We will aggressively promote web check-in and priority boarding for passengers travelling with hand luggage. We intend to continue to exploit initiatives such as web check-in to reduce our costs, whilst at the same time providing passengers with superior service such as avoiding check-in queues and priority boarding.

We strongly welcome the take-over of the BAA airport monopoly by Ferrovial and look forward to their review of plans and costings for the second runway at Stansted. We anticipate that this review will confirm that a second runway and terminal can be built at a more realistic cost of £1bn, rather than the £4bn gold plated Taj Mahal proposed by the BAA airport monopoly. The Ferrovial takeover highlighted that the BAA were able to fund a £1bn “pay-off” to its shareholders just three months after it was telling the CAA Regulator that “it couldn’t afford” to pay for the second terminal at Stansted without doubling passenger charges. This revelation should encourage the Regulator to take a much more sceptical approach to the BAA’s submissions and finalise a regulatory review which meets the needs of users rather than featherbedding the BAA’s monopoly profits. We also welcome the OFT probe into the present monopoly ownership of Heathrow, Gatwick and Stansted airports. Monopolies don’t work and don’t serve the needs of consumers. Real competition between these three airports will lead to lower airport charges and better facilities for passengers, and Ryanair will continue to strongly campaign for the break-up of the BAA airport monopoly, which has for many years delivered high passenger charges and abysmal facilities at the London airports.

Our outlook for the remainder of this fiscal year remains cautious. As we emphasised at the time of our full year results in June, we expected a bumper set of Q.1 results, and a strong second quarter, but we believe that the forthcoming Winter will be characterised by much more difficult trading conditions. Ryanair will increase its fleet by 27 aircraft this Winter (compared to last year’s net increase of just 15) during which we will launch many more new routes and bases. This combination of substantial Winter capacity expansion, higher oil prices (now $74 per barrel compared to our original forecast of $70) and price dumping by loss making competitors will mean another very difficult Winter trading period and if oil prices are higher than $74, we may even sustain losses during the fourth quarter this year. Based on our current fuel hedges and the forward price of oil for the unhedged quarter, we anticipate that the increase in net profit after tax for the fiscal year will still be within the range of our previous guidance of +5% to +10% increase and that almost all of these profits will be generated in Q.1 and Q.2, with a consequent reduction in profitability during Q.3 and Q.4 compared to last year.

We remain on target to achieve our objective of becoming the world’s largest international scheduled airline by passenger traffic, whilst at the same time growing profitability and reducing costs for the benefit of our passengers, our people and our shareholders. We continue to believe that this growth in traffic and profits will be achieved thanks to Ryanair’s unique combination of lowest costs, lowest fares and industry leading customer service”.

Ryanair has also been nominated this year for a World Travel Award as Europe’s Leading Budget / No Frills Airline.
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