Ryanair has announced record half year profits of €329million and raised its full year forecast accordingly.Traffic grew by 23% to 22.1m passengers, yields increased by 9% as total revenues rose by 33% to €1.256bn. Unit costs increased by 7.5% as fuel costs rose by 42% to €337m. Despite these significantly higher fuel costs, Ryanair’s after tax margin for the half year rose by 1 point to 26% as half year net profits increased by 39% to €329m.
Announcing these results Ryanair’s CEO, Michael O’Leary, said:
“Ryanair has again, delivered record half year profits despite intense competition and very high fuel prices. The Ryanair lowest fare model has repeatedly proven that it can generate increased profitability and significant passenger growth during difficult trading conditions while many of our competitors are struggling to deliver profits or are losing money.
Summer yields rose by 9% despite a 22% increase in seat capacity. This benign yield environment continues to be driven by the multiple fuel surcharges imposed by European flag carriers, which has widened the gap between their high fares and Ryanair’s lowest fares. Our unwavering determination to avoid fuel surcharges has enabled us to deliver rapid traffic growth and generate higher profits. Load factors were up 1 point as we launched 42 new routes and 3 new bases.
Ancillary revenues grew by 27%, again faster than the growth in passenger volumes. Need a Hotel, our online hotel provider, has decided to terminate our agreement with effect from December 31st, 2006. Whilst the terms of our agreement are confidential, we anticipate that returns for the remainder of the fiscal year will remain unaffected. We are confident that we can replace Need a Hotel without affecting the returns this business generates. We also recently launched our BingoGaming website and our 15 million unique visitors each month will now be offered the lowest fares and a flutter on our BingoGaming website. As we roll out our onboard mobile phone system next summer, passengers will also be able to have a flutter whilst travelling on our 437 routes across Europe.
We introduced a new service enhancement in November that will allow all passengers to enjoy on-line check-in and/or priority boarding for just £2/€3 per flight. Passengers travelling with hand luggage only, will continue to by pass check-in queues and go directly to their boarding gate. This new service will extend the priority boarding facility to passengers travelling with checked-in luggage who will now be entitled to board the aircraft first and choose their seats.
Unit costs increased by 7.5% primarily due to higher fuel, staff and airport and handling costs. Fuel costs rose by 42% to €337m despite being almost fully hedged during the quarter reflecting higher world fuel prices. For the remainder of this fiscal year, we are 90% hedged at rates equivalent to $73 per barrel. We have used the recent weakness in forward oil prices to hedge 50% of our requirements for the quarter from October to December 2007 at a cost which is 10% lower than comparable Q3 this year. We continue to monitor forward prices with a view to hedging our requirements for fiscal 2008 when opportunities arise.
Our new bases at Liverpool, East Midlands and Shannon performed well over the summer, however, fares at Shannon continue to be materially lower than expected. We announced 3 new bases at Bremen, Marseille and Madrid and advance bookings at all 3 are strong. We announced a further 4 aircraft and 20 new routes at our Dublin base commencing in early 2007 and these are already booking strongly. In August we achieved another milestone and became the first European low fares airline to carry 4m passengers in one month.
In October we exercised options for 32 Boeing 737-800 next generation aircraft to be delivered between September 2008 and June 2009 as part of our plan to double in size to over 80m passengers by 2012. We also ordered 10 more aircraft simulators (5 firm, 5 options), which will be delivered between 2008 and 2013 and will enable us to further reduce pilot training costs whilst improving safety and training.
We continue to oppose the BAA airport monopoly plans to build a £4bn gold plated Taj Mahal at Stansted which we believe could be built for £1bn. The BAA monopoly continues to build facilities which do not meet users needs. Until there is competition between the three London airports, airport charges will continue to rise and passengers will have to suffer these over specified, inefficient facilities. Ryanair continues to campaign for the break up of the BAA airport monopoly. We are deeply concerned by the continuing under staffing of security at Stansted airport which has led to repeated passenger and flight delays. The management of Stansted security is inept, and the BAA has again proven that it is incapable of providing adequate or appropriate security services at Stansted. This shambles again highlights that the BAA is an inefficient, incompetent airport monopoly which should be broken up.
The tragedy at Dublin airport continues where the DAA monopoly recently obtained planning approval for a second terminal at a cost of €750m which is 4.5 times more than the €170m cost it announced just 11 months earlier in Sept. 2005. Only a government owned monopoly would seek a cost increase of over 4 fold - with no increase in passenger capacity - prior to applying for planning permission! The DAA has recently proposed that an outrageous 60% increase in charges at Dublin Airport to recoup the inflated cost of this facility which Ryanair passengers will never use. Ryanair will continue to oppose this waste and has appealed the planning decision.
On the 5th October, we announced a ‘Cash Offer’ for Aer Lingus of €2.80 per share which valued Aer Lingus at approximately €1.48bn. We have acquired a 19.2% stake in Aer Lingus at a cost of €254m. We believe there are significant opportunities, by combining the purchasing power of Ryanair and Aer Lingus, to substantially reduce its operating costs, increase efficiencies, and pass these savings on in the form of lower fares to Aer Lingus’ consumers. We plan to retain the Aer Lingus brand and the Heathrow slots, and up-grade their dated longhaul product and are committed to reducing their shorthaul fares by 2.5% per year for a minimum of 4 years. We believe the combination of Aer Lingus and Ryanair into one strong Irish airline group will be rewarding for consumers and will enable us both to vigorously compete with the mega carriers in Europe. The EU Competition Authority is currently reviewing the proposed acquisition and we anticipate that the final outcome of their regulatory review will not be known until late December, 2006. If our offer is not accepted by a majority of Aer Lingus shareholders, we will continue to be a significant minority shareholder, and will exercise whatever influence we can to encourage Aer Lingus to reduce costs and offer lower fares which is, we believe, its best strategy for the future.
We remain cautious in our outlook for H2 as we roll out substantial capacity expansion and suffer significantly higher oil prices than the comparable period last year. However, we expect to deliver significant traffic growth as we launch 130 new routes and 3 new bases, (Marseilles, Bremen and Madrid), albeit at slightly lower load factors (down 2% monthly on last year) during H2 which should result in better yield stability. The benign yield environment continues thanks to multiple fuel surcharges of our competitors. Based on a reasonable level of visibility, it now appears likely that yields in Q3 will be +2% to +3% compared to our original forecast of a -5% decline. With little visibility in Q4, we believe that yields may be slightly lower but not as much as the -5% decline previously guided. Accordingly, we now expect yields to be flat over the winter period although our net profit for H2 will still be lower than last year. As a result, we now expect that the increase in Net Profit after tax for the fiscal year will be approx. +16% to €350m, higher than our previous guidance of approximately +11% to €335m.
Whilst intense competition in the market continues, Ryanair’s unique combination of the lowest fare in every market, lowest cost base and industry leading customer service will enable us to continue to lead the low fares revolution for the benefit of our passengers, our staff and our shareholders”.
Ryanair today announced that the Board of Directors intend to seek shareholder approval for a 2 for 1 stock split at the Extraordinary General meeting to be held in December on the proposed acquisition of Aer Lingus. The purpose of the stock split is to improve the marketability and liquidity of the stock. The existing ratio of 5 ordinary shares to 1 ADR will be retained.