Ryanair warns of profit slowdown

5th Jun 2007

Ryanair has posted a 33 percent jump in annual net profits, pushed up by higher ticket prices. However, profit growth is predicted to slow as higher UK interest rates prompt travellers to seek cheaper deals.
Ryanair shares fell more than seven percent as a warning to investors for the year ahead.

Ryanair, Europe’s biggest low fares airline, today (5 June) released record net profits of ?401m, a 33% increase over the prior year figure and ?11m ahead of previous guidance. Ryanair’s traffic grew by 22% to 42.5m, yields rose 7%, as revenues grew by 32% to ?2.24bn. Unit costs increased by 9% mainly due to a 50% increase in fuel costs. Despite this significantly higher fuel bill, Ryanair maintained an industry leading after tax margin of 18%.

Ryanair’s CEO Michael O’Leary said:“These record profits and the strong growth in traffic, yields and revenues during a period of much higher oil prices and intense competition is a tribute to the strength of Ryanair’s lowest fare model. The highlights of the past year include:

Profit growth of 33% to 401m euros- Up 100m euroson last year.
Traffic growth of 22% to 42.5m.
Purchase of 30 new aircraft, bringing the fleet to 133 units at year end.
Opening 153 new routes (including 3 new bases at Marseille, Madrid and Bremen).
Fuel costs increased by 50% to 693m euros.
Industry leading customer service and No.1 for pricing and punctuality.
Widened the price gap between Ryanair and our competitors.
Purchased 25.2% of Aer Lingus plc.
Strengthened the balance sheet with year end cash of 2.2bn euros.

The unusual feature of these results was the 7% rise in average fares, despite the 22% growth in traffic. This increase was largely driven by competitor fare increases and competitor fuel surcharges, as well as our checked baggage fees which are designed to encourage passengers to travel with carry-on luggage only. Ancillary Revenues grew by 40% thanks to a better passenger spend, increased penetration, and the growth of excess baggage revenues. In March we announced an agreement with Expedia, our new hotel provider, and we expect that ancillary revenues will continue to grow at a faster rate than scheduled traffic.


Due primarily to a 50% increase in fuel costs, unit costs rose by 9%. This was also impacted by a one off step up in our pilot crewing ratio due to longer sector lengths. We took advantage of recent dollar and oil price weaknesses to extend our fuel hedges to 90% for the remainder of fiscal 2008 at an average cost per barrel which is 10% lower than last year. This cost saving will help us to offset significantly higher airport charges this year at Stansted (where airport charges doubled on 1 April), and Dublin Airport, who continue to impose unjustified price increases despite delivering a sub-standard service through a portacabin facility. These monopoly price increases demonstrate again the abject failure of Aviation Regulators in both Ireland and the UK to protect the interests of consumers.

We continue to press for the break-up of the BAA airport monopoly and welcome the recent OFT and Competition Commission investigation of the BAA. The current BAA Stansted plan to waste almost £4bn building a second runway and terminal (which should cost less than £1bn) provides further proof of this monopoly abuse. Similarly at Dublin, Ryanair opposes the ludicrous plans to waste over ?800m building a 15 MPPA passenger terminal which Ryanair is willing to build (and pay for) at a cost of less than ?200m. The Irish Regulator has failed to investigate or explain why the DAA’s costs of this facility have quadrupled over the past year without any increase in capacity. His current proposal that Ryanair passengers who will never use T2 should pay higher airport charges to fund it, is contrary to the “User Pays” principle of aviation regulation. The significant cost increases associated with these higher airport charges at Stansted and Dublin since April, combined with Gordon Brown’s decision to engage in “highway robbery” by doubling UK airport departure taxes has had a negative impact on traffic and yields.

Forward bookings and yields continue to be soft and Ryanair continues to respond with aggressive price promotions including a current offer of £20 off all return fares on all flights. As has always been the case, Ryanair will lead and win every fare war in Europe, because Ryanair has the lowest costs and the lowest fares.

Ryanair has recently extended this price war by launching a unique “lowest price” guarantee. Subject to the terms and conditions of this programme, Ryanair will refund double the difference to any passenger who can find a lower fare from any competitor airline on any Ryanair route. Thus far we have paid remarkably few claims, simply because no other airline can match Ryanair’s low fares.

The European Commission’s review of Ryanair’s proposed offer for Aer Lingus has been ongoing for the past 6 months. The decision by DG Competition to refer this merger to a Phase 2 review was unprecedented and a radical departure from the Commission’s long standing policy of encouraging EU airline consolidation. It is difficult to understand how the EU can wave through precedent mergers (such as Air France/KLM, Lufthansa/Eurowings and Lufthansa/SAS) in Phase 1 with minimal remedies, yet in this case a merger of two Irish airlines with bases at a peripheral European city (Dublin), which together account for less than 5% of EU traffic, has been referred to Phase 2. Ryanair’s proposed remedies now include guaranteed fare and fuel surcharge reductions of over ?100m per annum for Aer Lingus consumers, combined with the surrender of a significant number of Heathrow slots (the most valuable in the world) and Dublin slots. Accordingly, any failure by the European Commission to approve this merger will be an entirely political decision to put the narrow political interests of the Irish Government before those of European competition and European consumers. Ryanair will immediately refer any such prohibition to the European Courts, and given the significant inaccuracies and omissions in the Commission’s Statement of Objection we believe that any Court challenge has a high prospect of success.

Ryanair’s “lowest fare” business model is strongly cash generative. Cash on hand at March 31st 2007 amounted to ?2.2bn. At the AGM on September 22nd 2006 the shareholders authorised that the Directors could re-purchase Ordinary shares (“buyback”) amounting to 5% of the Company’s issued share capital. The Directors have decided, in the best interests of the Company and its shareholders as a whole, to undertake a buyback programme, under which up to ?300 million would be available for return. At the current market price of ?5.20 this equates to a buy back of approximately 3.63% of the existing issued share capital of the Company. We anticipate starting the buyback programme onafter June 7th 2007 onward.

Ordinary shares will be repurchased under the programme in accordance with the provisions of the Company’s annual re-purchase authority and the requirements of the Irish Stock Exchange and UK Listing Authority rules. The Company’s brokers, Davy, will conduct the share buyback programme, and shares repurchased will be cancelled immediately. Only Ordinary shares (and no ADR’s) will be repurchased.

As we indicated at the release of our April traffic statistics, we have recently noticed a softening of market conditions which has been reflected in lower load factors and yields. Whilst we remain confident that traffic over the coming year will grow by 22% to over 52 million passengers, we believe that if trading conditions continue to be soft, then yields will fall by up to 5% compared to last year’s figure. Unit costs will rise over the coming year by 6% or 7%, largely due to longer sector lengths (+7%), substantially higher airport charges at Stansted and Dublin and a one time increase in cabin crew ratios, although these will be partially offset by the lower fuel costs already secured through our hedging programme. As a result we expect profit growth over the coming year to be more modest and to rise by approximately 5%. At this time with no visibility of Winter bookings and yields, we believe that the Company and our shareholders should remain cautious and conservative. We expect the seasonality established over recent years to continue and the vast majority of our annual profits will be generated in the first half of the fiscal year, with a consequent reduction in profitability and maybe even small losses being recorded during quarters 3 and 4.

Over the coming year Ryanair will increase its fleet by a net 30 aircraft as we have commenced our planned disposal programme and have already sold 5 aircraft delivered in 1999. We will launch at least 3 new bases (2 of which, Dusseldorf-Niederrhein and Bristol, have been announced), and we expect to open more than 50 new routes. We will continue to aggressively stimulate traffic growth by promoting Ryanair’s lowest fare guarantee in every market. If market conditions continue to be soft, as is presently the case, then this ambitious traffic growth can only be delivered by discounting fares and reducing yields. This remains an extremely volatile and cyclical business, but over time the price leaders such as Southwest in the U.S. and Ryanair in Europe have repeatedly demonstrated that during periods of adverse trading conditions, the lowest fare and lowest cost carrier makes the greatest gains. Ryanair will continue to offer the lowest fares and the lowest costs in every market we operate to the benefit of our passengers, our people and our shareholders.


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