Ryanair to cut back services at Stansted

Ryanair has announced record first quarter profits of €139m, a 20% increase over last year but will respond to softness in yields and traffic by reducing Stansted services by almost 20%.Traffic grew by 18% to 12.6m passengers and revenues rose by 22% to €693m. Unit costs increased by 5% mainly due to higher fuel, staff, and airport costs. Despite these higher costs, Ryanair maintained an industry leading after tax margin of 20%.

Announcing the results Ryanair’s CEO, Michael O’Leary, said:

“These record Q1 profits reflect an 18% growth in passenger volumes, flat yields, and strong growth in ancillaries. Ancillary Revenues grew by 53% to €117.1m, due to improved penetration of car hire, hotels, travel insurance, onboard sales and excess baggage revenues. Ancillaries account for 17% of total revenues and we expect this will rise to 20% over the next 3 years.

Unit costs rose by 5% due primarily to the doubling of airport charges at Stansted and higher charges at Dublin airport. Staff costs rose by 34% to €75.9m due to volume growth and increased cabin crewing ratios. We continue to focus aggressively on costs and anticipate that unit costs for the remainder of the year will grow by 5%, somewhat lower than the 6% to 7% previously guided.

We continue to oppose the BAA airport monopoly’s plans to waste £4bn on building a second runway and terminal at Stansted. BAA Stansted doubling of airport charges since April 07 have caused traffic declines at Stansted for the first time in 15 years. The current service provided by the BAA at Stansted is nothing short of appalling. Many of the 17 security machines are regularly unmanned during peak morning periods, and understaffing at passport control continues to cause long queues and frequent passenger delays. We continue to press for the break up of the BAA airport monopoly which provides abject facilities, a third rate service and charges extortionate prices, particularly at Stansted. This winter we will sit 7 of our 40 Stansted based aircraft on the ground because Stansted’s higher airport charges make it more profitable to ground these aircraft during the winter rather than fly them.

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We remain opposed to the DAA’s plans to build an €800m second terminal in Dublin, a cost which has escalated four fold over the past 18 months. This terminal has now been identified by the regulator as being the wrong size. It is also in the wrong location, and grossly overpriced. We have called upon the Aviation Regulator to ensure that only those airlines who use T2 will pay for it. Ryanair passengers cannot be expected to pay higher charges to cross subsidise a second terminal they do not want and will never use. The DAA have spent almost €50m on consultants reports over the past year, and now plan to waste “about €450m” on extending/refurbishing Terminal One, while at the same time reducing its capacity by 40% from 25m passengers to just 15m passengers. The proposed expenditure at Dublin is out of control and sadly the Irish aviation regulator continues to do nothing to restrain this waste or to protect airport users.

We intend to appeal the EU Commissions recent decision (to prohibit our offer for Aer Lingus) to the European Court of First Instance. We are confident that this decision will be overturned because this is the first ever prohibition between two companies which combined will have less than 5% of the EU market. The EU Commission has for the last 20 years been encouraging EU airlines to merge, and they have already approved much larger mergers such as Air France/KLM and Lufthansa/Swiss. We look forward to the European court overturning this unprecedented, and we believe nakedly political decision.

We will continue to grow over the winter period, however, due to the softness in yields, and the doubling of both UK APD and costs at Stansted, we plan to reduce the number of aircraft operated ex Stansted this winter by almost 20% from 40 to 33. This will mean reduced frequency or temporary cessation of services on routes which would be loss making due to Stansted’s higher airport charges. Consequently passenger volumes this winter will now grow at a slower rate (by 18% to 50m) than the 24% to 52m previously guided. These capacity reductions should bring more stability to yields, whilst, at the same time, reducing operating costs and eliminating losses on these non profitable winter routes at Stansted.

Our outlook remains cautious for the fiscal year due to the softness of traffic and yields. Although we have little visibility beyond the next 2 months we expect this weaker demand to continue. We anticipate that yields in Q2 will be slightly down, and winter (H2) yields be down by as much as -5% to -10% compared to last year. However, the reduction in capacity on non profitable winter routes, and the significant airport cost savings this cut back will generate, will enable us to slightly increase our previous guidance. We now expect that Net Profit will increase by (+10%) for the fiscal year compared to (+5%) previously guided, although, we caution that this guidance will be heavily dependent upon the accuracy of our forecast decline in yields for the second half of the year.

During the last two months we undertook a series of share buy backs amounting to a total of 37.6m shares at a cost of approx. €187m. This share buy back represents 2.5% of the pre-existing issued share capital of the company. The shareholder authority for such a buy back expires at AGM on September 20th, 2007.”
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