Profits in Ryanair have plummeted 85% for the first quarter of 2008 as soaring fuel costs have almost doubled its fuel bill. The low-cost carrier also warned that it could well sink into the red this year.
Ryanair’s CEO Michael O’Leary said the fuel bill rose 93% to €367m, with fuel now representing almost 50% of its total operating costs compared to 36% last year. Profits slumped to €21m from €118m for same period last year.
He said: “We have taken advantage of the recent weakness in oil prices and are now hedged 90% for September at $129 per barrel, 80% for Q3 at $124 per barrel, but are unhedged for Q4. We continue to believe that oil prices remain subject to irrational exuberance.
O’Leary also pledged his airline’s commitment to no fuel surcharges. He said: “We will continue to absorb higher oil costs, even if it means short-term losses, while we continue to deliver Europe’s guaranteed lowest fares to our 58 million passengers.”
Yields, which fell by 8%, were hit by new routes and bases, along with a reduction in checked in baggage penetration rates as more passengers switch to web check-in and carry on baggage facilities.
Traffic grew by 19% from 12.6 to 15m, whilst load factors at 81% were almost in line with Q1 last year. Ancillary revenues grew by 25%, again faster than the rate of traffic growth. O’Leary expects these figures to continue growing with Ryanair about to unveil onboard mobile phone services on 10 Dublin based aircraft, which will expand to almost 40 aircraft by the year end.
However he saw a bleak outlook for the remainder of 2008 against the backdrop of fuel and the economic downturn.
“The emerging economic recession in the UK and Ireland caused by the global credit crisis and high oil prices means that consumer confidence is plummeting, and we believe this will have an adverse impact on fares for the rest of the year. We will respond as always with lower fares and aggressive pricing to keep people flying and maintain our high load factors. We now believe that our average fares for the year may fall by as much as 5% if European airfares plunge this winter.”
“On the basis of our existing fuel hedges, Q4 oil prices at approx. $130 per barrel, and average fares falling by 5% for the full year, we expect to record a full year result of between breakeven and a loss of €60m.”
“We have recently announced capacity reductions for the coming winter at Stansted (15 aircraft grounded) and Dublin (4 aircraft). Despite these cutbacks, Ryanair’s traffic will still grow by approx. 9% this winter as we switch route and capacity growth to lower cost airports and bases. Accordingly, passenger volumes for the year will grow by 14% to 58m, slightly lower than the 16% previously guided.”
“Higher oil prices won’t end low fare air travel, it just increases the attraction of Ryanair’s guaranteed lowest fares, as consumers become more price sensitive and switch away from high fare/fuel surcharging airlines like BA. Higher oil prices will speed up the decline of high fare shorthaul travel this winter as many European airlines consolidate or go bust. We believe that oil prices of approx. US$130 per barrel are unsustainable over the medium term, but we don’t know when they are going to fall. The airline industry is cyclical, and this downturn will provide enormous opportunities for strong, well financed airlines, such as Ryanair to grow.”