McDonald's supersizes profits while Ryanair stalls

Budget brands tend to fly high in a downturn. But while that's true of McDonald's, low-cost flyer Ryanair has had its wings clipped...

by Dave Waller
Last Updated: 06 Nov 2012

McDonald’s is clearly benefiting as people tighten the purse strings: quarterly net profit at the burger chain soared 15% globally, coming in at $1.41bn for the three months to the end of June. That’s compared with $1.23bn a year earlier. Group-wide revenues were up 16% to a sizzling $6.91bn.

Maccy D’s has managed to pull off such striking profits even while its own raw materials are becoming more expensive: it reckons the cost of most of its ingredients in the US and Europe is continuing to rise between 4% and 4.5% a year, thanks to food price inflation. Burgers are clearly a good place to be when diners start trading down.

Of course food isn’t the only staple that’s shooting up in cost right now, and over in the budget air sector Ryanair has failed to fly above such hurdles. Thanks to rising fuel costs, its profits for the last three months were disappointing - up only 1% to €139m. That’s despite a 29% surge in revenues and 8% jump in passengers (although it has to be said that we’re comparing it here to the period last year when the Icelandic dust cloud kept everyone on the asphalt). But one stat is sobering and unlikely to change in a hurry: Ryanair reckons its fuel costs rose by 49% on the same quarter last year. This is a company that’s lost tens of millions of euros in the past through poor fuel price hedging. It says it’s now 90% hedged on fuel at around $86 a barrel for the year to March.

Boss Michael O’Leary is clearly desperate to make up the short-fall any way he can: he’s pushing his talent for ancilliary sales by now offering reservations on extra leg-room seats (i.e the one by the emergency exits) for a tenner a pop. Meanwhile he’s ranting about suing BAA for the ‘substantial overcharges’ with which the airport operator is lumbering the carrier. When in doubt, kick BAA. Everybody else does.

O'Leary had previously said that Ryanair should be able to come out of all this in decent shape, arguing that any increases in fuel surcharges or fares among its rivals should simply push more people towards Ryanair’s comparatively low prices.

Clearly no one told EasyJet. Ryanair’s rival has become the analysts’ new darling thanks to its superior performance and profit forecasts. Revenue in the three months to June was up 23% on a year ago to £935m. EasyJet puts this down to its policy of broadening its appeal: the number of business customers among the plane-loads of stag do revellers were up 20%. The airline now expects a full-year profit of between £200m and £230m.

O’Leary is probably right about the struggling air sector only being able to support certain players, but there are of course no guarantees as to which ones will remain in the air. Right now EasyJet seems to have the right idea.

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