Ryanair in the red as Italians see red

The belligerent budget airline has seen its profits decimated by spiralling fuel costs...

by
Last Updated: 31 Aug 2010

Irish carrier Ryanair said this morning that post-tax profits fell to €21m in the first quarter of its financial year, an 85% drop on last year’s figure. And no prizes for guessing why its margins are being eaten away: the oil price almost doubled during the period, sending Ryanair’s jet fuel costs soaring 93%. That means fuel now accounts for about half of the airline’s entire cost base – up from 36% last year.

Ryanair was also pretty gloomy about the prospects for the oil price. CEO Michael O’Leary still thinks the current level is ‘unsustainable over the medium term’, but freely admits that he has no idea when it’s going to return to something more sensible. He has taken advantage of the slight fall in recent weeks to stock up in advance – it’s now got 90% of its Q2 oil at $129 per barrel, and 80% of its Q3 supply at $124 per barrel. But unless things improve markedly in time for Q4, he said today, the airline’s likely to end up in the red for the year as a whole – possibly to the tune of as much as €60m.

On the face of it, this was a pretty dismal announcement – and the market certainly seemed to think so, judging by the 15% drop in Ryanair’s share price this morning. But there were some causes for celebration. Despite the Easter holidays not falling into the quarter this year, passenger numbers were up again – by 19% this time. And despite average fares falling by 8%, revenues were up 12% to €777m. So it looks as though Ryanair’s ostentatious refusal to pass on costs to passengers (via fuel surcharges) is still helping it grab market share from its illustrious rivals.

O’Leary certainly still sounds pretty bullish (as usual). He reckons the higher fare airlines will have to cut down on their short-haul flights (reports today suggest BA is set to do just that), while some competitors may go out of business altogether – all of which should create big opportunities for Ryanair, he says, given that it has: ‘the lowest fares and lowest cost base in the industry’.

And it’s still busy picking fights with the great and good – this weekend it seems to have provoked a row with the Italian government about an advert on its website (fancy that) showing an Italian cabinet minister ‘giving the finger’; the airline equates this with his government’s attitude to airline passengers. And it’s refusing to take it down, despite Italy’s transport minister calling it ‘genuinely unpleasant’. So Ryanair is clearly still alive and kicking...


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