O'Leary in a flap as Ryanair profits plummet

Soaring fuel costs and eurozone austerity have hit the budget airline where it hurts: Ryanair's profits for the last quarter are down 29% to £77.5m.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
It’s been a tough quarter for Ryanair. The airline managed to notch up 11% growth in turnover to £1bn for the three months to June 30, but profits failed to follow suit.  Despite ticket price hikes (flyers are now paying an average of 4% more to travel) and rising ancillary sales, which include baggage fees, administration charges, and mark-ups of up to 1200% on the RRP for sarnies and bottles of pop, profits are down 29% to £77.5m. The chief culprit: rising aviation fuel prices. In Q1, fuel expenditure at Ryanair exploded, up 27% year-on-year to €544m, pushing up operating costs by 10%.

But highly-priced hydrocarbons aren’t the only thing sending profits into freefall. Commenting on the current business environment this morning, Ryanair boss Michael O'Leary was unusually sombre: ‘Q1 yield increases were dampened by the EU wide recession, austerity measures, and heavily discounted fares at our new base launches in Cyprus, Denmark, Hungary, Poland, Provincial UK and Spain,’ he said. ‘Our outlook remains cautious for the year.’

Caution is right: it looks to be a rather bleak winter for Ryanair. Not only are fuel prices rising, and stubborn consumers hanging ever more diligently to their hard-earned cash, austerity-squeezed countries across the eurozone are also attempting to make a few extra cents by pushing up airline taxes. On July 1, the Spanish government more than doubled airport taxes in Madrid and Barcelona, with smaller increases at other Spanish airports.

Ryanair has significantly cut back on Spanish flights to try and minimize the impact of these rising overheads, but holiday-makers have so far proved unwilling to trade Barcelona’s Parc Güell or the delights of the Costa del Sol for the cheaper charms of Warsaw, Budapest or Wroclaw, despite a host of cheap-as-chips offers.

Ryanair’s troubles are but cumulus clouds compared to the tornado taking place on Air France-KLM’s balance sheet, however. The troubled airline made losses of €895m in the three months to June, and the business will have to shed £2bn in costs to stay airborne. Jet fuel prices are a serious issue at KLM too, but the Franco-Dutch airline has been grounded by French labour laws, which have kept salaries at the airline intolerably high, despite the recession. KLM is now having to fork out € 368m in expensive redundancy pay-outs to cut its workforce by 10%.

All in all, it’s a tough time for the industry, especially the carriers exposed to the eurozone crisis. And no one is expecting much respite any time soon. As O’Leary admitted in today’s results statement, he has ‘no visibility’ of next year’s yields. It seems, when it comes to forecasting the future of aviation, we’re all flying blind.

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