Ryanair beats expectations, but there's a storm brewing

The air industry must be in trouble: even Ryanair says its earnings won't take off this year...

by Dave Waller
Last Updated: 23 May 2011
Air travel and incredulity go hand in hand: kids may marvel at how those giant metal tubes manage to stay in the sky; the rest of us ponder how an airline can possibly post a profit in the current climate. Yet Ryanair continues to surprise: the Irish carrier’s net profit actually came in ahead of expectations – up 23% to €374.6m ($525.2m) in the 12 months to the end of March. And that includes a €26m hit from the cost of the disruptions caused by the Icelandic volcano debacle last year.

But the flight path isn’t entirely smooth, and Ryanair remains suitably cautious in its outlook. Boss Michael O’Leary said he’s ‘concerned at the impact of the recession, austerity measures and falling consumer confidence on fares’. And then there’s the small matter of his fuel bill: Ryanair says this will rise by €350m this year, after a jump of 37% to €1.23bn in the 12 months to the end of March. Thanks to that little outlay, its operating costs will go up 13% this year, compared with a 12% rise in average fares. And even for a wiz like O’Leary, those sums don’t really add up.

In response, it’s going to ground 80 planes through the weaker winter months – double its previous total. And there’s not much else it can do. Ryanair has 90% of its fuel requirements for this financial year hedged at an average of $82 per barrel. So it reckons net income for the full year to March 2012 will come in at the same level as this year – i.e. €400m excluding the cost of the volcanic disruption (which had it cancelling 14,000 flights).

And it looks as though that may not have been a one-off.  News of another Icelandic eruption, currently spreading its meddlesome emittance towards Scotland, has already set shares a-wobbling: Easyjet’s were down 6% this morning, Ryanair’s down 4.7%.

Still, there is one silver lining to this cloud, at least for Ryanair: the airline reckons fuel prices will propel other airlines into financial difficulty as they increase fares and surcharges – many of which are already higher than Ryanair’s lead-in fares, as O’Leary was typically quick to point out – thus driving even more punters its way. And it may have a point: EasyJet reported a near doubling of half-year losses thanks to these pressures. Still, if an airline’s pinning its hopes on others going bust, it doesn’t bode well for the industry as a whole…




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