Ryanair reported today that its first half profits were down 47% to €215m, thanks largely to the soaring price of fuel. But although costs were up and fares were down, the no-frills airline could afford to be pretty cheerful about today's figures – passenger numbers were up nearly 20%, giving credence to CEO Michael O’Leary’s claims that it’s winning market share from higher-priced rivals like BA. And now the fuel price is plummeting, its prospects for next year look a lot better...
There’s no question that oil prices have taken a huge chunk out of Ryanair’s margins, just as they have for every airline. With the oil price soaring to almost $150/ barrel, Ryanair’s fuel costs for the half-year to September were more than double the total for the same period last year (indeed, they accounted for half of its entire operating costs). However, it looks well placed to profit as the price per barrel slides – unlike many of its rivals, it hasn’t bought a huge amount of its fuel in advance, so it can stock up for the coming months much more cheaply. And the fuel it has bought for early next year was hedged at almost $50/ barrel less than the average price over the last six months – so margins should rebound strongly.
Unfortunately this will come too late to save it from recording a loss for the second half of this year – with average fares expected to fall by up to 20% in the next two quarters, it will do well to break even for the year as a whole. However, the good news is that passenger numbers continue to rise – another 19% in the first half, hitting 32m. And it expects another jump in the second half, as rivals increase their fares to pay for higher fuel hedging costs.
Indeed, Ryanair seems to be pretty optimistic about the coming year. It reckons consumers will seek out cheaper deals, and it expects more of its competition to go to the wall – leaving it ideally-positioned to cash in. ‘As more airlines go bust, and the wave of European consolidation continues, the strongest survivors will be those airlines - like Ryanair - who are well financed, have a strong balance sheet, and the lowest cost base,' O’Leary said today. He’s even talking about launching cheap flights to the US for as little as €10, if he can get his hands on some cheap long-haul aircraft from distressed rivals (10 hours of Bullseye Baggies - we can't wait).
In classic Ryanair style, it found time in its results statement today to be rude about the Irish government, CAA regulator Harry Bush, BAA and pretty much all of its rivals. A sure sign that it’s still in fine fettle...
In today's bulletin:
HBOS losses top £5bn as Lloyds deal looms
Ryanair bullish despite profit slump
MT Special: How it all went wrong at Lehman
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