Ryanair profit forecast takes wing - but fares will rise too

Ryanair made a £9.5m loss last quarter, but it reckons it'll be firmly in the black by the year's end.

Last Updated: 18 Jan 2011

Encouraging third quarter results from Ryanair today: admittedly a loss of €11m (£9.5m) isn’t ideal, but it’s a vast improvement on the €101.5m loss the airline reported a year ago. What’s more, falling fuel prices and fewer unprofitable routes have allowed it to raise its earnings forecast for the year as a whole. Good news for investors – but the bad news for the rest of us is that those cheap Ryanair short-haul flights may not be quite so cheap for much longer…

O’Leary may rub people up the wrong way, but his airline is clearly doing a lot better than most. Despite the recent turbulence, the Dublin-based carrier continues to snatch market share; in fact, with passenger numbers up 14%, Ryanair is still the fastest growing airline in Europe (and, according to COO Michael Cawley, one of only two in the region that are growing at all). Shareholders will also be chuffed to hear that the company has raised its full-year forecasts on the back of these better-than-expected Q3 numbers: it’s now expecting a profit of €275m for the 12 months to March 31. Given that the airline trade body said recently that this has been the industry’s worst ever year, that’s pretty good going.

It hasn’t all been plain sailing for Ryanair – O’Leary acknowledged that market conditions remained ‘difficult’, with average fares down 12% (although this is lower than the predicted 20%, and was offset by a 37% fall in fuel costs). Also, its ‘ancillary revenues’ – i.e. check-in baggage, in-flight meals, Bullseye Baggies etc – rose by just 6%, which is considerably slower than the rise in passenger volumes. Ryanair put this down to ‘changes in consumer behaviour’. Perhaps we’re getting a bit more reluctant to swallow Ryanair’s charges for services that many airlines provide for free.

Still, if Ryanair is going to stay profitable, customers will probably have to foot the bill. In an interview with Reuters, Ryanair’s CFO Howard Millar said average fares will need to rise ‘somewhere down the line’ if the company is to achieve long-term profit targets. This represents something of a U-turn: O’Leary has always been adamant that he would keep prices low to keep volume high, but he seems to have had a change of heart. We can’t help wondering if this may be related to the breakdown of negotiations with Boeing over those 200 new planes; without this extra capacity, he’ll need to squeeze more profit from existing routes.

But he won’t want to go too far with the price hikes. After all, most of us don’t fly Ryanair for the travel experience.

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