Ryanair in the red - but clearer skies ahead

A £156m loss for Ryanair - but it could still be the industry's biggest winner in the next 12 months.

Last Updated: 31 Aug 2010

Ryanair’s annual results, out this morning, seem to make pretty grim reading: a pre-tax loss of €180m, thanks to a big hike in fuel costs and a painful €222m write-down on its Aer Lingus stake. It’s the first time in its 20-year history that the Irish company has finished a year in the red (last year it posted a profit of nearly €500m). On the plus side, passenger numbers and revenues are both still rising, and belligerent CEO Michael O’Leary is predicting a profit of nearly €300m this year. Not many airlines will manage that in the next 12 months.

Ryanair has certainly suffered from the big jump in fuel costs, which increased to €1.26bn, over €400m more than last year. That would make a hole in anyone’s figures – although O’Leary made matters worse by locking in a price of $125 a barrel just as the price started falling (the Evening Standard reckons this wiped an unnecessary €150m off the bottom line). However, with the price now heading up again, O’Leary’s locked in at $62, which should save him about €450m this year.

The other big drag on profits has been its entirely fruitless bid to take over Irish rival Aer Lingus; Ryanair’s accumulated a near-30% stake, but the Irish government has continued to block the deal (as, to be fair, it was always going to). With Aer Lingus’s value continuing to plunge, Ryanair has been forced to write down the value of its stake by €222m - so it was a pretty expensive shot across the bows. As usual, O’Leary was scathing about his rival today, suggesting it ‘faces a bleak future as a loss making, subscale, regional airline… under a board which has shown it has no vision and no strategy for improving shareholder value.’ Oh to be a fly on the wall at one of those board meetings…

However, Ryanair is still building passenger numbers – it carried 58.5m of us last year, a 15% rise, making it the biggest airline in Europe (it’s also the biggest by market cap now too). ‘The business-class strategy of these airlines like BA, Lufthansa and Air France is dead,’ O’Leary proclaimed today. He plans to keep dropping fares to stimulate demand, and expects to keep taking traffic from its rivals. Ryanair’s also increasing the amount of money it squeezes out of each passenger – ‘ancillary services’ like car hire, scratch cards, Bullseye Baggies and (soon) mobile phones now account for 20% of revenues.

Passengers will also know that it’s been merciless with costs (and plans to chop another 5% this year). So perhaps it’s no surprise that if you strip out the one-off items, underlying net profit was €105m – almost 80% down on last year, admittedly, but still ahead of forecasts. And if O’Leary’s right about next year’s profits, as its rivals falter, it’ll be a major vindication of his low-cost model...

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