Ryanair Beats Recession As Traffic Grows 13%
Jim Mason
---------------------------------------------------------------------------
-----
02.02.09
Ryanair Beats Recession As Traffic Grows 13%
Q3 LOSS OF €102M AS FUEL COSTS SOAR BY 71%
Ryanair, Europe?s largest low fare airlines today, (2 Feb) announced a Q3
loss of €102m, (compared to a profit of €35m in last year?s Q.3). Average
fares fell by 9% to €34, while fuel costs rose by 71% to €328m. Revenues
rose by 6% to €604.5m, as traffic grew 13% to 14m, as more consumers switch
to Ryanair?s low fares from high fare competitors.
Summary Table of Results (IFRS) - in Euro
Q3 Results Dec 31,
2007 Dec 31,
2008 % Change
Passengers 12.4m 14.0m +13%
Revenue €569.4m €604.5m +6%
Adjusted Profit/(Loss) after Tax (Note 1) 35.0m (€101.5m) N/A
Adjusted Basic EPS(Euro Cents)(Note 1) 2.35 (6.88) N/A
Announcing these results Ryanair?s, CEO Michael O?Leary said:
Results
?Our Q3 loss of €102m was disappointing, but in line with expectations, and
was almost entirely due to a €136m increase in fuel costs. Average fares
(due to recession and weaker Sterling) fell by 9% to €34, but this decline
was largely funded by a 3% reduction in non fuel operating costs. The
general economic environment remains extremely difficult, as the recession
saps consumer confidence, but this is proving to be good for Ryanair?s
traffic growth, as more and more passengers switch to Ryanair?s lowest fare
lowest cost model. Many of our competitors have in recent months reported
short-haul traffic falls, while Ryanair continues to grow. We will continue
to lower fares to maintain our traffic growth and high load factors.
?Ancillary revenues grew by 19% to €132m, and now account for 22% of
revenues (19% last year). We expect our onboard mobile telephony service to
become operational at the end of February on 20 Dublin based aircraft, and
this trial, which will last for 6 months should be extended to some 40
aircraft by the end of the summer. We expect initial revenues to be small,
but believe that in-flight communication will be a strong source of
ancillary revenue growth in future years.
?Q.3 fuel costs rose by 71% to €328m and accounted for 47% of our operating
costs (37% in Q.3 ?08). We have taken advantage of recent falls in jet fuel
prices to extend our hedging position for FY?10 to 75% of Q.1 and Q.2, and
50% of Q.3, at an average price of $650 per tonne, which is 38% lower than
the average $1,050 per tonne paid in the current year. If our average cost
in FY?10 finishes at $650 per tonne, it will reduce our fuel bill by
approx. €500m in the next fiscal year. Excluding fuel, other operating
costs in Q.3 fell by 3% on a per passenger basis due to improved unit cost
performances on staff costs, airport and handling costs, and depreciation.
Competitive Environment
?The rate of airline closures and consolidation across Europe continues to
accelerate. Recent developments include the Air France/KLM 25% stake in
Alitalia, the EU?s approval of the Clickair/Vuelling merger in Spain and
the January bankruptcy of the Lithuanian carrier FlyLAL. As losses increase
in 2009, more EU airlines will close and/or consolidate, as many lack the
cash reserves to survive next winter.
This consolidation is hastening the emergence of four large European
airlines, comprising three high fare fuel surchargers, led by Air France,
BA and Lufthansa, and one very large low fare airline, Ryanair. Ryanair?s
success is good news for Europe?s consumers and airports, as we will
continue to offer choice, competition, growth and even lower prices.
Airport Costs
?The dramatic cuts in flights and capacity by many of Europe?s flag
carriers has created traffic collapses at many of Europe?s larger airports.
This is creating enormous opportunities for Ryanair, as these airports
compete to reduce charges in order to attract Ryanair?s growth and to
develop low cost facilities to take advantage of Ryanair?s quick
turnarounds and our improved web check-in facilities. This movement towards
lower cost, more efficient airports in Europe is welcome, even if it is 20
years too late.
?In the UK we welcome and strongly support the CAA?s recent recommendation
that the high cost BAA airport monopoly be forced to sell Gatwick and
Stansted airports in London and Edinburgh in Scotland to finally introduce
much needed competition and speed up the delivery of low cost, efficient,
additional capacity, something that the BAA monopoly has repeatedly failed
to do. The CAA Regulator remains hopelessly inadequate and has recently
approved another round of cost increases at Stansted at a time when
airports all over Europe are lowering prices. The sooner real airport
competition replaces the incompetent CAA Regulator in the UK, the better.
?In Ireland we welcomed the Government report in December which confirmed
Ryanair?s view that the DAA?s Terminal 2 is ?considerably over-sized? and
that the risk of this over-sizing should be borne by the DAA monopoly and
not by passengers. We hope that the equally incompetent Aviation Regulator
in Ireland will now act upon the recommendations of this government panel
having been correctly criticised for ?passive regulation?. The fact that
Dublin Airport?s traffic is now in freefall (down 9% in December) exposes
the damage being done to Irish tourism and the wider economy by this high
cost, inefficient, Government owned airport monopoly. We call again for the
Government to allow a competing terminal to be developed at Dublin Airport.
Ryanair would be willing to build and pay for such a facility which will
relieve passengers from the high costs, long walks and even longer queues
which are a feature of the third rate, third world services provided by
Dublin Airport.
Regulatory Developments
?The European Court of First Instance?s decision in December to dismiss the
EU Commission?s flawed 2004 Charleroi decision was a stunning victory for
Ryanair, competition and regional airports across Europe. This ruling
confirms that Ryanair did not receive unlawful State Aid or subsidies from
Charleroi. This ruling renders the Commission?s 2005 Airport Guidelines
redundant. We again call on the European Commission to abandon the 8 other
State Aid cases against regional airports in Europe and focus instead upon
the real abuse of State Aid including the latest Government bail-out of
Alitalia, and the State Aid recently given by the Austrian Government to
its flag carrier to induce Lufthansa to buy them. We warmly welcome the
EU?s ruling last week that the over €1bn of discounted domestic airport
charges, received by Air France at French airports was unlawful State Aid.
There will now be a level playing field between international charges and
domestic charges at French airports. The EU Commission should be commended
for finally exposing this blatant abuse of the State Aid rules by Air
France.
Aer Lingus Offer
?On 22nd January last, the Irish Government announced that it would not
accept Ryanair?s cash offer of €1.40 per share for its 25% stake in Aer
Lingus. We are disappointed by this rejection of a generous offer which
valued Aer Lingus at €748m, but respected it and immediately withdrew the
offer. This sadly condemns Aer Lingus to a bleak future as a loss making,
subscale, regional airline, which has a high cost base and declining
traffic numbers, and which, we believe, will report substantial losses in
2008 and again in 2009.
?Whilst we regret that the Government?s decision means that we can not now
deliver on our promises to reduce Aer Lingus?s short-haul fares, double its
short-haul fleet and create 1,000 new jobs, this decision clears the way
for Ryanair to continue to focus on our own growth and expansion, reducing
our costs and returning to substantial profitability over the coming year.
It is doubtful that Ryanair will waste any further management time or
resources making another offer for Aer Lingus, as its scale and losses will
continue to render it increasingly irrelevant in Europe?s airline
landscape.
Balance Sheet.
?Our balance sheet continues to be one of the strongest in the industry
with over €1.8bn in cash at the end of Q3. The rebound in profitability in
fiscal 2009/10 should lead to a further growth in our cash balances. Our
large floating cash deposits provide a no-cost hedge to our floating debt
and we plan to take advantage of the historically low interest rates to
lock in much of our 2009 aircraft deliveries at these low fixed interest
rates. Our long term dollar hedging strategy will mean that in 2009/10 we
will benefit by paying for aircraft at €/$ exchange rate of 1.50,
significantly better than current market rates. We also recently exercised
options over 13 Boeing aircraft for delivery in 2011 which will enable us
to add cheaper and more fuel efficient aircraft to our business?.
Q.4 and full year outlook
?Our outlook for the fourth quarter has improved somewhat. Our decision not
to hedge Q.4 oil prices has been vindicated by their continuing decline and
we will benefit from much lower oil costs in Q.4 of approx. $500 per tonne.
Some of this cost advantage will be diluted by weaker yields, which are the
result of our aggressive price promotions, the decline in Sterling and the
impact of the recession which is making consumers much more price
sensitive. As a result of this degrading environment we expect Q.4 average
fares to fall by 20% at the upper end of our previously guided range.
Thanks to lower oil costs and continuing reductions in non oil operating
costs, we expect the Q.4 loss will be smaller than previously anticipated,
so we are upgrading our full year 2008/09 guidance from break even to a net
profit after tax in a range of €50m to €80m (Pre-exceptionals).
?Looking forward into fiscal 2009/10, Ryanair will enjoy significantly
lower oil costs thanks to our recent hedging programme, when most of our
competitors are already hedged at much higher prices. We intend to use this
cost advantage to again lower fares. These lower prices will drive
Ryanair?s traffic growth, maintain high load factors (and ancillary sales)
and capture market share from higher cost fuel surcharging competitors. We
won?t be in a position to give earnings guidance for next year, until the
fare environment becomes somewhat clearer. At this time we expect fares to
fall next year by over 10%, although if the recession deepens, it could be
worse than this. However the 38% reduction in oil prices which our fuel
hedging has secured will ensure that Ryanair returns to substantial
profitability next year, when many of our competitors will be reporting
losses.
?The longer and deeper this recession, the better it will be for the lowest
cost producers in every sector. Like Lidl, Aldi, Ikea and McDonalds,
Ryanair, is the lowest cost provider ? by a distance - in the European
airline industry, and we are poised for substantial traffic and profit
growth in the coming year as the recession forces millions of passengers to
focus on price, while still (in the case of Ryanair) enjoying our superior
punctuality, fewer cancellations and younger aircraft fleet.?