Posted on: 25 July 2016 by Mark Howells
Ryanair has announced a 4% rise in first quarter profit (1Q17, to the end of June 2016) to €256 million, as traffic grew 11% to 31 million while the average fare fell by 10% to €39.92, although this was offset by a 9% reduction in unit costs.
Ryanair’s chief executive Michael O’Leary commented, “This modest 4% increase in Q1 profit to €256 million is in line with previous guidance. The absence of Easter in 1Q17 and ongoing market volatility arising from terrorist events, and repeated ATC strikes (particularly in France) weakened fares on close-in bookings and caused almost 1,000 flight cancellations.
“We remain committed to our load factor active/yield passive strategy which is why 1Q17 fares fell 10% to under €40. Traffic rose 11% and load factor improved by 2 percentage points to 94% as our Always Getting Better (AGB) customer experience programme continues to win new customers and new markets,” O’Leary added.
“Cost control remains core, which is why unit costs reduced 9% (ex-fuel down 4%). Highlights of 1Q17 include: average fares cut 10% to €39.92; 16 new 737-800s delivered; and the share buyback programme (€886 million) completed in June.
“Year 3 of Always Getting Better (AGB) was unveiled in April and continues to improve our customer experience through service, digital and inflight developments. In addition to lower fares and wider destination choices, our customers now enjoy new initiatives such as Leisure Plus, improved Business Plus (with more flexible ticketing) and one-flick payments on our mobile app. In June, we simplified and cut checked bag fees for 92% of our customers.
“Our cost advantage over competitors increased in 1Q17 as unit costs fell 9%,” O’Leary continued. “Fuel fell by €42 million to €518 million in 1Q17. Ex-fuel unit costs were cut 4% due to lower cost aircraft, cheaper financing, discounted airport growth deals, lower sales and marketing spend, and weaker sterling, which was partly offset by slightly higher staff costs as 5 year pay deals kick in across our 84 bases and our headcount rises in line with fleet growth.
“FY17 fuel is 95% hedged at $622 per tonne (around $62 a barrel) which will (allowing for additional volumes) deliver fuel savings of approximately €200 million. Almost 55% of our FY18 fuel is now hedged at just under $500 per tonne (about $50 per barrel). We expect to pass on most if not all of these fuel savings to customers in lower air fares as we continue to grow traffic and routes strongly,” O’Leary stressed.
“The recent UK vote to leave the European Union (EU) was both a surprise and a disappointment. Ryanair, as the UK’s largest airline, had campaigned actively for a ‘Remain’ vote. We expect this result will lead to a considerable period of political and economic uncertainty in both the UK and the EU,” the CEO commented.
“This uncertainty will be damaging to economic growth and consumer confidence and we will respond as always with our load factor active/yield passive strategy. Until some clarity emerges over the next two years about the UK’s long term political and economic relationships with the EU, we will be unable to predict what effect it will have on our business and regulatory environment, but we have contingency plans in place for all eventualities.
“In the near term we expect that Brexit uncertainty will lead to weaker sterling, slower growth in the UK and EU economies and downward pressure on fares until the end of 2017 at least. Over the longer term, if the UK is unable to negotiate access to the single market/open skies it may have implications for our three UK domestic routes and UK nationals on our share register, but these risks are not material and will be manageable. There may also be some opportunities if our UK registered competitors are no longer permitted to operate intra EU routes, or must divest their majority ownership of EU registered airlines.
“In the meantime, we will pivot our growth away from UK airports and focus more on growing at our EU airports over the next two years. This winter we will cut capacity and frequency on many London Stansted routes (although no routes will close) where we are already significantly ahead of our multiyear traffic growth targets,” O’Leary reported.
“We see many growth opportunities for Ryanair’s lower fares and AGB customer experience across Europe. We are, on average, 1% better booked for 2Q17 than at this time last year albeit at significantly lower fares. We expect the load factor will be similar to last year at 93%. We now believe our FY traffic will grow by 10% to 117 million customers (up 1 million on previous guidance).
“At this time, we maintain our guidance, that full year profits will rise by approximately 12% to a range of €1,375 million to €1,425 million, but we caution that post Brexit there are significant risks to the downside during the remainder of the year,” O’Leary concluded.