Posted on: 04 November 2013 by Mark Howells
Ryanair’s half-year (1H13) profits rose by 1% to €602 million, with revenue per passenger increasing 2% aided by a 22% rise in ancillary revenues.
Unit costs rose 3% largely due to a 7% increase in fuel prices. Average fares fell by 2% during the half year, and have continued to fall into the winter, which will lead to a reduction in Ryanair’s full year profit guidance from €570 million to approximately €510 million.
Ryanair’s CEO, Michael O’Leary, commented, “We are pleased to report slightly increased half-year profits, particularly against a backdrop of softer fares this summer. Yields in 3Q13 have softened, which is good news for our customers and has led to strong growth in traffic (up 6% in October) and load factors (up 1%).”
The 2% fall in fares during 1H13 was impacted by one-off events such as the timing of Easter (not in Q1), the summer heatwave in northern Europe, French ATC strikes in June, and weaker sterling. Ryanair note that it responded to these market conditions by stimulating traffic growth with aggressive fare promotions. “This will lay the foundation for traffic growth over the coming years, particularly as our new 175 aircraft deliver from September 2014,” O’Leary emphasised. “While fares are falling, ancillary revenues grew strongly by 22% to €713 million, driven by the successful roll out of reserved seating, priority boarding and higher credit/debit card fees.
“Unit costs in 1H13 rose 3% mainly due to a 7% increase in fuel costs. Excluding fuel, sector length adjusted unit costs fell by 2% as we continued to deliver cost efficiencies, despite higher Eurocontrol charges and the impact of a 2% pay increase from April last,” O’Leary continued.
“Our new routes and bases performed well this summer, albeit at weaker yields. With only 9 (net) additional aircraft, we still managed to grow our 1H13 traffic by 2%, thanks to a load factor increase of 1%. With our 175 new aircraft order, our new 10 year growth deals at London (STN) and Warsaw Modlin (MOD) airports, and the Irish Government’s recent decision to scrap the €3 travel tax from April 2014, Ryanair is well positioned to return to strong and profitable traffic growth from September 2014 onwards.
“We have announced a programme of significant upgrades to our website and digital platforms including a simpler website homepage, an improved booking path reducing (from 17 to 5) the clicks required to make a booking, and a new “My Ryanair” member service which allows customers to register their name, address and credit card details just once,” the CEO explained. “Early next year we will roll out mobile boarding passes, a ‘Share the Fare’ option, a ‘Fare Finder’ feature which will enable our customers to find dates and flights where these lowest fares are available, a new mobile app for smartphones and tablets, and in June 2014 new bespoke language websites in all Ryanair’s major EU markets starting with Spain and Italy.”
O’Leary then announced that from 1 February 2014 the airline will move to fully allocated seating on all flights, a move designed to make the boarding process smoother, and enabling families or other groups to ensure that they sit together. “Passengers will still be able to choose our popular reserved seating service (select front row or over-wing seats), or alternatively select seats elsewhere on the aircraft, as long as they check-in more than 24 hours prior to the date of departure. All passengers who don’t wish to pay a small fee (€5) to select their preferred seats will be allocated seats during the 24 hours prior to the date of scheduled departure. This return to allocated seating is Ryanair’s response to the enormous demand from our customers in recent weeks via Ryanair’s ‘Tell MOL’ customer feedback initiative.
“Ryanair remains 90% hedged for FY14 at $980 per tonne (approximately $98 a barrel). We have taken advantage of recent weakness in oil prices and the US dollar to extend our FY15 hedges to 60% at approximately $94 per barrel, which at current market rates should deliver a unit cost fuel reduction of approximately 4% in FY15,” O’Leary noted.
Looking ahead, O’Leary pointed out that on 4 September, Ryanair announced that it had noticed a perceptible dip in forward fares and yields into 3Q13 due to (i) increased price competition, (ii) softer economic conditions in Europe and (iii) the weaker Euro/Sterling exchange rate. “We responded to this yield softness by lowering our FY14 traffic target from over 81.5 million to just under 81 million. We also released a range of lower fares and aggressive seat sales to stimulate traffic, load factors and bookings across all markets. The success of this strategy has been vindicated by our 6% rise in October traffic, and a 1% increase in load factors.
“Market pricing remains weak, so we will continue to promote low-fare seat sales throughout the remainder of both 3Q13 and 4Q13. Forward bookings are running slightly ahead of last year, but the softness in fares and yields continues. Based on reasonable visibility we expect 3Q13 fares to fall by 9%, and 4Q13 (albeit with zero visibility) to fall by up to 10% (without the benefit of Easter which will be in Q1 during FY15). Our cost discipline will see sector length adjusted cost per passenger fall by 7% in 2H13. However, the continuing fare and yield softness means that full year profits will be lower than previously guided (€570m to €600m). We now expect the full year out-turn to be between €500m to €520m due entirely to this lower fare environment.” O’Leary concluded.