Ryanair sees improving yield picture

More signs of an improved economic picture today from Ryanair, which minimised third quarter losses and raised its full-year guidance today off the back of better than expected yields. In essence the carrier has not had to discount fares as much as it expected to fill its aircraft. While year-over-year yields were still 12% down in the third quarter, this is better than the 20% fall it had anticipated – and it expects a further improvement in the last quarter with yields down around 7-10%.


Thumbnail image for ryanair 737-800 (Arpingstone).jpgSo have European economies turned the corner?  “We are seeing demand returning, not to pre-2009 levels, but they are moving back up in places like Germany, France, Spain, Italy and Scandinavia,” Ryanair deputy chief executive Michael Cawley said during a third quarter results conference in London today. But he says other markets, such as the UK and Ireland, are seeing slower signs of demand recovery


Ryanair retains its long-term aim of doubling passengers and profits by 2013 full-year, but there was something of a caveat today – or as Cawley describes, a clarifying of the conditions needed to achieve this. The carrier maintains its plans to double passenger and profits, but says this is subject to fares and fuel. This reflects that at the time it set out its target, average fares were at €44 and oil at $68 a barrel – and average fares were down at €30 in the last quarter and oil at around $72 a barrel.


“We have just clarified the circumstances under which it [doubling profits] will happen,” says Cawley. “Will we have oil at $68 again, who knows? Could it go back [to $68]? Absolutely,” Cawley says, noting oil was lower than this during the last year. Similarly, pointing to the historical precedence of Southwest Airlines, he notes declining yields could stabilise as average traffic growth slips into single-digit figures – reflecting the much larger base on which Ryanair will be growing.


What of two other key elements for Ryanair – ancillary revenues and its new aircraft order?


On ancillaries - Ryanair revenues here grew only 6% in the third quarter, below the growth of passenger volumes due to “changes in consumer behaviour”.  Cawley says the carrier had seen some “inhibitions” from passenger to spend as much on ancillaries. “That situation is beginning to stabilise and from here on we would see it growing in line with traffic,” he says, adding it has always expected ancillaries to settle at around 20% of total revenues (for the first nine months of the current year ancillaries stood at 20.4% of total revenues).


On future growth – Cawley says there has been no contact with Boeing (or Airbus for that matter) since Ryanair announced in December it ended talks with Boeing after failing to secure the terms and conditions it wanted for a 200-aircraft deal to cover its 2013-16 growth. He said the carrier would only revisit this if Boeing called them with improved terms. In the absence of a new aircraft deal, it will press ahead with plans to generate up to €1 billion in surplus cash by the end of 2013, which would be available to return to shareholders through special dividents


“We are indifferently frankly,” he says of whichever model it follows, but stresses the carrier’s belief  in the viability of growing the business for both its existing aircraft, and for additiona aircraft, if a future deal is ever struck. “I’ve never been as optimistic as I am now about Ryanair’s ability to join points A-to-B 200 times a year.”


For more on Ryanair, read the recent Airline Business profile of Michael O’Leary and his importance to the Ryanair business model.


Watch Michael Cawley talk about the carrier’s 3Q results in this Bloomberg interview .

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