Longer sectors push up Ryanair costs

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Ryanair's average sector length increased by 7% in the third quarter, contributing to a 15% hike in its unit costs.

A 37% fuel price hike and the winter grounding of 40 aircraft also contributed to the increase.

"Fares are so low that the incremental revenue [of operating the 40 aircraft] doesn't cover the incremental costs, such as fuel and staffing," says Ryanair deputy CEO Michael Cawley.

Staff costs also rose 9%, while airport and handling charges were up 6%.

Budget airlines have traditionally benefited from operating shorter routes at high frequency with short turnaround times, which spreads their cost base and maximises their asset use. Longer routes reduce average aircraft utilisation because it is not possible to operate so many daily sectors.

Ryanair has moved towards longer routes because those airports have offered the most competitive cost base, rather than as a strategic choice. Its flight hours were up 14% in the third quarter, compared with October-December 2009.

Cawley says: "We are going to increase our average sector length again this year because of our three bases in the Canaries, but that will be moderated by [shorter sectors from] Barcelona."

He adds that Ryanair is likely to hit "the extremities" more and more, reducing utilisation. He cites Finland, Cyprus and Greece as examples.

But Cawley insists there are still shorter range opportunities from airports such as Copenhagen and Amsterdam, if Ryanair can secure suitable terms.

Ryanair operates Boeing 737-800s, which have an endurance of about 4h. Cawley says Ryanair is beginning to hit payload range restrictions on routes it would like to operate, citing Scandinavia to the Canaries as an example.

But he does not see a need for a longer-range type. "I don't ever foresee us doing that; there are so many possibilities within the range of the -800 at the moment."