Ryanair profit bounces back

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Ryanair's trebling in full-year pre-tax profits to €319 milion ($389 million) for the 12 months to March 2010, exceeding its earlier expectations for the year, provides further evidence of the relatively strong performance by low-cost carriers during the economic crisis. In Europe in particular, the financial fortunes of the low-cost carriers have largely outperformed those of their network peers who were harder hit by the demand crisis in premium travel.

"We can be proud of delivering a 200% increase in profits and traffic growth during a global recession when many of our competitors have announced losses or cutbacks, while more have gone bankrupt," says chief executive Michael O'Leary of the airline's performance. Ryanair yields fell 13% over the previous year, but this was less sharp than the up to 20% decline initially feared, while a 30% cut in fuel costs this year compared with the heavy hit it took during the record high oil prices of 2008/09. But while acknowledging fuel was the biggest factor in the improvement, O'Leary also points to its continued control of its other costs. "If you strip out fuel, we still cut costs 3% despite sector lengths increasing 4%," he noted during a results press conference.

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He describes the company as "cautiously optimistic" of improving profits next year, as he expects yields to improve 5-10% in the coming year. "If that happens, we expect profit to rise 10% to 15% in the coming year."

One of the keys to Ryanair's anticipated yield improvement is its increasing presence at bigger more mainstream airports, which support higher yield traffic in the summer season, such as Faro, Malaga and its most recent addition, Barcelona El Prat.  O'Leary believes airports such as this are turning towards Ryanair as flag carriers "continue to retreat" and other low-cost carriers are re-organising themselves. "They recognise Ryanair is the only show in town if you want growth," he suggests, adding that if the current easyJet boardroom stand-off over strategy results in a slowdown of its future growth, "that means the field will become clearer for Ryanair".

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How low-cost carriers fared in 2009 read our recent special report
He does not believe the carrier will be too hard hit by the impact of wide-ranging cutbacks across Europe as governments look to cut heavy deficits. "From a selfish point of view, the more the austerity measures, the deeper the cuts, the better it is for the Ryanair model. Austerity is good for our model," he says.

O'Leary Profile 
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Read January's Airline Business cover profile on Michael O'Leary here
O'Leary is at pains to stress the carrier continues to grow; passenger numbers rose 14% this year to 66.5 million and will increase again in the year to come to 72 million (taking into account the 1.5 million passengers lost because of the ash cloud disruption). its fleet and passenger numbers will reach 299 and 85 million by March 2013. But this comes against the backdrop of the failure to agree terms with Boeing last year for a 200 strong 737-800 order for delivery in 2013-16, which would have secured aircraft for its long-term growth plans.

With no sign of any new aircraft deal in the near-term and thus sharply reduced capital expenditure, Ryanair moved forward the first part of previously indicated plans for a possible dividend. It announced plans for a €500 million dividend to shareholder this October. "Frankly we don't have any other use for the money," says O'Leary. A further €500 million may also be available to return to shareholders at the end of its 2012/13 financial year, though O'Leary stresses: "It is subject to profit and no new aircraft order or other capital expenditure, like an acquisition or doing something with Aer Lingus [in which it holds a stake]."

Even with its current order book running dry after 2013, O'Leary insists there is no time pressure to reach a deal on securing new aircraft. "We will buy aircraft at some point in time," he says, "[but] we don't have to get aircraft before 2015/16 if we don't want to. I would be equally happy with no growth for a couple of years [after 2012/13]," he says, noting the carrier could still improve its bottom line through a "spring clean" of its network. While Ryanair would be looking at a 2012/13 timeframe to get aircraft for 2014/15, O'Leary does not believe there is a shortage of opportunities to get aircraft in. "We've been offered 40 aircraft from the leasing companies for summer 2010 and 2011. The world is full of aircraft."