Ryanair to cut capacity for first time this winter

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Ryanair passenger numbers are set to fall this winter as the budget carrier cuts net capacity over the second half of its financial year for the first time in its history in a bid to counter rising fuel costs.

The Irish carrier could leave up to 80 aircraft parked on the ground during the winter months as it seeks to lower exposure to higher fuel costs and hang on to the yield gains it expects over the summer.

While Ryanair has increasingly grounded aircraft over the winter in recent years - including around 40 last winter - this marks the first time its second half capacity will be cut. But despite cutting capacity 2% and 5% in quarters three and four, respectively, it will increase full-year capacity 4% in the coming year, increasing annual passenger numbers to 75 million.

Ryanair estimates its fuel bill will rise by about €350 million ($491.2 million) for the year to March 2012, and will rise sharply - by nearly a third - in the final quarter, where it is hedged at $97 a barrel.

"That's the reason we have decided we are going to cut capacity during the winter," said chief executive Michael O'Leary at a briefing in London on 23 May to highlight increased full-year profits for 2010/11.

"This will help us get costs down and keep fares up. It's the first time we have cut capacity."

O'Leary estimates around 80 aircraft could be grounded this winter, including the net 40 aircraft that will join the fleet during the year.

"A lot depends on what happens to oil, average fares and airport deals," he added, saying the carrier intends to be more tactical and keep the pressure on airport costs.

"A starting point is about 80 aircraft, but it could be less," he said, pointing to the carrier having the flexibility to react to market opportunities if the oil price stays high and there is, as he expects, more consolidation in the airline sector.

Ryanair will continue with the 50 new deliveries this year as it needs the aircraft for next summer. "You can't just take delivery of 50 aircraft at the end of March," he said, adding: "What will happen when we get to March/April is we will fly every one of those aircraft."

The second half capacity cuts are designed to hang on to the gains in the first half, as it sees yields up 12% helping it to repeat this year's €400 million net profit.

"We've got good visibility during quarter one and two and growth of 12% is attainable," said O'Leary. "We are still seeing stronger advance bookings at slightly higher fares than we would have done last year."