Strong yields put Ryanair on track for record annual profit

This story is sourced from Pro
See more Pro news »

A better than expected third quarter performance has put Ryanair on track to deliver its highest ever full-year net profit.

The European budget carrier posted an €18.1 million ($24.4 million) profit for the three months to December 2012, €3 million higher than last year and beyond analyst expectations. At the heart of this performance was an 8% improvement in average yields during the third quarter.

"We didn't expect that price increase of 8%," said Ryanair deputy chief executive Michael Cawley during a results press conference in London on 28 January, attributing the performance to two key factors. "Number one, capacity across the whole network, including ourselves, has grown modestly," he says, pointing to capacity reductions from a number of restructuring carriers.

"Coupled with that I think there is a growing realisation of the merit of Ryanair's proposition. So many are people coming back to us who have travelled with us before. We are having to compete less and less on price. The necessity to compete on price is less when you have that demand," he says, while stressing the value of its low-fares proposition.

While softness in January has prompted the carrier to estimate that yield growth will return to around 6% during the last quarter of its financial year, that still puts a full-year profit target of €540 within reach. This would be 7% up on its adjusted net profit of €503 million last year and the best result in its history.

The carrier is again aiming to minimise losses in the fourth quarter of its financial year by grounding around 80 aircraft during the seasonally weaker demand months. Despite an expected 3% reduction in fourth quarter numbers as a result, it still expects to lift overall passenger numbers this year to more than 79 million.

"In the coming [financial] year we are probably looking at 2-3% [passenger] growth, perhaps 4% depending whether we have growth in the winter," says Cawley, noting the airline will decide nearer the time. "There is potential for the winter. The trick is to make it profitable."

He says next year's growth will be driven by the aircraft delivered over the winter - the last under its existing deal with Boeing.

In the absence of any new aircraft acquisitions - Cawley reiterates that no deal is imminent and estimates it will take at least another year before anything concrete emerges - the age of the Ryanair fleet looks set to rise in the near-term. Ryanair's current 305-strong fleet has an average age of around four years and its oldest aircraft is seven years old.

But Cawley does not expect the airline to take a hit from higher maintenance costs. "It doesn't get significantly more expensive until they [Boeing 737-800s] are 12 years old. So we don't see a problem by holding onto them for longer for the next four to five years," he says.