Yields to lag behind fuel costs in FY2012/13: O'Leary

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Ryanair chief executive Michael O'Leary says he does not expect yields to continue rising fast enough to offset increased fuel costs, prompting the airline to cut its profit forecast by up to 20% for the year ahead.

The Irish budget carrier today announced that net profits for the year to March 2012 were up by a quarter, reaching €503 million ($642 million). But off the back of a €320 million jump in its fuel bill, it is predicting a net profit of between €400-440 million for the year to March 2013.

"We are concerned about next winter," said O'Leary during a results press conference in London on 21 May, citing the impact of economic turbulence on its ability to lift fares during the second half of its financial year. "It will be good for traffic growth but not for fares."

The airline had initially forecast flat profits for the 2011/12 financial year, but O'Leary defended another cautious outlook for the next 12 months. "I think we are right to be more conservative," he says. "I think it will be a very difficult fares environment this winter."

Average fares grew 15% in the last year - off a base of €40 - continuing a run of three years of double-digit yield growth. "But I don't believe there will be a fourth year of double-digit fare increases," says O'Leary.

While he insists that Ryanair has no visibility into the winter, he expects the airline's fuel bill to be €320 million higher. "On balance I think it will be difficult," he says. "We need airfares to rise 15% to pay for the oil bill and I think it's unlikely."

Ryanair is forecasting passenger growth of 5% for the year ahead, and it expects to take the heaviest hit on its fuel bill in the first half. The carrier says first quarter net profits will likely fall due to these higher cost pressures.