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Ryanair latest financial results for the 1st quarter (Q1) of their financial year (ending 30th June) released on 25th July show a slight increase of 1% in net profit to €139 million even though revenue rose by 29% and passengers numbers by 8% and average fares rose 11%.  Part of the reason for this was that unit costs rose by 14% due to a 49% increase in fuel costs up €140 million, to €427 million. Excluding fuel, sector length adjusted unit costs fell by 1%. Operating margin decreased by 4 points to 15% whilst operating profit was flat at €169.9 million. Ancillary sales also grew somewhat faster than traffic and amounted to 21% of total revenues and at €248 million were substantially higher than the profits generated showing just how important this source of revenue is. Ryanair is always looking at ways to sustain and increase this income and have recently started trials of “reserved seating” for 21 extra legroom seats on selected routes for a fee of €10 per seat.  If successful they plan to roll out reserved seating across more of the network this winter.

In spite of Ryanair’s legendary approach to containing costs, total operating expenses jumped 35% with fuel being the biggest but not the only culprit. Staff costs increased by 21% due to a 19% increase in sectors flown and a companywide pay increase of 2% granted in April 2011. Depreciation and amortisation increased by 26% due to the increase in activity and a higher number of ‘owned’ aircraft in the fleet (221 at 30th June 2011) yet maintenance costs increased by 8% due “to an increase in the weighted average number of leased aircraft”. Route charges were up 34% due to the increased number of sectors flown, the longer sector length and higher average rates charged by Eurocontrol. Airport & handling charges increased by 31% due to the 18% increase in passenger numbers, higher airport charges at Dublin airport, and the mix of new routes and bases launched. Marketing, distribution & other increased by 52% to reflecting higher marketing spend per passenger due to increased activity, higher onboard sales and increased product costs. A summary of the Q1 results are shown in a tabular form.

Commenting on the results Ryanair’s CEO, Michael O’Leary, said: “Traffic growth in Q1 was flattered by the unnecessary airspace closures in April/ May 2010 (following the Icelandic volcanic eruptions) which led to the cancellation of 9,400 flights, and the loss of almost 1.5 million passengers.  Despite substantially higher fuel costs we recorded a profit after tax of €139 million, up on Q1 last year. This robust result is testimony to the strength of Ryanair’s lowest fares/lowest cost model which continues to deliver profit and traffic growth despite the recession and high oil prices”.

The impact of closure of European airspace in April and May 2010, due to the Icelandic volcanic ash disruption, on the Group’s operating results totalled €50.0 million (pre tax) for the period, comprising €15.6 million of operating expenses and €1.7 million of finance expenses attributable to the period of flight disruption, together with estimated passenger compensation costs of €32.7 million pursuant to Regulation (EC) No. 261/2004 (‘EU261’). The company subsequently reduced its estimate to a net of tax charge of €26.1 million at year ended March 31, 2011. The Company’s estimate of total passenger compensation costs have been determined based on actual claims received and processed to date together with probable future compensation payments and other related costs. Readers will recall that on 4th April 2011 introduced a €2 levy per passenger to fund the costs of flight cancellations and delays under regulation EU261. Ryanair estimate that this levy would contribute just €90 million in 2011, since the levy does not apply to Ryanair’s promotional fares (approx. 20% of tickets) and because 20% of seats were pre-sold in 2011 prior to the introduction of the levy. However, with Ryanair carrying more passengers in the month of July than Aer Lingus expects to carry on its short-haul network in all of 2011 this change certainly distorts competition and with nearly 76 million passengers it could raise over €150 million, well above any compensation likely to be paid. Not surprising therefore that Ryanair’s outlook for the remainder of the year remains unchanged and it expects profit after tax for the 2012 financial year to be similar to the 2011 result of €400 million.

Traffic, route and fleet changes

Ryanair's July traffic figures released on 3rd August maintains the positive trend with a 6% increase recorded over July 2010 (up from 7.61 million to 8.08 million). For the year to July 75.9 million passenger were carried, and Ryanair’s Stephen McNamara was quick to point out that Ryanair’s record July traffic at over 8 million means (as noted above), that Ryanair has carried “more passengers in the month of July than Aer Lingus will carry on its short-haul network in all of 2011”. Ryanair has also become the first European airline to carry 8 million passengers in one calendar month. Load factor in July was up one point from the previous year to 89%. The annual load factor was 83%.

Ryanair say their new routes and bases are performing well. It now has 45 bases, serves 160 airports in 27 countries and has 1,300+ routes with 1,500+ daily departures. While there have been no major route announcements since the launch of the 45th base at Manchester which will begin operations in October 2011 there has been some news emerging at various locations for the winter season. Examples include expansion at Marseille, Brest, Eindhoven, Lille, Marrakech, Milan, Nantes and Rome using aircraft from other bases and which largely overlap with the routes of Air France’ new regional operation. A new city for Ryanair is Leipzig which could be a possible substitute for Berlin when its airport fees rise while there is also expansion at Eindhoven, Oslo-Rygge and Bordeaux. On the debit side Ryanair is showing no flights from Zaragoza from 30th October, they appear not to be operating Knock-Bristol or Leeds during the coming winter and the withdrawal of three aircraft from Girona and cancellation of 21 routes has already been flagged.

With the announcement that Air Berlin will scrap unprofitable routes, cut frequencies and partially withdraw from regional airports to focus on four main hubs Ryanair scents blood and following Air Berlin's withdrawal from Alicante-Frankfurt and Munich, Ryanair will extend its operation Hahn-Alicante into the winter and launch a new route Memmingen-Alicante in December. This summer Ryanair’s daily departures from Hahn averaged just over 28, similar to summer 2005 but the number of destinations is up from 23 to 49, each route having an average of just 4.1 flights per week. In fact Germany has proved a difficult market for Ryanair as Hahn illustrates. Ryanair has served a total of 81 destinations from Hahn, but never more than 54 at any one time. Only eight of this summer’s 49 routes are served at least daily, with London Stansted being the only destination served with at least two daily flights. Passenger numbers at the airport have also tumbled from a peak of just under four million in 2007, down 1% in 2008, 3.7% in 2009 and a further 7.9% in 2010. In the first half of 2011, passenger numbers have fallen by a further 11.8% to just under 1.4 million. At Dublin, Ryanair’s second largest base with 73 routes (same as Brussels/Charleroi), it expects traffic to fall in 2011 (its 4th consecutive annual fall), due to what it describes as the DAA’s unjustified 40% increase in airport charges, which it said has led to winter capacity cuts by Ryanair and many other carriers operating to Dublin. Between 2007 and 2010 traffic has fallen at Dublin from 23.3 million to 18.2 million a 22% fall while Ryanair’s overall passenger numbers have increased by 48% in the same period. Ryanair has submitted a proposal to the Irish Government to deliver an extra five million passengers annually over the next five years based on airport charges falling to what Ryanair say are “competitive levels” and the Government scrapping the €3 tourist tax.

Ryanair expects the fleet and traffic to grow 10% by 2013. The current active fleet remains unchanged at 272 aircraft since the last aircraft, EI-EPH was delivered on 1st April. Overall a total of 308 were delivered. By March 2012, the net fleet should stand at 294 and by March 2013, 299. There will be 13 aircraft disposals in this period (seven operating leases terminated and 6 aircraft sales).

Discontent in Belgium

Ryanair is facing industrial relations problems in Belgium where the Belgian CNE trade union said it is planning to take legal action against Ryanair for imposing work conditions on cabin crew that violate Belgian law. Tony Demonte of CNE said that it would initiate action in September and that both Ryanair and its partner Crewlink, which provides a large part of the airline's cabin staff, would be targeted. The union alleges that work practices which see employees’ pay docked by €30 per month for the first year of their employment, in order to cover the cost of their cabin crew uniforms, is illegal. It also complains that cabin crew are transferred between routes with little notice, are given little notice if fired and that there are no company provisions for sick pay. Under Crewlink contracts it is claimed that staff are blocked from living more than one hour away from the airport. Ryanair says the cabin crew are paid €17 per [block] hour and that they enjoy the protection of the Irish Constitution

Money matters

Ryanair is continuing to buy and cancel some of its own shares, buying 23 million in a month, just over 1.5% of the shares in issue while Michael Cawley, Deputy Chief Executive and Chief Operating Officer bought 200,000 Ryanair shares on 29th July last at €3.17, bringing his holding to 440,558 shares.

and finally....

Michael O'Leary has said he is prepared to buy either of the terminals at Dublin Airport for €350 million in the event that the Government put them up for sale.  He added that there "will absolutely" be a sale of all semi-state assets because of the country's indebtedness, "starting with their (the Government's) stake in Aer Lingus". He added: "If the airline isn't sold to Ryanair, another buyer will break it up, whereas we'll grow passenger numbers to 20 million over three or four years and grow the fleet from 30 to 60 aircraft". Interesting times ahead.