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Ryanair $1bn Italian investment U-turn – Data and insights

An extremely difficult business environment, plagued by terrorist attacks in France, Belgium, Turkey and the Middle East, has added to the woes of aviation players, which have been facing the repercussions of several air traffic control and industrial strikes in Europe (ie, in France, Germany, Italy, and Greece), but also adverse weather conditions. Volatility has further intensified due to the results of the Brexit referendum vote in the UK, which has directly impacted Ryanair’s activity, largely due to the unfavourable

An extremely difficult business environment, plagued by terrorist attacks in France, Belgium, Turkey and the Middle East, has added to the woes of aviation players, which have been facing the repercussions of several air traffic control and industrial strikes in Europe (ie, in France, Germany, Italy, and Greece), but also adverse weather conditions. Volatility has further intensified due to the results of the Brexit referendum vote in the UK, which has directly impacted Ryanair’s activity, largely due to the unfavourable exchange rate of the pound sterling against the euro. The latter impact is expected to force Ryanair to shift capacity between markets, axing flights or moving its aircraft bases, which, in turn, will dampen peak season summer margins.

Ryanair remains overly reliant on Eastern and Western Europe, which are beset by maturity, persistent economic difficulties, geopolitical tensions and terror threats, which are currently hindering both regions. On 25 July, Ryanair announced its Q1 financial performance results for the financial year 2017, which showed somewhat slower growth for the moneymaking player. Indeed, the airline recorded a €256 million profit after tax in Q1 FY2017, compared to €245 million for the same period for the FY2016, or meagre 4% growth.

Although the carrier registered increasing passenger numbers to reach 31 million in Q1 FY2017 versus 28 million for the same period in FY2016, this was very much stimulated by lower ticket prices in similar tactics to those adopted by its rival easyJet. This, of course, means that intensified price wars are expected to flood Eastern and Western Europe, which will be good news for the end consumer. If the situation in Europe worsens and the fear factor further impedes consumer confidence, this, alongside currency devaluation, will see the airline continue to decrease ticket prices, which will ultimately hurt its profitability but mean it maintains a strong load factor, within the ballpark of 90%. According to corporate sources, expectations foresee a decline in airline fares of over 12% within the next nine months. The problem really comes from the fact that the terrorist attacks in Europe are no longer isolated incidents, but they are also affecting traditionally safe destinations, such as France, which is slowing demand.

While the Irish player has an advantage over other rivals such as British Airways or Lufthansa, with its low passenger costs, which cushion it from market turbulences, the low fares are shrinking its revenues. Indeed, the latest financial results point to very slow growth of 2% in revenues to reach €1,687 million in Q1 FY2017, which were mainly saved by the performance of ancillary proceeds, such as onboard sales and reserved seating, according to the company.

Volatility in fuel prices is another challenge affecting the performance of carriers, and Ryanair is no exception. The sharp drop in fuel prices in the last year has forced the airline to monitor its hedging strategies in an effort to prevent any losses in the mid-term. The company has almost entirely hedged its fuel needs for 2017 and 2018, at US$62 and US$52 per barrel respectively. However, any downward fluctuations in fuel prices could negatively impact the airline. This in turn will increase Ryanair’s fuel costs which currently stand at 40% of all costs.

Brexit is likely to continue to pose a problem for the company in its biggest ‘cash cow’ market, the UK. As a result, it may decide to cut capacity at its main airline bases in the country, such as Stansted Airport. The continuous security issues in Europe will also undoubtedly continue to be another grave threat for consumers, thus dampening interest in air travel in the region, which will affect Ryanair’s operations as well.

About airlines in Italy
According to Euromonitor:

  • Low-cost carriers registered the best performance in 2015, increasing by 6% in terms of number of passengers, reaching 43.3 million passengers. The good performance of low-cost carriers is mostly derived from national and short haul flights, as these airlines provide a large network, interesting low fares, as well as increasing flexibility as a way to attract business travellers.
  • Italians continued to favour low-cost airline Ryanair Holdings Plc, being the first airline for number of passengers in 2015. Ryanair’s good performance is not only linked to its low prices policy but also thanks to a larger presence within Italian airports. Also easyJet Plc performed well in 2015 with an increase in the number of passengers as well as load factor.
  • The online channel, as well as the mobile one, is expected to progressively increase over the forecast period and gain importance for airlines in Italy. As a consequence it is expected that players will invest more and more in websites and mobile apps, as well as on social networks, in order to gain consumer favour.

 

 

Airlines in Italy: Passengers Carried 2010-2015

'000 persons

2010

2011

2012

2013

2014

2015

             

Airlines 

89,666.0

95,193.5

93,694.2

94,935.9

98,634.6

101,522.2

Charter 

3,332.4

3,595.2

3,557.6

2,998.1

2,798.8

2,630.8

Low Cost Carriers 

31,029.6

34,441.1

35,002.0

37,327.9

40,844.2

43,294.8

Schedule 

55,304.0

57,157.1

55,134.6

54,609.9

54,991.6

55,596.5

                     

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

 

Top Airlines in Italy –  NBO Company Shares: % Value 2011-2015

% retail value rsp

2011

2015

           

Alitalia Compagnia Aerea Italiana SpA 

28.7

24.4

Ryanair Holdings Plc 

8.3

9.3

easyJet plc 

4.1

5.4

British Airways Plc 

4.4

4.5

Meridiana Fly SpA 

4.5

3.9

Source: Euromonitor International 

 

ARRIVALS TO ITALY – TOP TEN SOURCE MARKETS

Market Sizes | Historical | Number of Trips | '000 trips

           

Geographies

Categories

2010

2015

 

Italy

         International arrivals

43,626.10

50,732.00

 

       

 

Italy

               Arrivals from Germany

8,960.70

9,867.40

 

Italy

               Arrivals from France

4,843.60

5,522.70

 

Italy

               Arrivals from United Kingdom

3,163.00

4,057.70

 

Italy

               Arrivals from Switzerland

3,183.60

3,390.20

 

Italy

               Arrivals from Austria

3,361.70

3,342.90

 

Italy

               Arrivals from Spain

2,484.70

2,017.10

 

Italy

               Arrivals from Netherlands

1,592.50

1,927.30

 

Italy

               Arrivals from Poland

1,124.00

1,469.30

 

Italy

               Arrivals from Belgium

1,104.10

1,265.00

 

Italy

               Arrivals from Russia

595.30

1,045.30

 

               

© Euromonitor International

industry analyst for the travel and tourism - Euromonitor International | + Posts

Dr. Nadejda Popova is industry analyst for the travel and tourism industry at Euromonitor International, which she joined in September 2008.

Euromonitor International is the world's leading consumer market analyst. For more than 38 years, Euromonitor has published internationally respected market research reports, business reference books and online information systems, providing strategic business intelligence for the world’s leading companies.

In her current post, Nadejda has responsibility over the content and quality of Euromonitor’s Travel and Tourism research for the MEA region, providing strategic analysis and in-depth coverage of the travel and tourism industry in this region. She is also responsible for writing articles and global briefings on Travel and Tourism for Euromonitor’s Industry Watch as well as for specialised trade magazines.

Euromonitor's analysis of the global travel and tourism market covers a wide range of segments including travel accommodation, transportation, car rental, travel retail and online travel. For every category and country, Euromonitor produces consistently comparable data.

Before joining the London office of Euromonitor International, Nadejda was marketing specialist at an UK travel company based in London.

Nadejda has a degree in Finance (BA), UNWE Sofia, and PhD in Management (University of London).

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