Traffic rises 3% to 23.2m. as FY guidance is unchanged.
Ryanair announced that Q1 profits, as previously guided, fell 21% to 78m. euros as traffic grew 3% to 23.2m. Ave. fares fell 4% due to the timing of Easter and the impact of the June French ATC strikes but revenue per pax. rose 1% due to strong ancillary growth. Unit costs rose 4% mainly due to a 6% increase in fuel costs. Full year guidance, remains unchanged.
Ryanair’s CEO, Michael O’Leary, said: “As previously guided higher fuel costs and the timing of Easter led to Q1 profits falling 21m euros to 78m. euros. Ancillary revenues grew by 25% to 357m. euros (27% of total revenues) driven by the successful development of reserved seating, priority boarding, and higher admincredit card fees.
Unit costs rose 4% in line with the increase in sector length. Fuel increased 6% to €577m or 47% of total operating costs. Excluding fuel, Q1 unit costs rose by 6%, slightly faster than the increase in sector length, due to a 2% rise in flight crew pay, and increased Eurocontrol, Spanish airport, and Italian ATC charges. We are 90% hedged for FY14 at $980 p.t and 70% hedged for H1 FY15 at $935 p.t. We have extended our H1 FY15 fuel currency hedge on recent dollar weakness which delivers a 3% cut in our fuel cost per pax. for the 70% already hedged in H1 FY15.
Our seven new bases Eindhoven and Maastricht (Holland), Krakow (Poland), Zadar (Croatia), Chania (Greece), Marrakesh and Fez (Morocco) are performing well. We plan to announce more new routes and new bases later this year as we exploit significant growth opportunities in markets where competitors including Air Berlin, Alitalia, Iberia, LOT, and SAS are cutting back. We are in ongoing negotiations with MAG, the new owners of Stansted airport to reverse six years of record traffic declines, but there is no guarantee that any deal will be agreed.
UK CC Enquiry
Despite no evidence of any material influence, and compelling evidence that competition between Ryanair and Aer Lingus has intensified (rather than lessened) over the past 6½ years, we now expect that the UKCC will unlawfully attempt to force us to sell down most, if not all, of our 29.8% stake in Aer Lingus on some baseless or invented claim that competition in the future “might” be lessened. Given the CC’s total lack of evidence they are now reduced to dreaming up bogus future concerns that Ryanair “might” prevent another EU airline acquiring Aer Lingus, despite Ryanair’s repeated public statements that we would consider any offer by another EU airline to acquire Aer Lingus, and/or acquire Ryanair’s shareholding.
We have now eliminated any remaining shred of credibility from this enquiry, by offering to unconditionally sell our 29.8% stake to any EU airline which offers for, and successfully acquires, over 50% of Aer Lingus, despite 6½ years of evidence that no EU airline other than Ryanair has any interest in buying, or investing in, Aer Lingus. The UK CC has no credibility in this case having taken no action whatsoever on behalf of UK Consumers in earlier mergers when BA bought BMI or Easyjet bought GB Airways. Yet 6½ years after one Irish airline (Ryanair) bought 29.8% of Aer Lingus (an Irish airline which carries very few UK consumers), the UK CC is now ignoring evidence to pursue an apparently pre-meditated decision to force a more draconian sell down on Ryanair than they required in the earlier BSkyB/ITN case. This is absurd in the case involving 2 Irish airlines when Aer Lingus affects or carries very few UK consumers. Ryanair will strenuously appeal any such ruling, which is clearly unjustified by the evidence in this case, and we will insist that any such order cannot be enforced while we appeal the EU Commission’s February 2013 Prohibition Decision before the EU Courts.
Aircraft Order and Shareholder Returns
Shareholders have recently approved our order for 175 Boeing 737-800 aircraft for delivery over a five year period between Sept 2014 and Dec 2018. This has allowed us to raise our growth targets by 38% to 110m passengers by FY19 (previously 100m) and our fleet to 410 (previously 375).
The strength of our Balance Sheet with Q1 gross cash of 3.6bn. euros and net cash of 191m. euros, (despite another recent 177m. euros share buyback), remains unmatched in our industry. This strong cash position allied to the Capex certainty we now enjoy, following the recent aircraft order, enabled us to announce plans to return up to €1bn to shareholders over the next two years. At least 400m. euros via share buybacks in FY14, and up to a further €600m in special dividends or share buybacks in FY15, subject to current fuel, yields and profitability trends continuing. This further 1bn. euros brings to over 2.5bn. euros the total cash returned to Ryanair shareholders in recent years, which is over 4 times the 585m. euros originally raised from shareholders since our IPO.
Outlook
We expect Q2 yields to rise despite last year’s challenging (post-Olympic) comparables, although yields on close-in summer bookings have been slightly weaker in recent weeks due, we believe, to the heat wave in Northern Europe.
As ever, our outlook remains cautious for the full year as market conditions are tough with recession, austerity, high fuel costs, and excessive Government taxes (most recently in Belgium) impacting air travel demand and yields.
While we expect full year traffic to grow 3% to 81.5m, we still have no visibility over next winter’s yields, and on the basis that the recent yield weakness in close-in summer bookings does not continue, we see no reason to change our full year profit after tax guidance which remains at between 570m. euros to 600m. euros”.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
