In spite of high oil prices and a Europe-wide economic recession Ryanair further distanced itself from its full service peers and reported a remarkable 25% increase in net profit for FY2011/12 to a record EUR503 million. Operating profit lifted 40% year-on-year to EUR683.2 million. Much to the annoyance and envy of Lufthansa and certainly Air France-KLM Group, which both recorded a deterioration of their financial performance in the most recent financial year, Ryanair improved its net margin by 1ppt to 12% and was able to maintain its operating margin at 14%. This is well above the EBIT margin performance of Europe’s full service carriers. Air France-KLM’s operating margin was negative in FY2011 while Lufthansa Group’s adjusted operating margin came in a 3% and IAG’s operating margin also reached a meagre 3%.
Ryanair continued with its growth strategy, albeit at a more tempered pace in line with its policy adopted three years ago and following the termination of negotiations with Boeing at the end of 2009 over a 200 aircraft order with deliveries during the 2013-16 period. It took delivery of 25 new aircraft in FY2011/12, expanding its fleet to 294 Boeing 737-800s with an average age of three years; all aircraft are configured a single class configuration with 189 seats.
Europe’s largest LCC opened six new bases during the fiscal year - at Karlsruhe Baden-Baden airport in Germany, Billund in Denmark, Budapest in Hungary, Paphos in Cyprus, Palma in Spain and Wroclaw in Poland - and launched 330 new routes. At 31-Mar-2012, the end of its fiscal year, Ryanair served over 1,500 routes spanning a network of 51 bases and 168 airports in 28 countries.
Revenue at the airline reached EUR4.3 billion, an increase of 19% from the previous year owing to the expansion of passenger numbers but mainly higher fares and strong ancillary revenues. Passenger numbers rose 5% to 75.8 million despite the grounding of a third of its fleet during the northern winter 2011-12 season and average fares including its fees for checked baggage rose 16% to EUR45.Ancillary revenue grew by 11%, faster than the 5% increase in passenger numbers, to EUR886 million due to an improved product mix and higher internet related revenues. Total revenue per passenger, as a result, increased by 13% to EUR57. The carrier’s ancillary revenue represents now about a fifth of total revenue.
Passenger load factors inched slightly down in FY2011/12, by 1ppt to 82%.
Ryanair financial and operating highlights, fiscal year ending 31-Mar-2011 vs fiscal year ending 31-Mar-2012
The carrier last year decided to temporarily cut capacity by parking up to 80 aircraft in the winter schedules between Nov-2011 and Apr-2012 to counter the toxic mix of high oil prices and low demand. Ryanair indicated it will most probably repeat the move in the next winter. “These higher oil prices next winter and the refusal of some monopoly airports, most notably Dublin and Stansted, to lower winter charges makes it more logical to ground up to 80 aircraft rather than suffer losses flying at very low winter yields in 2013,” Ryanair CEO Michael O’Leary said. Despite the planned restricted capacity growth, the carrier anticipates expanding passenger numbers by 5% in FY2012/13 to 79 million.
Ryanair annual passenger growth (% change year-on-year)
In a conference call with analysts presenting the FY2011/12 results, Mr. O’Leary pointed out that the carrier has achieved double digit fare increases for the past couple of years as a result of lowering growth rates. “As Ryanair slows the rate of headline growth we do have a significant degree of pricing power in the model and that is being reflected in very impressive average yield performance over the past two to three years,” Mr O’Leary said. He added that “all of that is being gobbled up by higher oil prices”.
Ryanair is notorious and ruthless in its strategy to keep costs ultra low, but high oil prices spoilt the game in FY2011/12. The carrier’s total operating expenses increased by 19% to EUR3.7 billion primarily due to an increase in fuel prices, but also owing to the higher level of activity and higher airport and ATC charges. The airline’s overall costs rose at the same rate as its revenue growth.
Fuel now accounts for 43% of Ryanair’s total operating costs compared to 39% in the prior year. The carrier’s overall fuel costs augmented by 30% to EUR1.6 billion due to the higher price per gallon paid and an 11% increase in the number of hours flown. Ryanair has never added a fuel surcharge to its fares and is adamant it will pursue this policy. The carrier is 90% hedged for FY2012/13 at USD1,011 per tonne, which is 22% increase on last year but significantly lower than current prices.
Unit costs including fuel rose by 13%. Unit costs excluding fuel increased by 6% and, sector length adjusted, they remained flat due to aggressive cost control and despite a modest company-wide pay increase, higher Eurocontrol fees and increased airport costs.
Mr O’Leary took a swing at governments and airports for imposing higher taxes and charges, specifically in the UK, Germany, Spain and Ireland. “Despite a rising number of airline failures and record airline losses, many of Europe’s governments continue to treat aviation (and airline passengers) as a cash cow to fund their taxation and/or policy failures,” Mr O’Leary said.
He was highly critical of the UK government’ decision to stick to the planned increase of the ADP and Spain’s recent budget proposals to significant increases in AENA’s “already high” airport charges at Madrid and Barcelona, as well as smaller increases at other regional Spanish airports. IAG CEO Willie Walsh last month threatened to slow the group’s growth at Madrid if the Spanish government would carry through the proposed charges increases.
See related article: IAG first quarter loss doubles on shabby Iberia performance and pilot strikes
During the presentation of its FY2011/12 results, Mr O’Leary confirmed that the board of directors will propose a special dividend of EUR0.34 per share at the firm's annual general meeting. The dividend, if approved at the AGM, will be paid out in Nov-2012.
This will be Ryanair’s second one-off dividend in two years time. The company reversed its long-standing no-dividend policy in 2010, after it pulled the plug on the Boeing negotiations and opted to distribute the cash earmarked for the 200 new aircraft to shareholders instead. The company completed four share buybacks in the past years, resulting in an additional return to shareholders of approximately EUR500 million. Under the first special dividend of EUR34cents a share Ryanair returned almost EUR500 million to shareholders.
Ryanair has a strong balance sheet, one of the strongest of the industry in Europe, with over EUR3.5 billion in cash, an increase with EUR575 million on a year earlier. Net debt at 31-Mar-2012 amounted to EUR109.6 million, down from EUR708.8 million at 31-Mar-2011. Air France-KLM Group’s net debt at 31-Mar-2012 stood at EUR6.4 billion.
Ryanair share price, May-2011 to May-2012
Ryanair is forecasting a 5% increase in passenger numbers for FY2012/13, comprising 7% growth in the first half and 3% in the typically weaker second half. But high fuel prices and lower fares will bite into its earnings and the company is forecasting a net profit in the range of between EUR400 million to EUR440 million, which is 12% to 20% lower compared to its FY2011/12 earnings.
“We remain concerned about next winter as we have zero yield visibility but expect recession, austerity, currency concerns and lower fares at new and growing bases in Hungary, Poland, Provincial UK, and Spain will make it difficult to repeat this year’s record result,” Mr O’Leary conceded.
The current year will not be without challenges for Ryanair. Fuel remains an uncertainty and if Europe slides further into recession even the lowest cost and lowest fare carrier is vulnerable, nonetheless it is better positioned than its full-service counterparts. Worrisome is, as Mr Leary describes it, the European Commission’s “misguided vendetta against Ryanair and our regional airports”. Europe’s competition authorities have launched 18 separate investigations into Ryanair agreements at regional airports. Traffic agreements with regional airports are intrinsic to the carrier’s performance.
But the carrier’s model is rock solid: it has a rigorous focus and grip on costs, its expansion has slowed from the previous breakneck pace and it has no large aircraft deliveries lined up and thus its CAPEX is low. Moreover, it has plenty of cash in the bank and in bad times cash is king. It is well placed to benefit from further airline failures in Europe and while its full-year profit outlook is down on last year’s it still expects black ink.
Ryanair network of 51 bases: as 31-Mar-2012