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O'Leary puts heat on Boeing, forecasts losses in 2H, yields to drop 20%

3-Nov-2009 10:40 AM

Ryanair released the following commentary associated with its latest financial results:

Ryanair CEO, Michael O’Leary, stated that the carrier has made little progress with Boeing on negotiations for an order for 200 aircraft for delivery from 2013 to 2016. He threatened that the carrier would end its relationship with Boeing and confirm a series of order deferrals and cancellations if the negotiations are not completed by the end of 2009. The negotiations have halted over a “very small amount of money” according to Mr O’Leary, who has also sees “no point” in rapid growth in a declining yield environment if Boeing is unwilling to contribute to the carrier’s cost reduction objectives. If a deal is not reached, Mr O'Leary believes Ryanair should “change course” before the end of FY2009/2010, focusing on managing the airline to maximise cash for distribution to shareholders. Ryanair policy has not been a generous payer of dividends to shareholders. Mr O’Leary also commented it is “inevitable” that Ryanair would operate a mixed Boeing and Airbus fleet (Reuters, 02-Nov-2009).

Ryanair: “I regret to report that we have made little progress in our discussions with Boeing for an order of 200 aircraft for delivery between 2013 and 2016.  We won’t continue these discussions indefinitely and have signalled to Boeing that if they are not completed before the year-end, then Ryanair will end its relationship with Boeing and confirm a series of order deferrals and cancellations.  We see no point in continuing to grow rapidly in a declining yield environment, where our main aircraft partner is unwilling to play its part in our cost reduction programme by passing on some of the enormous savings which Boeing have enjoyed both from suppliers and more efficient manufacturing in recent years… If we cannot invest our surplus cash efficiently in new aircraft, then we should distribute it to shareholders,” Michael O’Leary, CEO. Source: Ryanair, 03-Nov-2009.

Ryanair cautioned that a 42% decline in fuel costs had distorted its results and masked a 17% decline in average fares under its financial results. The carrier forecast a 20% decline in yields over the second half of its financial year and expects to report “material losses” in both quarters.

Ryanair: “Traffic growth is strong, but at the expense of declining average fares. Ryanair’s yields are being negatively impacted by the weakness of Sterling and tourist taxes in the UK and Ireland.  We expect yields this Winter will continue to fall by up to 20%, which will cause material losses in 3Q and 4Q and accordingly our full year net profit guidance remains at the lower end of the EUR200 million to EU300 million range – as we previously guided,” Michael O’Leary, CEO. Source: Ryanair, 02-Nov-2009.

Ryanair repeated (02-Nov-2009) calls for the UK Government to abandon the Air Passenger Duty which was increased from GBP10 to GBP11 on short-haul sectors on 01-Nov-2009, stating the tax is contributing to the difficult market conditions in the UK and Ireland and the 10% and 15% falls in traffic, respectively, in each market.

Ryanair CEO, Michael O'Leary stated it was "highly unlikely" that the carrier would make a third bid for Aer Lingus (The Guardian, 02-Nov-2009).

Ryanair: "Aer Lingus is run by the government and the unions, and they're busy running it into the ground. We won't make another approach until they come to us begging to rescue it," Michael O’Leary, CEO. Source: Guardian, 02-Nov-2009.

Ryanair CEO, Michael O’Leary, stated it is necessary for British Airways to change the way it operates and lower its fares to compete with LCCs such as Ryanair to stem the decline in passenger traffic (Sky News, 02-Nov-2009).

Ryanair: "British Airways are going to have to change the way they operate, they are going to have to lower their fares to compete with Ryanair, otherwise we'll simply take all their passengers," Michael O’Leary, CEO. Source: Sky News, 02-Nov-2009.