As flagged by Ryanair in May, its 1QFY2014 net profit fell as a result of higher fuel costs and lower average fares (-4%), the first year-on-year fall in average fares in 14 quarters. With 90% of its FY2014 fuel bill hedged at USD980 per tonne, the key unknown variable for the full year is the development of average fares.
Ryanair says yields on close-in summer bookings have been weak recently, but it expects them to increase in 2Q. Moreover, ancillary revenue growth was strong (+25%) and this should also continue into 2Q. As is usual at this stage of the fiscal year, it made no change to its FY2014 net profit target, which is lower than market consensus forecasts.
easyJet's FY2014 pre-tax profit increased by more than 50% to its highest ever level and its operating margin returned to double digits after more than a decade at less than 10%. Its pursuit of a more passenger-focused and business-serving LCC model has driven it to improve and innovate in terms of product, with features such as allocated seating and a user-friendly website now being copied by the likes of Ryanair.
This customer focus, together with what the company has called “a benign capacity environment”, as competitors were forced to reduce seat numbers, has led to impressive unit revenue growth, while management has not lost sight of cost control. Its confidence in the future was signalled by a dividend totalling GBP308 million.
Looking into FY2014, however, the outlook for unit revenues is less certain as capacity growth steps up a little, and profits are unlikely to grow as rapidly as they did in FY2013. Nevertheless, easyJet's business model remains robust and should deliver sustained healthy returns.