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Ryanair is Europe's largest airline, the largest low-cost carrier, and one of the world's largest airlines as measured by international passengers carried. Ryanair has its largest base at London Stansted Airport, and second-largest base at Dublin Airport. Ryanair currently operates a network covering over 40 bases and 1,100 routes (with over 1,300 daily departures) across 26 countries, connecting some 155 destinations. Ryanair operates a fleet of over 250 B737-800 aircraft, with a large order backlog and employs more than 8,000 people.
Location of Ryanair main hub (London Stansted Airport)
Ryanair share price
LCCs will continue to evolve into hybrids of the original core model. CAPA and OAG consider Ryanair fits the LCC profile and it is included in our reporting on this basis. Please note: when reporting for an airline is changed from or to LCC the historical data is not affected and it can lead to a distortion in the current reported data. Contact us if you have any queries.
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LOT Polish Airlines CEO Sebastian Mikosz said recently that profitability must be developed through passenger retention, expansion of its customer base and the introduction of new options for travel, services and comfort (Future Travel Experience, 20-Jun-2014). Its recent focus has been on the restructuring plan submitted last year to the European Union, involving cuts to capacity and costs.
LOT awaits final approval from the EU for its restructuring plan, which was required in connection with state aid provided by the Polish government in Dec-2012. The airline has said that it will not consider a second tranche of state aid before Sep-2014. It needs EU approval before it can decide its longer term future, including the possibility of seeking new investors, although it has reportedly started to develop a new five year strategic plan. Meanwhile, the privatisation process has gone very quiet.
Mr Mikosz is right to plan for the post restructuring world, but is faced with the need also to continue to make LOT's cost base more competitive against the LCCs that operate the majority of seats in the Polish market.
IATA's latest airline industry financial forecasts highlight the different performance of the different regions of the world. North America is the most profitable region, measured by its net margin (net profit as a percentage of revenues) and Africa the least profitable. Europe has the second lowest margin, but has gained a little on fourth ranked Asia Pacific. Latin America has improved the most since 2012 to rank second, just ahead of the Middle East.
North America has had a relatively good recovery, while Asia Pacific's margins have fallen from their 2010 peak. Even North America's net profit is only 4.3% of revenues, its best since the late 1990s, but still a very thin margin.
Analysis of the relationship between net profit margins and various explanatory factors appears to confirm that market concentration is a key one. Europe's perennial underperformance in airline margin terms – in spite of the region's wealth, high propensity for air travel and high load factors – owes much to the fragmented nature of the market. Nevertheless, a European deal that is truly transformational in terms of its market structure remains unlikely for now.
In 1Q2014, the Aegean Airlines Group, which now includes Olympic Air, reported a reduction in its losses when compared with proforma figures for the same period last year. The acquisition of Olympic has provided only temporary respite from the strong competitive forces in the Greek market: the group's RASK fell in the quarter after growing in FY2013. Happily, CASK cuts more than offset this and hence the narrower losses.
On closer inspection, it can be seen that the parent company, Aegean Airlines, saw its losses widen as cost growth outpaced strong revenue growth. The improvement, on a proforma basis, in the consolidated group result is down to significant cuts in capacity and costs at Olympic. Nevertheless, since the group is now managed on an integrated basis, a reduction in the combined losses for the first full quarter after the acquisition is a positive sign.
With unit revenues likely to remain under pressure, the group will be looking to acquisition synergies and other cost measures within Aegean itself to ensure that profitability does not deteriorate as the year progresses.
The Wizz Air Group has announced its intention to float on the London Stock Exchange. CAPA suggested this was under consideration in a report in Apr-2013 and the company has been mulling it over for years. The decision had no 'whiz' about it, but now may well be a suitable point in its history for a public listing.
The IPO prospectus is not yet available, but we have updated our analysis of the available data. This shows that Wizz Air has now established a firmer platform of profitability from which to attract investors and has consolidated its position as Europe's second lowest cost carrier.
One of its biggest challenges is that Europe's lowest cost airline, Ryanair, is also Wizz Air's closest competitor. Wizz Air's recent growth and profitability suggest that this has not deterred it and it has continued to focus on its niche in Central/Eastern Europe. An IPO will strengthen Wizz Air's under-capitalised balance sheet and expand its aircraft funding options. It will also further raise its profile and should add to its already strong focus on cost efficiency.
Ryanair reports a rare fall in annual profit, but aims for rapid rebound and goes in search of yield
In FY2014, Ryanair reported its first dip in profit since FY2009's oil price spike. Fares fell for the first time in four years, but total revenue per passenger held stable thanks to ancillaries, which were helped by the introduction of allocated seating. However, higher euro-denominated fuel prices contributed to higher total cost per passenger, leading to the fall in profit.
Ryanair expects the balance of these trends to be more favourable in FY2015, when it anticipates a return to profit growth. This year will see some cost increases in connection with its move into more primary airports, such as Rome Fiumicino and Brussels Zaventem, and higher marketing costs related to its new customer service and distribution initiatives. These include family discounts and a new business traveller product, website improvements and GDS distribution.
Ryanair has the lowest unit costs and unit revenues in Europe and, although both may increase as a result of its revised strategic emphasis on higher yielding airports and market segments, it should be able to retain both of these advantages.
When it announced a return to profit for FY2013 in Dec-2013, SAS warned that 1QFY2014 would be “extremely weak”. Its prediction has proved correct. The SAS Group’s 1Q pre-tax loss (before non-recurring items) widened by 57%. It continued to make good progress with its 4Excellence Next Generation (4XNG) cost reduction plan, but highly competitive market conditions weighed heavily on unit revenues.
SAS President and CEO Rickard Gustafson commented that the quarter was “marked by overcapacity and lower growth, which put pressure on margins across the entire market.” In this respect, SAS may be contributing to its own problems as it plans faster growth than the market this summer.
Its cost cutting and product improvement credentials are strengthening with each passing quarter, but its capacity growth is clearly not being absorbed profitably by the market.