Europe’s largest LCC Ryanair reported an unexpected but slightly reduced third-quarter net loss of EUR10.3 million, blaming a series of ATC strikes/walkouts and bad weather in the quarter for the result. Ryanair CEO Michael O'Leary called the third-quarter loss "disappointing, as we were on track to break even."
Mr O'Leary stated the airline suffered more than 3,000 flight cancellations during the October-December quarter, more than double the number experienced in all of 2009 (1400 cancellations). However, Mr O'Leary stated Ryanair's outlook remains stable for a full-year profit falling “towards the upper end” of its previously guided range of EUR380 million to EUR400 million.
The LCC added that it expects traffic and average fares to continue to benefit from a better mix of new routes and bases, and as competitors apply fuel surcharges (which Ryanair eschews). The carrier added that it expects its unit cost performance in 4Q2011 to be marginally improved due to the launch of new routes in Feb-2011 and Mar-2011 that will reduce the number of grounded aircraft by comparison with 3Q2011.
During the Dec-2010 quarter, revenues increased 22% to EUR746 million, driven by a 15% increase in average fares due to the airline's “constrained” capacity growth. Ancillary revenues increased 20%, considerably ahead of the 6.3% increase in passenger numbers - from 16.0 million to 17.0 million - in the three-month period. As previously reported, Ryanair handled a record 72.0 million passengers in 2010, representing growth of 10% from 65.3 million passengers in 2009. This result will no doubt enable Ryanair to retain its status as the largest international carrier by passenger numbers in 2010. In 2009, Ryanair was the largest international carrier in the world, according to IATA, with almost 24 million more international passengers than Lufthansa.
Costs, meanwhile, increased by a 15% on the back of a 14% increase in flight hours, as average sector length rose by 7%. Excluding fuel (which was up 37%), unit costs rose by 8%.
The carrier added that it witnessed an impact on ownership costs of sitting up to 40 aircraft on the ground during the winter months. However, despite a 14% increase in flight hours during the quarter, the carrier reported a 9% reduction in staff costs, while airport and handling charges increased by 6%. The carrier added that its “relentless focus on costs will continue”.
Favourable fuel hedging position
When oil prices first surged in 2007/08, Ryanair was reluctant to hedge its needs. But that changed. The carrier now continues to benefit from a favourable fuel hedging strategy even though oil prices have risen significantly in recent months. While current spot prices are approximately USD890 per tonne, the LCC is 90% hedged for 4QFY2011 at USD750 per tonne and 80% hedged for FY2012 at an average price of USD800 per tonne. Ryanair has also hedged 70% of its dollar requirements for FY2012 at an average rate of EUR/USD1.34 compared to EUR/USD1.40 for FY2011.
And a focus on lower cost markets. Ireland traffic down 20%
Network-wise Ryanair is rapidly growing capacity in lower cost markets like Spain and Italy and reducing exposure to higher-cost and unstable markets. As part of this strategy, Ireland has fallen from over 20% of Ryanair’s originating traffic to less than 10% in the current year, with the carrier stressing that it has “little exposure to the Irish economy”.
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