Friday 21 October 2016

Ryanair to drive air fares down over winter as half-year profits rise 37pc to €1.08bn

Published 02/11/2015 | 06:26

Michael O'Leary, chief executive officer of Ryanair
Michael O'Leary, chief executive officer of Ryanair

Ryanair wants to drive air fares down over the winter to put pressures on its competitors, chief executive Michael O’Leary said.

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The airline this morning posted a 37pc jump in after-tax profit for the first half of its financial year - to €1.088bn - excluding a one-off gain of €317.5m from the sale of its stake in Aer Lingus.

It said it expected full-year net profit to be at the upper end of its guided range of €1.175bn to €1.225bn. In July it became the first EU airline to carry 10 million passengers in one month, the airline said.

“We have enjoyed a bumper summer due to a very rare confluence of favourable events including stronger sterling, adverse weather in northern Europe, reasonably flat industry capacity and further savings on our unhedged fuel,” Mr O’Leary said.

He told CNBC’s Squawkbox that “everything is so good it’s worrying”.

“The key feature of this morning’s numbers is that profits are up about 37pc with pricing essentially flat. We expect into this winter that there will be a decline in pricing, we’re forecasting flat in Q3 up to Christmas and then down 4pc in our fourth quarter,” Mr O’Leary said.

“Winter pricing will tend to be softer only because we’re expanding in so many markets across Europe. We intend to keep driving prices down, because it keeps widening the gap between us and every other airline”.

“The industry never looked so scarily good for us... our concern at the moment is not a competitive one, costs are well under control. Unit costs are down 6pc this year, it’s more what’s going to happen, some extraneous event which always befalls the airline industry when it looks this good,” he added. Mr O’Leary has previously said Ryanair will take an active role in the campaign to keep Britain in the European Union, saying it’s “absolutely vital, not just for the continuation of Ireland’s economic success, but also for the continuation of the UK recovery and the UK economic success, that the UK stays a member of the European Union.”

Goodbody equity analyst Mark Simpson said Ryanair’s release was the best of the results season. In a note circulated this morning he said Goodbody was reviewing its share price target for Ryanair.

“The prices environment is being driven by Ryanair...the competitors are going to have to respond to Ryanair,” Mr Simpson told the Irish Independent.

He said Ryanair will exploit the dip in unit  costs to take market share from its rivals.

Ryanair shares opened down this morning but by mid afternoon they were trading up over 3.25pc.

Mr Simpson said some of the comments made during a conference call with analysts suggest that there may still be upside to current guidance.

“On the off of the market it was marked down because you could have said, well the increase was due to fuel benefits. Then as the details began to be digested and the conference call went on, the market realised that there’s actually longevity to that growth. And that’s what’s led to the stock now being up.”

Davy analyst Stephen Furlong said the airline had “an exceptional performance, underscored by a further rise in the FY 2016 traffic target from 104m to 105m.”

Mr O’Leary said the airline had hedged 95pc of its fuel needs for the next fiscal year, and expected to save €430m on the back of that.

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