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Slowing Ryanair many be O'Leary's exit cue

Ryanair's results, published last week, show that growth at the airline is decelerating rapidly. With the previous 20 per cent annual growth in passenger numbers now a rapidly fading memory, is it time for boss Michael O'Leary to deliver on his oft-repeated promise to retire?

Ryanair flew 73.5 million passengers during the 12 months to March, 11 per cent up on the previous year. This was a little more than half of the 20 per cent annual passenger growth that Ryanair regularly made in previous years. And the airline predicts passenger numbers up just 4 per cent this year and 5 per cent for the year to March 2013.

Slower growth at Ryanair is probably good news for investors. Breakneck expansion in passenger numbers is highly capital-intensive, while the need to fill all those new planes meant fares were constantly being marked down.

Not any more. The average Ryanair fare rose by 12 per cent last year to €39. It also managed to increase its load factor from 82 to 83 per cent. In other words, despite the higher fares, it had fewer empty seats. Lower passenger growth in the years to come means that there will be scope for further fare increases.

Slower growth will also reduce capital expenditure on new aircraft. While Ryanair got 40 aircraft last year, this year it will take delivery of 22 new aircraft and only five next year.

With one of the youngest fleets in the industry, the slowdown in passenger growth means that Ryanair will be in a position to return huge dividends.

The company has already paid out €846m to shareholders over the past three years. However, O'Leary still obstinately refuses to countenance regular dividends.

While such a stance was tenable during the go-go years as O'Leary could argue that the airline could put the cash to better use than its shareholders, with Ryanair now rapidly morphing into a "normal" company, his opposition to twice-yearly dividends is much harder to justify.

O'Leary has been publicly contemplating retirement since at least 2007, so maybe it will be his successor who will finally bite the dividend bullet.

In the meantime, with Merrion predicting operating (pre-interest) profits of €524m this year and €561m next year and the current share price valuing it at €5.2bn, Ryanair shares are starting to look like good value.

Sunday Indo Business