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MARKET COMMENT
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Ryanair (LSE: RYA) goes where others fear to tread. Europe's biggest airline by market capitalisation serves the low-cost market through relatively unknown airports in the continent. It recently announced plans for its fourth continental base at Stockholm Skavsta airport. Its decision to concentrate on secondary landing fields in Europe has allowed it to sidestep higher airport charges. This in turn helps it to maintain its low-cost operating base. The airline's decision to keep fares unthinkably low has resonated well with European passengers. That was reflected in today's third-quarter figures. Net profit in the quarter jumped 50% to €43m on sales that rose 37% to €186m. The load factor, a measure of the percentage of seats filled, also improved. It is now up to 86% from 79% last year. Additionally the number of customers ballooned some 46% to 3.9m passengers. Ryanair sceptics have been forced to eat their words, as the no-frills operator goes from strength to strength. The airline's striking performance has been driven principally through efficiency improvements. Every pound (or euro) of the company's assets is made to work that much harder at boosting turnover. Higher revenues allow the company to invest in more efficient aircraft enabling it to reduce ticket prices, which in turn drive higher sales, and so on. So the virtuous circle of lower prices, higher sales and increased profits continues, seemingly unabated. Fans of Ryanair maintain that the low-cost airline market in mainland Europe still has plenty of room to grow. However, growth normally comes at a price and a fair degree of risk. Growth in the nine months to December was achieved at the expense of cash outflow to the tune of €11m. Capital expenditure on new aircraft zapped some €270m of the company's €260m cash inflow from operating activities. To maintain growth Ryanair will need to continue seeking out new routes to new secondary airports. That means even more aircraft and more investment. Ryanair has more than €1b in the bank to finance its expansion should it want, so money is no object. Michael O'Leary today said, "fortune favours the brave" in connection with the company's purchase of rival Buzz. That is perhaps a piece of advice that those thinking of investing in Ryanair should also heed. On a forward price to earnings valuation of 24, the shares are not that cheap, unless the company continues to deliver exceptional growth.