It looks as though Ryanair is winning the war in the sky...
Wednesday saw trading updates from bitter rivals British Airways (LSE: BAY) and Ryanair (LSE: RYA).
The world's favourite airline?
First, the Irish airline, which cheekily refers to itself as "The world's favourite airline", pinching BA's motto first used in 1989.
Last week Ryanair raised its full-year profit guidance to at least €310 million after tax, up €35 million from previous guidance of €275 million. This was "as a result of...stronger than expected passenger bookings...during late February and March in the run-up to the Easter holiday weekend."
Of course, this is a dig aimed squarely at British Airways, as BA had to endure two strikes by cabin crew during this period, from 20 to 22 March and 27 to 30 March. Ryanair's belligerent boss, Michael O'Leary, never misses an opportunity to kick BA when it's down. Indeed, barely a week goes by without some kind of missive from this 'serial RNS releaser'. On that note, Ryanair releases its full-year results on Tuesday, 1 June 2010.
Ryanair up, BA down in March
Ryanair has also released its March passenger statistics. It flew 5.3 million passengers last month, versus 4.7 million in March 2009, for a year-on-year increase of 13%. In the 12 months to 31 March, Ryanair flew 66.5 million passengers, making it the world's largest international scheduled airline.
The picture was much less rosy at British Airways. Its Revenue Passenger Kilometres were down 11.4% on March 2009.
Passenger capacity, measured in Available Seat Kilometres, was down 13.7%. Premium traffic slipped by 7.2% and non-premium traffic nose-dived by 12.2%. Cargo rose, however, by 6.4%. Without the impact of the strikes, BA would have recorded a modest year-on-year improvement in traffic volume.
£1 to spend a penny
Despite rapidly recovering profits, Ryanair is a long way from being popular in the eyes of some passengers.
In its latest effort to be the ultimate no-frills airline, Ryanair is raising luggage charges before the summer surge in passengers. Its charge for checked-in bags is to rise from £15 to £20 during July and August, but will revert to £15 in September. Ryanair claims that seven in ten of its passengers do not check in baggage and so will be unaffected by this two-month price hike.
Incredibly, the Daily Mail reports that passengers will have to pay to use on-board toilets, with some sources saying it will initially apply for flights of less than an hour in length. The toilets will be coin-operated, requiring a £1 or €1 coin. Also, Ryanair is cutting the number of lavatories, which could mean one loo for a plane carrying 189 passengers.
By removing two out of three toilets, Ryanair reckons it can install at least six extra seats. So life imitates art, as this move was once suggested by Ryanair's critics as bold satire.
Battered Airways
Despite being our flag carrier, BA hasn't had much good press of late. The rising price of crude oil reduced airline profits, helping BA to lose £50 million in the final quarter of 2009. Seven days of strikes are sure to have hit its profits in March, despite this upbeat profit outlook released on 29 March.
In total, these two strikes lopped as much as £45 million from BA's profits. Also, BA has two big staffing issues which simply won't go away:
- First, its now-closed final-salary pension scheme is massively under-funded. Indeed, BA's pension deficit hit £3.7 billion in 2009, almost £1 billion more than BA's current market cap of £2.8 billion. Indeed, BA's pension deficit is proving a sticking point in its proposed merger with Spanish carrier Iberia. (Editor's note - BA has since announced preliminary terms of its planned merger with Iberia, forming a new company called International Airlines)
- Second, BA's cabin crew are the most highly paid in the UK: reportedly, they are paid twice as much as their opposite numbers at Virgin Atlantic. BA is determined to tackle this overhead -- hence the two strikes by cabin crew last month. BA struck back by removing strikers' valuable travel benefits, which include one free flight a year and a 90% discount on other BA flights.
Alas, BA's executives then proceeded to shoot themselves in the foot once again. On 25 March, BA awarded seven executives a package of share options worth £3 million. These options will vest in 2013 if BA meets certain performance targets. Not the greatest PR move you might say...
Flights of fancy
There is no love lost between these two airlines, but Ryanair clearly has the upper hand in the profitability war. What's more, BA's legacy problems hand Ryanair plenty of ammo for its PR attacks.
Nevertheless, like my Foolish colleague Alan Oscroft, I wouldn't buy shares in BA or Ryanair. In You'd Be Mad To Buy These Shares, Alan warned that this business model is inherently risky, as airlines are highly sensitive to a rising oil price and can only differentiate by competing on fares. Indeed, dozens of airlines have collapsed in recent years, making this sector a graveyard for investors.
More from Cliff D'Arcy:
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