Profits Down 21% For Budget Airline Ryanair Holdings Plc

Low-cost airline Ryanair (LSE: RYA), today announced that its first-quarter profits fell (as previously guided) 21% to €78 million as traffic grew 3% to 23.2m.

Average fares fell 4%, the company reported, citing the timing of Easter and the impact of the French ATC strikes in June. But revenue per passenger was up 1% due to strong ancillary growth — although a 6% increase in fuel costs also bumped up Ryanair’s unit costs (ie, what it costs them per passenger).

Q1 Results € June 30, 2012 June 30, 2013 % Change
Passengers 22.5m 23.2m +3%
Revenue €1,284m €1,342m +5%
Profit after Tax €99m €78m -21%
Basic EPS(euro cent) 6.86 5.42 -21%

Ryanair’s chief executive, Michael O’Leary, commented:

“As previously guided, higher fuel costs and the timing of Easter led to Q1 profits falling €21m to €78m.  Ancillary revenues grew by 25% to €357m (27% of total revenues) driven by the successful development of reserved seating, priority boarding, and higher admincredit card fees. 

“Our seven new bases Eindhoven and Maastricht (Holland), Krakow (Poland), Zadar (Croatia), Chania (Greece), Marrakesh and Fez (Morocco) are performing well.  We plan to announce more new routes and new bases later this year as we exploit significant growth opportunities in markets where competitors including Air Berlin, Alitalia, Iberia, LOT, and SAS are cutting back.”

Ryanair says it expects second-quarter yields to rise despite last year’s challenging (post-Olympic) comparables, although yields on summer bookings have been slightly weaker in recent weeks; the company says it believes this is due to the heat wave in Northern Europe.

The carrier affirmed its full-year profit guidance of between €570 million and €600 million, as well as a 3% increase in traffic as 81.5 million people take flight. It stated its outlook remains cautious as market conditions are tough with recession, austerity, high fuel costs, and excessive Government taxes (most recently in Belgium) impacting air travel demand and yields.

Shareholders recently have approved Ryanair’s order for 175 Boeing 737-800 aircraft for delivery between Sept 2014 and Dec 2018. This has allowed Ryanair to raise its growth targets, it says, by 38% to 110 million passengers by FY19 and boost its fleet to 410.

A quick look at the balance sheet shows gross cash of €3.6 billion and net cash of €191 million, (despite another recent €177 million share buyback), at the end of the first quarter. This strong cash position enabled Ryanair to announce plans to return up to €1 billion to shareholders over the next two years — at least €400 million of which is due to come via share buybacks this year, and up to a further €600 million in special dividends or share buybacks next year, subject to current fuel, yields and profitability trends continuing, Ryanair reported.

Shareholders will no doubt be keeping an eye on Ryanair’s ability to turn a profit in an industry that’s notorious for high costs and low margins.

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> Jill does not own shares in any company mentioned.