Warning for Aussie low cost carriers?

A report in Airline Travel News says that while Ryanair has posted a 33 percent jump in annual net profits, pushed up by higher ticket prices, profit growth is predicted to slow as higher UK interest rates prompt travellers to seek cheaper deals.

Ryanair shares fell more than seven percent as a warning to investors for the year ahead., with Ryanair, Europe’s biggest low fares airline, releasing record net profits of €401m, a 33% increase over the prior year figure and €11m ahead of previous guidance.

Ryanair’s traffic grew by 22% to 42.5m, yields rose 7%, as revenues grew by 32% to €2.24bn, but unit costs increased by 9% mainly due to a 50% increase in fuel costs.

Despite this significantly higher fuel bill, Ryanair maintained an industry leading after tax margin of 18%.

Ryanair’s CEO Michael O’Leary said:

“These record profits and the strong growth in traffic, yields and revenues during a period of much higher oil prices and intense competition is a tribute to the strength of Ryanair’s lowest fare model.”

The highlights of the past year include:

Profit growth of 33% to 401m euros- Up 100m euros on last year.

Traffic growth of 22% to 42.5m.

Purchase of 30 new aircraft, bringing the fleet to 133 units at year end. Opening 153 new routes (including 3 new bases at Marseille, Madrid and Bremen).

Fuel costs increased by 50% to 693m euros.

Industry leading customer service and No.1 for pricing and punctuality.

Widened the price gap between Ryanair and our competitors.

Purchased 25.2% of Aer Lingus plc.

Strengthened the balance sheet with year end cash of 2.2bn euros.

“The unusual feature of these results was the 7% rise in average fares, despite the 22% growth in traffic.”  “This increase was largely driven by competitor fare increases and competitor fuel surcharges, as well as our checked baggage fees which are designed to encourage passengers to travel with carry-on luggage only.”

“Ancillary Revenues grew by 40% thanks to a better passenger spend, increased penetration, and the growth of excess baggage revenues.“

“Due primarily to a 50% increase in fuel costs, unit costs rose by 9%.“

“Forward bookings and yields continue to be soft and Ryanair continues to respond with aggressive price promotions including a current offer of £20 off all return fares on all flights.”

“As has always been the case, Ryanair will lead and win every fare war in Europe, because Ryanair has the lowest costs and the lowest fares.”

“Ryanair has recently extended this price war by launching a unique “lowest price” guarantee.”

“Subject to the terms and conditions of this programme, Ryanair will refund double the difference to any passenger who can find a lower fare from any competitor airline on any Ryanair route.” [So this is where Jetstar got the idea – surprise, surprise!]

“Thus far we have paid remarkably few claims, simply because no other airline can match Ryanair’s low fares.”

“As we indicated at the release of our April traffic statistics, we have recently noticed a softening of market conditions which has been reflected in lower load factors and yields.”

“Whilst we remain confident that traffic over the coming year will grow by 22% to over 52 million passengers, we believe that if trading conditions continue to be soft, then yields will fall by up to 5% compared to last year’s figure.”

“At this time with no visibility of Winter bookings and yields, we believe that the Company and our shareholders should remain cautious and conservative.”

“We expect the seasonality established over recent years to continue and the vast majority of our annual profits will be generated in the first half of the fiscal year, with a consequent reduction in profitability and maybe even small losses being recorded during quarters 3 and 4.”

“We will continue to aggressively stimulate traffic growth by promoting Ryanair’s lowest fare guarantee in every market.  If market conditions continue to be soft, as is presently the case, then this ambitious traffic growth can only be delivered by discounting fares and reducing yields.”

“This remains an extremely volatile and cyclical business, but over time the price leaders such as Southwest in the U.S. and Ryanair in Europe have repeatedly demonstrated that during periods of adverse trading conditions, the lowest fare and lowest cost carrier makes the greatest gains.”

“Ryanair will continue to offer the lowest fares and the lowest costs in every market we operate to the benefit of our passengers, our people and our shareholders.”

Report by The Mole from Airline Travel News