Ryanair reports increase in half year profit

Eleanor Steed
By Eleanor Steed November 1, 2017 10:50

Ryanair reports increase in half year profit

Ryanair has reported an 11% increase in H1 profit to €1.29bn. Traffic grew 11% to 72m thanks to a strong Easter and a 5% reduction in airfares saving customers over €160m in the half year. Unit costs (including fuel savings) fell 5%, ex-fuel unit costs were flat.

“These strong H1 results reinforce the robust nature of Ryanair’s low fare, pan-European growth model even during a period which suffered a material failure in our pilot rostering function in early September,” said Ryanair’s Michael O’Leary. “Prior to this event, we were on track to deliver strong H1 results during which we opened 3 new bases and 80 new routes. We took delivery of 35 new B737’s in the first 6 months of 2017, we stimulated 11% traffic growth with 5% lower airfares, and achieved an industry record load factor of 97% in the peak summer months.”

Ancillary Revenue grew 14%. Customer spend rose 2% as more customers chose optional services such as reserved seats, priority boarding and car hire. H1 unit costs fell 5%, excluding fuel it was flat (but would have fallen 2% without the EU261 provision). Despite traffic growth of 11% our fuel bill fell 3%. Most other cost headings were broadly flat on a per passenger basis, other than our “Sales, Marketing & Other” which jumped 30% due to a one-off €25m EU261 provision, as Ryanair addressed the needs of affected customers in September to recover the rostering failure, and eliminate any risk of further cancellations.

Operating activity in H1 generated over €935m of net cash, which was used for net capex of €675m, share buybacks of €639m, and debt repayments of €200m. Accordingly, net debt rose from €244m at 31 March to €600m at 30 September.

Ryanair said that it was responding to the loss of Monarch, Air Berlin and Alitalia by continuing to grow in Germany and add more aircraft to its UKP bases for Summer 18 to take up any slack created by Monarch’s collapse, and to grow in Italy where the airline believes it is poised to be the main beneficiary of the inevitable contraction in Alitalia’s short haul services. “These trends, particularly where they allow high fare airlines like Lufthansa, BA and Air France to acquire local competitors, while constraining capacity and raising prices, can only be good for Ryanair’s yield and traffic growth, as our fleet rises to 600 aircraft, and our traffic grows from 129m to 200m p.a. by 2024,” said O’Leary.

Ryanair remains concerned at the continuing uncertainty surrounding the terms of the UK’s departure from the EU in March 2019. “There remains a worrying risk of a serious disruption to UK-EU flights in April 2019 unless a timely UK-EU bilateral is agreed in advance of September 2018. We, like other airlines, need clarity on this issue before we publish our summer 2019 schedules in mid-2018 and time is running short for the UK to develop a bilateral solution.”

O’Leary again took the opportunity to again apologise for the material failure in the management of its pilot rostering function in September. “We are not short of crews, with over 4,200 pilots (5.2 crews per aircraft) and have hired over 900 new pilots this year to date. We operated the peak summer schedule in July & August (12.5m customers monthly) without incident. However, as we entered September, a series of poor planning decisions created a perfect storm of one-off pilot shortages,” said O’Leary.

This rostering failure forced the airline to assess the competitiveness of pilot pay, as well as pilot concerns about communications, career progression and basing. “While our pay was already slightly higher than B737 competitor airlines, we could have responded sooner to a tightening market for experienced F.O’s with pay increases for our experienced pilots, reinforcing our long standing and successful ERC collective bargaining process, and improving the range and choice of bases and contracts we offer our pilots. We will now move from being “competitive” to offering materially higher (over 20%) pay with better career prospects, superior rosters, and much better job security than Norwegian, among others, can offer. We expect these measures, if/when accepted by all our pilot bases, will add some €45m to our FY18 crew costs (and up to €100m in a full year) but will not significantly alter the substantial unit cost advantage we have over all other EU airline competitors.”

For the coming year, Ryanair expects slower growth in the second half of the year to approx. 4% traffic growth. As a result, full year traffic will slow from 131m to 129m customers.  “We are 2% better booked than this time last year, but at lower fares. We now expect FY18 fares will fall by -4% to -6%, which is slightly better than previous guidance (-5% to -7%).  Ancillary spend per customer should rise by 1% this year.”

Ryanair has kept its full year PAT guidance in a range of €1.40bn to €1.45bn.

Eleanor Steed
By Eleanor Steed November 1, 2017 10:50