Reduced Q3 loss for Ryanair

A Ryanair machine in flight

In a press release issued today, Ryanair announced a slightly reduced Q3 loss of €10m (down from a Q.3 loss of €11m last year).  Total revenues grew by 22% to €746m, as traffic increased 6% to 17m and average fares rose by 15%.  Unit costs increased by a similar 15% due to a 14% increase in flight hours, as average sector length rose by 7%.  Excluding fuel (which is up 37%), unit costs rose by 8%.

The unabridged press release in full:

Summary Table of Results (IFRS) – in euro

Q3 Results

Dec 31, 2009 Dec 31, 2010 % Change
Passengers 16.0m 17.0m +6%
Revenue €612m €746m +22%
Adjusted Profit/(Loss) after Tax (€10.9m) (€10.3m) +6%
Adjusted Basic EPS(euro cent) (0.74) (0.69) +7%

Announcing these results Ryanair’s CEO, Michael O’Leary, said:

“This small Q.3 loss of €10m is disappointing, as we were on track to break even, but earnings were hit by a series of ATC strikes/walkouts in Q.3, compounded by a spate of bad weather airport closures in December.  The scale of these disruptions is evident by the fact that we cancelled over 3,000 flights in Q.3, compared to over 1,400 cancellations during the previous fiscal year.

With constrained capacity growth, we delivered impressive scheduled revenue growth, with traffic up 6% and average fares rising 15%.  On top of this ancillary revenues grew by 20%, considerably ahead of our 6% traffic growth.  It would appear that the shorthaul fuel surcharges imposed by many of Europe’s flag carriers, allied to the high and rising fares charged by some of our not so low fare competitors, is creating opportunities for Ryanair to grow, even during the Winter period, at slightly higher fares.

Unit costs increased by 15% in the quarter due to a 14% increase in flight hours, (as average sector length rose by 7%), a 37% increase in our fuel bill, and the impact on ownership costs  of sitting up to 40 aircraft on the ground during the Winter months.  Despite a 14% increase in flight hours during the quarter we delivered strong performance on costs as staff costs rose by 9%, and airport and handling charges increased by 6%.  Ryanair’s relentless focus on costs will continue.

Although oil prices have risen significantly in recent months, Ryanair continues to benefit from a favourable fuel hedging strategy.  While current spot prices are approx. $890 per tonne, we are 90% hedged for Q.4 FY’11 at $750 per tonne, and 80% hedged for FY’12, at an average price of $800 per tonne.  We have also hedged 70% of our dollar requirements for FY’12 at an average rate of €/$1.34 compared to €/$ 1.40 for FY’11.

We are surprised that the widespread negative commentary on the Irish economy has been allowed to cloud some analysis of Ryanair’s future growth and profitability.  Some commentators misunderstand that over recent years, due to high airport costs at Shannon and Dublin, as well as rapid capacity growth in lower cost markets like Spain and Italy, Ireland has fallen from over 20% of Ryanair’s originating traffic to less than 10% in the current year.

Ryanair has little exposure to the Irish economy.  We do believe that Irish tourism is now ripe for growth given the increased competitiveness of Irish hotels, guest houses, restaurants and golf clubs, but this potential will not be realised until the Government travel tax is abolished and the high cost DAA airport monopoly is broken up and replaced with competing terminals and airports.  We hope the incoming Irish Government will work with Ryanair to exploit the potential for tourism and job growth by returning to the low cost access policy which drove Ireland’s tourism growth in the 1990’s.

The extraordinary scale of ATC and weather cancellations during the third quarter brings renewed focus on the unfair and discriminatory EU261 regulations.  Urgent reform of these regulations is vital.  It is inequitable to force airlines to pay for right to care or compensation in circumstances where widespread flight cancellations are caused by ATC strikes, or by airports failure to keep their runways open during periods of adverse weather.  It is inequitable that airports enjoy a boost to their restaurant and retail revenues from stranded passengers when their runways close, yet the airlines are obliged to pay for meals, drinks and hotels, when these cancellations are outside of our control.  It is discriminatory that the EU regulations for competing train, ferry and coach operators, exonerate these transport providers from liability during force majeure cases, yet they oblige airlines to pay these right to care costs in similar circumstances.  Airlines should not be liable for cancellations and delays that are outside of their control.  We believe the EU261 regulations are unlawful and we look forward to challenging these unfair and discriminatory regulations in the European courts.

Our outlook for Q.4 and the remainder of FY.11 remains largely unchanged.  Easter does not fall in the current Q.4, which makes the comparatives challenging.  We expect traffic and average fares to continue to benefit from a better mix of new routes and bases, and competitor fuel surcharges (which in many cases exceed Ryanair’s lowest fares).  We expect our unit cost performance in Q.4 to be marginally better thanks to the launch of new routes in Feb and March which will reduce the number of grounded aircraft by comparison with Q.3.  Accordingly, we are now confident that our Q.4 and full year results will be towards the upper end of our previously guided range of a Net Profit after tax of between €380m to €400m after tax”.